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socrateaser
socrateaser, Lawyer
Category: Legal
Satisfied Customers: 37960
Experience:  Retired (mostly)
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I have a few questions regarding equity for services exchanges.

Customer Question

I have a few questions regarding equity for services exchanges. The theoretical scenario is as follows: Through a website or in person, 2 individuals are put into contact by me, acting as a broker. They create an agreement that, for example, one of them
will provide intellectual property (patent writing) to the other for a 10% equity exchange. This can be one of several services- full time accounting and payroll, product development, etc. For my services of arranging the services, my broker fees are 10% in
perpetuity of the profit that arises from that exchange (ex: company makes $100,000.00 each year and gives $10,000.00 to the IP lawyer; I would then get $1,000.00). Question 1: Is this exchange legal? May I procure this type of exchange legally per SEC regulations,
etc. Question 2: Would I break any regulations by offering this service publicly? For example, promoting an equity for services exchange online on a social media network or at a conference? Question 3: What is the best legal framework to ensure that I continue
receiving payments associated with this exchange? Will a contract with the service provider suffice? Does an agreement with the purchaser (service receiver) indicating that non-solicitation external to my services between he/she and the service provider are
forbidden? What other contractual agreements may be required? Question 4: How does an equity for services agreement usually get built into a company? Is a new operating agreement created where the service provider gets common stock based on milestones? Is
there any standardized way of doing this?
Submitted: 3 years ago.
Category: Legal
Expert:  socrateaser replied 3 years ago.

Hello, You asked: Question 1: Is this exchange legal? May I procure this type of exchange legally per SEC regulations, etc. A: If you are brokering services for a government-licensed Expert (e.g., doctor, lawyer, accountant, etc.), then your exchange is illegal, because you are splitting fees with the Expert, and that means you are practicing the profession without a license. If you are marketing advertising space, that is legal. Or, if you are brokering services for individuals who are not government licensed, then that is also legal. Example: If your contract permits Experts to advertise their services for barter on your website, in exchange for a fixed fee, or even for a fee based upon the number of contacts by potential clients, that is legal. But, if you are dividing the fee for the underlying service, then that is practicing the profession. Question 2: Would I break any regulations by offering this service publicly? A: Yes. See #1, above. For example, promoting an equity for services exchange online on a social media network or at a conference? A: Yes. See #1, above. Question 3: What is the best legal framework to ensure that I continue receiving payments associated with this exchange? A: This question is too broad for meaningful comment. The possibilities for a website terms of service are endless. Will a contract with the service provider suffice? A: I believe that such a contract would be sufficient. But, since you are creating a new business model, the typical contract is one that is exposed on the website and is modified regularly, as the website owner gains experience in the real world about what contract terms are necessary. Does an agreement with the purchaser (service receiver) indicating that non-solicitation external to my services between he/she and the service provider are forbidden? What other contractual agreements may be required? A: This would probably violate the Sherman Antitrust Act, because it operates as a blanket restraint of trade. Moreover, in the legal profession, a lawyer is prohibited from allowing third parties to affect the lawyer's Expert judgment -- which includes determining which clients to accept and/or refuse. Your proposed contract provision would effectively prevent any attorney from using your service. Question 4: How does an equity for services agreement usually get built into a company? Is a new operating agreement created where the service provider gets common stock based on milestones? Is there any standardized way of doing this? A: Equity for service (barter agreements) are extremely rare. There are no standards. Note: I appreciate your creativity. But, the law strictly controls the obligations of licensed Experts. So, you may have to limit your business model to services which do not require a government license -- or try to create a business model that does not link the service provider's fees to your profits. The model must link only the service provider's marketing to your providing a marketing opportunity. Hope this helps.

Customer: replied 3 years ago.
Very helpful. Some additional follow up:You said: If you are marketing advertising space, that is legal. Or, if you are brokering services for individuals who are not government licensed, then that is also legal.How do physician headhunters work then? Aren't they providing services via physician to companies for a typical 30% of first year salary for physician? Is this different because they are charging the client directly? If a physician for example is engaging a company for a barter agreement and they are not obtaining cash (only an equity stake), if they pay out a dividend every year from their share to compensate me, that would be considered "splitting money for a service I am not licensed to partake in"? Can you clarify a bit?Thanks again.
Expert:  socrateaser replied 3 years ago.
How do physician headhunters work then? Aren't they providing services via physician to companies for a typical 30% of first year salary for physician? Is this different because they are charging the client directly?
A: Exactly correct. The staffing service is not splitting fees for physician services to a patient. The staffing service is being paid for find a physician by the employer. The patient's charges and/or services are irrelevant. This is the same with a lawyer or accountant hired through a staffing service.
If a physician for example is engaging a company for a barter agreement and they are not obtaining cash (only an equity stake), if they pay out a dividend every year from their share to compensate me, that would be considered "splitting money for a service I am not licensed to partake in"? Can you clarify a bit?
A: You're into murky waters. The question is: equity stake in "what?" If it's equity in the physician's business, then that makes you a co-owner and that means your practicing medicine without a license. If the physician is paying you an equity stake in the physician's home, then that's just a substitute for money, and it's not practicing medicine -- but it still must be tied to marketing, and not to any percentage based on patient services.
Hope this helps.

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