Hiring A Lawyer For The Start-Up

Posted on July 24, 2012

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The needs of a business person in the early stages are unique. Additionally, an extremely skilled business person may not have had an experience dealing with lawyers. Unfortunately, we, as lawyers, do not make the lawyer-client engagement process as easy as it should be. We have built a mystique around the profession, and that mystique prevents an open and candid marketplace of lawyers. 1 That said, anyone who wants your business should provide a free initial consultation. I do not always provide a free initial consultation, but absent a unique circumstance, I will almost always offer an entrepreneur a free initial consultation. I encourage potential clients to talk to multiple attorneys to determine the best professional fit. Some questions to consider when engaging a legal professional are:

  1. What do you need a lawyer for?
  2. How much should a lawyer cost?
  3. What should be your expectations with respect to services rendered?

If you focus on these three questions, you should get to the right answer more quickly. Often at this stage, there is a tendency to focus on more abstract concepts, such as the role of the lawyer ( Do I want him or her to be a trusted advisor throughout the growth and development of a business or just to get the work done?), the value and experience that a lawyer brings (big firm versus small firm/ experienced versus new), and the monetary relationship with the attorney (I want someone who can stick to a budget, I want flat fees, I do not want to get charged for every phone call). These questions are important, but they do not solve the more pressing problems. These are questions that evolve with the relationship, and they are impossible to figure at the outset of the relationship.

So first, what do you, as a start-up business, need a lawyer for? Here are some specific situations and some specific thoughts on pricing:

1) To incorporate – Truthfully, if you are the sole owner, you can go online and do this without doing something so disastrous that it cannot be undone later, and you have a good shot at getting it right. However, an attorney should be able to do this for under $500 plus filing fees.

2) To file a trademark – While you can do this online, your risk of screwing it up is very high. (See trademark discussion.) The filing fees alone run in increments of $500. The starting point usually is around $750, but this can quickly escalate based on complexity and if the UPSTO does not accept your filing.

3) To set up your initial contract. To be used in your business. This depends on the relationship, but generally I would budget between $500-$1,000.

4) To document the relationship between or among the owners of the entity — As soon as you add multiple owners, the legal issues mount. Yes, you can pull online forms, but these forms are often wrong. People who are going into business with one another need to get the agreement in writing. A standard agreement (buy/sell or LLC operating agreement) should cost under $1,000 unless a special situation exists.2 You also need to continually review the situation.

5) To compensate employees with equity. This can be tricky and difficult to quote. It may be as simple as adding a member to the agreements (under $500) or as complicated as getting a comprehensive equity option plan ($5,000-10,000). My advice is to spend an hour talking with the attorney to get pointed in the right direction.

These scenarios are standard, but not exhaustive. The quotes are generalizations, but I believe it is important to put a stick in the ground. An attorney should provide you with information about fees, although it is important to note that there are many factors that go into pricing – factors that are both specific to your particular situation and factors that are more general to an attorney’s practice. Attorneys do not like to quote prices and for valid reasons — our quote is based on a client acting efficiently. As soon as we quote something, the client promptly delays in getting the necessary information, overburdens the lawyer with senseless questions, or presents issues not mentioned when the original quote was provided. As you negotiate an engagement agreement, I think it is important to remember that it is a two way street for both attorney and client. Ultimately, both attorney and client have got to trust one another to make the relationship work financially.

Pricing is, of course, a key component of the final question that should be asked — what should my expectations be with respect to services rendered. The other two components with that analysis are expertise and timeliness. Getting all three (pricing, expertise and timeliness) is difficult, if not impossible.3 The most illustrative example of this dynamic was an experience with a top tier out of state firm. They provided excellent advice, but they told their client (who was opposite my client) that to fit in budget they were going to be slow – and they were — not unprofessional, but they were clearly working us in around other larger deals. It was one of the clearest examples of an attorney-client relationship where the client got lower cost, high expertise, but no speed.

Attorneys like to say that they can deliver all three of these elements. Personally, I like to believe I can do a great job three without sacrificing price, expertise, or timeliness. Clients should also set high expectations of their counsel and should seek to get the most out of their attorneys. That said, attorneys are human. Having a more honest conversation about expectations and viewing it through the components of pricing, expertise and timeliness can set realistic expectations with your lawyer. Perhaps that project can be done tomorrow, but it may cost more. Maybe budget is more important to you, and you are able to wait. The more candid you are as a client are with respect to your expectations, the better able the attorney will be to meet those expectations.

Mike Goodrich
Goodrich Law Firm, LLC

1 Our professional ethical obligations prevent us from (1) making cold call solicitations, (2) making statements that compare the quality of lawyers, and (3) restrict us in advertising. These regulations originated out of concerns for people being taken advantage of when they were sick or injured, i.e. ambulance chasing, but they are applicable in all situations. These rules have a good foundation, but I think they also add to the mystique and make finding the right lawyer difficult.

 2 A word on the attorney role in these situations: There are several different ways to do this, but since the interest of the individuals are not aligned, an attorney must either (a) represent one party or (b) represent the transaction with everyone waiving the conflict (in accordance with the rules). Facts and circumstances can sway which way is best, but the key point is to know which one is going on. You can and should always ask the attorney.

3 To be fair to attorneys, almost all service oriented professions have this issue. In construction, I have heard it referred to as a three legged stool where to have it done on time, you have to add cost, and to not cut corners, you have to add more time and cost. This graphic design Venn Diagram is also illustrative and analogous.