Litigation financing is a transaction in which a third party provides the financial resources to initiate a lawsuit.

Litigation funding …. Litigation finance ..… Legal finance ……Third-party Funding … Dispute finance … while there are many more alias or labels for this industry, the premise behind the name is one and the same. Litigation funding provides capital to claimants, law firms, or businesses collateralized solely by the future proceeds of their meritorious cases and legal claims. It provides ways to help make law firms and the legal system more accessible on a broader scale.

Funding may come in many forms (legal fees and expenses, monetization or advance of entitlement, single matter or portfolio) and does not impact control, which remains with the claimant. Typically, the capital provided by funders is on non-recourse basis, not a debt. Meaning the investment and return are paid only on a successful resolution of the case.

The litigant obtains funding to cover the costs of litigation from a third party funder who has no direct interest in the case. In return, but only if the case is won, the lender receives an agreed-upon share of the proceeds of the claim. If the case is unsuccessful, the funder receives no compensation and nothing is owed by the litigant.

litigation funding is suitable not only for smaller companies that need money to conduct their litigation, but also for large companies with sufficient resources, as it is a way to finance the cost of litigation.

External funding of lawsuits is now a familiar phenomenon. This form of financing originated in Australia more than 30 years ago and is now well established in the United Kingdom and the United States. And growing in the other European countries and in the Middle East.

Outsourcing claims can be useful, even for large companies with their own legal departments and significant financial resources. By outsourcing its claims for a certain amount of money to a specialized outside funder, a company can stay focused on its core business and does not have to release its own funds for litigation.

Litigation costs are among the operating expenses that are directly charged to earnings in the P&L. But unfortunately, when the case is won, the proceeds are not part of regular income. For accounting purposes, this income is not considered to contribute to profits. By funding a lawsuit rather than paying for it yourself, the costs can be taken off the balance sheet.

The funder’s share of the proceeds of a successful case is agreed with the client in advance. This financial reward may be a percentage of the claim won, or a multiple of the amount funded or a combination of both.