Can Crowdfunding be Used to Finance a Law Firm?


Maybe, according to a recent New York State Bar Association ethics advisory opinion. See N.Y. State Bar Assoc. Cmte. on Prof’l Ethics, Op. 1062 (Jun. 29, 2015). “Crowdfunding” involves raising money through the Internet in the form of small donations from many contributors. While disciplinary standards permit some models of crowdfunding, they prohibit others.

  • Royalty and Equity Models. These models give the contributor some ownership interest in the firm or some right to a portion of the firm’s legal fees. According to the committee: “The royalty model contemplates the investor receiving a percentage of revenues, and would therefore violate Rule 5.4(a) (“A lawyer shall not share legal fees with a nonlawyer”). Similarly, the equity model violates Rule 5.4(d) (lawyer shall not practice law in a for-profit entity if a non-lawyer owns any interest therein.).” This advice holds true under Louisiana Rule 5.4.
  • Reward Model. This model gives the contributor some reward, such as an informational pamphlet or pro bono services provided by the firm to a charitable organization. The committee found no per se prohibition with this model: “[A] law firm may send a funder non-confidential memoranda discussing legal issues (provided the law firm complies with any applicable advertising rules), or may agree that the law firm will provide pro bono legal services to certain charitable organizations, provided that the lawyer complies with Rule 1.1 regarding competence and the representation does not involve conflicts in violation of Rule 1.7 or Rule 1.9.” This advice is likewise good under the Louisiana Rules.
  • Donation Model. This model gives the contributor nothing—just the ability to contribute gratuitously to the firm. Said the committee, “we see no ethical issues with the donation model, as long as the lawyers make clear that donors will receive nothing in return and that the law firm is designed to be a profit-making enterprise.” This is also true under the Louisiana Rules.
  • Lending Model. This model gives the contributor the right to repayment of the contribution. The committee offered no opinion on this model because it “would only increase debt and therefore would not meet the law firm’s goal.” However, neither New York nor Louisiana disciplinary standards would prohibit a lawyer from borrowing money from a lender who has no control over firm operations.
Please follow and like us: