While all businesses are unique in their legal needs and the costs associated with those legal needs, there is no way around certain legal costs of starting a business. There are however ways to control those costs. With hourly rates ranging from $50 – $1200 per hour in the United States, hiring an attorney or law firm can be a daunting task, especially if you haven’t done so before. The tips below are meant to help you find the right attorney or firm at the right price for your business in the United States.
- Determine your immediate legal needs.Your legal needs in starting and running a business may be never ending, however, in the early days it is important to prioritize your legal needs. Some of the priorities that should be addressed early on are:
- Establish and register your business entity. This is most important because it can protect you personally.
- Establish ownership and equity rights in the company if there are multiple founders or you are giving equity to another person, i.e., an early employee, your attorney, etc.
- Protect your intellectual property. You may need to apply for a trademark or patent, which will likely need to be done as soon as you determine your need to do so.
- Ensure you are compliant with any tax obligations.
- Know and understand your employment obligations as soon as you make your first hire.
- Work with an attorney or law firm that has startup legal packages.
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- Pay for a ‘startup package’ at a law firm.Many startup friendly and startup experienced law firms today offer ‘startup legal packages.’ You will typically pay a flat rate for a startup package (usually applicable state filing fees are an additional cost), which generally includes legal advice on the appropriate entity for your company with unlimited phone calls and emails and document preparation and filing. Even if you think you can handle the registration documents and filing, a startup package might be worth it just for the legal advice alone.
For many businesses a Delaware C corp is the appropriate choice, but there are other entity types that are a better fit for some companies. An attorney can also advise you on 83(b) elections (a way to be taxed on your equity, such as shares of restricted stock, on the date the equity was granted rather than on the date the equity vests, which is meant to save you a lot in taxes down the road), the appropriate number of shares at the right value, and setting enough shares aside for future hires and to be given as employee rewards, things even a non business attorney would have a hard time understanding.
Startup packages often offer much more than just company registration. You will find packages that also create other necessary business documents, including hiring agreements, confidentiality agreements, stock option grants, vendor agreements, etc.
- Pay for a ‘startup package’ at a law firm.Many startup friendly and startup experienced law firms today offer ‘startup legal packages.’ You will typically pay a flat rate for a startup package (usually applicable state filing fees are an additional cost), which generally includes legal advice on the appropriate entity for your company with unlimited phone calls and emails and document preparation and filing. Even if you think you can handle the registration documents and filing, a startup package might be worth it just for the legal advice alone.
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- Hire an attorney or law firm that will work under an alternative fee arrangement.While some attorneys and law firms will only work on an hourly rate basis, there are others that are willing to work with clients to explore alternative fee arrangements. Alternative fee arrangements options include: fixed fees, payment in equity, and even deferred payment arrangements. Attorneys and firms that routinely work with startups will be familiar with and ready to work under an alternative fee arrangement.
Some attorneys and firms are already working under fixed fee arrangements for a variety of legal services. These services range from drafting or reviewing an employment contract to filing a trademark or registering a business. If you and your attorney already have an established relationship of trust, you might consider equity as a form of payment. If you decide to offer equity for legal services, make sure you completely understand your agreement, you can be sure your attorney will.
If you decide to work with an attorney or firm on an hourly rate basis, you can still limit or control your legal costs. You and your attorney can reach an agreement on how much time will be spent on a specific project and how and under what circumstances this time agreement can be extended. You should also determine and be in agreement about the right experience level (seniority) necessary to handle your particular matter. You don’t want to pay senior attorney rates for a draft of a contract, but you also don’t want a first year associate negotiating your complicated M&A deal.
Sometimes paying a higher hourly rate for a more experienced attorney can save you more money than hiring a less experienced attorney who spends more time researching and learning how to handle your legal needs. This is why it is important to consider your specific legal needs and budget and hire the most appropriate attorney or firm for your business.
- Hire an attorney or law firm that will work under an alternative fee arrangement.While some attorneys and law firms will only work on an hourly rate basis, there are others that are willing to work with clients to explore alternative fee arrangements. Alternative fee arrangements options include: fixed fees, payment in equity, and even deferred payment arrangements. Attorneys and firms that routinely work with startups will be familiar with and ready to work under an alternative fee arrangement.
- Educate yourself enough to draft your own documents.In the age of the Internet it is easier than ever to find and learn about any topic you choose. As the founder, you would be doing your company a huge disservice by failing to become at least minimally legally competent. It is wise to figure out what you don’t know, and to understand when you should hire an expert. A quick Google search might be enough, as long as you ensure your information is coming from a reputable source. Most law firms have great blogs that touch on different legal topics. The U.S. Small Business Administration has great business resources, such as how to guides on starting and running a business, and a learning center with courses on a variety of business topics.
This can save you money in at least two ways: you can draft your documents and pay an attorney much less to simply review your documents or you can find a template online and alter it to fit your business needs.
Some attorneys and firms are willing to review documents you drafted yourself and will do so at a slightly lower cost than drafting the document(s) for you. In many cases, you would only be paying for a first year associate to draft your document from a template anyway. There are also online legal tools and services that provide sufficient templates for your document needs. These templates could be your starting point for drafting a document that you ultimately have your attorney review. Below is a list of online legal document websites:
Some of the above legal documents services also offer online, on demand legal advice at a small additional cost.
- Outsource legal work rather than hire in-house counsel too early.The downfall of many startups is an excess of spending too early in the life of the company. Hiring an in-house attorney is likely an expense you don’t need early on. Today, many firms offer outsourced general counsel. In this arrangement, similar to a part-time CFO, you will have an attorney available to you when you need her, but without the continued cost of the extra employee. This arrangement is ideal for a company that is large enough to have continued legal needs, e.g., administrative and corporate obligations such as board of director’s meetings and HR compliance issues, but not big enough to be able to afford another salary.
Making an informed decision about your legal needs and the appropriate legal service(s) for your company is an important step in starting a successful business. Setting up your business correctly the first time will save you time and money down the road. Mistakes and compliance issues are costly, and if, in the future, you have a desire to join an accelerator program or seek outside funding, inappropriate registration and company set up can kill the deal or add unnecessary time and expense to fix.
While you may have many of the same legal needs when starting a business in other countries, it is important to keep in mind that many other countries require that you hire an attorney to represent you for some or all of your legal needs. Furthermore, many other countries do not allow the same types of alternative fee arrangements discussed here.
About Globig:
If you have international offices with employees and business teams focused on foreign markets, Globig is a must for saving valuable time and money, and for managing risk.
