I was talking with a friend the other day, and remembered I had learned this lesson a while back, but don't think I had ever blogged it.
In Silicon Valley, when I was coming up, it was common practice to pay everyone you could with stock. They were go-go times, like now, but we weren't raising the kind of money people raise now. Vendors wanted to participate in the boom, so often you could work out deals for stock from people who printed your packaging, or did contract work. I'm still okay with that, however, not for lawyers.
In a way it's counter-intuitive. Why wouldn't you want your lawyer to be incentivized for your success?
The answer is, sure it's great -- when incentives are what it's about. But maybe the company won't be the shooting rocket everyone thinks? Maybe there are tough times ahead? Could happen. And then you'll have one shareholder with a huge advantage over everyone else. He or she will have set up the company. If there's any kind of shareholder action, the lawyer is going to have a big advantage over everyone else.
So pay your lawyer in cash, not stock. Keep them on your side. Everyone will be happier.