practicePRO Resource: Managing the Practice of Investing in Clients booklet
The practice of lawyers investing in clients’ businesses is current and growing. Historically, this type of business transaction found some application in the real estate and mining industries. Inevitably, tha practice resulted from time to time in claims against lawyers.
Today, we see the practice being undertaken in the high tech sector whose fast pace and meteoric growth are its trademarks. The high tech industry figures prominently in California, Texas, North Carolina, and northern Virginia, and in Ontario. So that is where we find lawyers taking equity positions in their clients’ businesses. And from here come stories about the astounding success of some of the high tech players and those who have invested in them.
Past experience with this type of activity has taught us that this practice raises significant issues which need to be managed. LAWPRO believes it is vital that all lawyers understand when and why the practice is being undertaken in our jurisdiction, and how to approach it if the opportunity arises in one of your client relationships.
Managing the Practice of Investing in Clients booklet provides an overview of the key issues to consider before engaging in the practice of investing in clients. In the booklet you will find:
- a clarification separating fact from fiction;
- an overview of typical situations in which an equity position is taken;
- the arguments “for” and “against” taking an equity position;
- a discussion of the risks involved;
- a review of why the activity is defined by the Rules of Professional Conduct as a conflict of interest;
- a framework for a policy on how to manage the practice effectively in the event that you or your law firm have deemed it appropriate to invest in one of your clients.