Outside legal services are expensive. This fact is primarily because law firms have high overhead costs, including attorney salaries, support staff salaries, office space, research databases, etc. Companies regularly seeking legal services often look to hiring an in-house attorney as an employee. Unfortunately, this option is often beyond the ability of most startup companies. Outsourcing the startup’s in-house legal work can be an efficient and cost-effective choice for certain companies.
Types of Businesses Outsourcing Legal Work
A company seeking to outsource legal work and services generally arises in two scenarios. First, the company has in-house counsel that requires assistance in meeting the firm’s legal needs. This may be the case in a heavily-regulated businesses or businesses focused on legal processes (such as title searching, automated legal document drafting, or real estate closing firms). The second type includes businesses without in-house counsel that regularly require legal services that could potentially be performed internally. These businesses generally begin by working with one or more traditional law firms to provide legal outsourcing services. The companies then explore outsourcing the in-house legal work to save money or to speed up the process of requesting and receiving legal guidance or legal outsourcing services.
Options for Outsourcing Legal Work
Generally, a company has three options when it comes outsourcing in-house legal work.
The first option is to hire an outside counsel to handle in-house legal work as part of an outsourced general counsel arrangement. Lots of law firms offer these types of arrangements to business clients. The law firm generally offers lower hourly or fixed rates in exchange for the security of continued demand for said services. In addition to lower costs, these relationship allows for greater efficiency due to the continuity of information among the attorney and startup.
The second option is to hire an attorney to work as an independent contractor inside of the company. The attorney works at the company location, employing company resources when necessary. By reducing the overhead associated with outside counsel, the startup is able to save considerable money. Further, the company may save money by not supplying benefits to the attorney, such as insurance, workers compensation, unemployment insurance, FICA withholdings, and retirement benefits. Having the attorney inside the business allows the for the efficiency associated with an in-house counsel. This is the type of services offered by LawTrades.
The third option is to outsource the legal work to unlicensed legal practitioners located outside of the United States. Such legal outsourcing services are known as commonly known as “legal process outsourcing” companies or LPOs. The LPO sets up the work processes requested, hires the necessary staff, and secures a facility or means for work production. The foreign firms generally hire US-trained attorneys or individuals experienced in specific types of US law and procedure. These firms will provide legal outsourcing services at a fraction of the price of US law firms. This option is best for routine legal processes, such as document drafting. This option is generally less efficient when the primary need is for legal advice on specific operational issues. This option, however, is not without risks. The startup must have sufficient understanding of their legal needs and be able to request specific services. There is less continuity of information. Also, the startup will need to employ a secure communication system to maintain privacy.
Service providers offering any of these options to startups can easily be found through simple Internet searches. Finding a reputable firm, however, will require research about endorsements and quality ratings from prior clients.
Whether or Not to Outsource Legal Work
There are two primary considerations when deciding whether to outsource in-house legal work.
1) Is there are strategic reason why this legal work should be completed in house?
2) What are the costs and benefits of outsourcing the in-house legal work?
Reasons of speed, efficiency, continuity, secrecy, and quality are the primary strategic reasons for keeping a specific type of legal work in house. Some legal services require a high degree of expertise and should be left to outside law firms focusing on that type of law. This is particularly true if failure to appropriately complete the legal work with have severe consequences for the startup. For example, failure to adequately draft a prospectus during a financing round may forfeit an SEC registration exemption and detriment a financing deal.
A cost-benefit analysis compares the costs and difficulties associated with this process with the cost savings or other benefits. If legal work suffers in terms of quality or speed, the cost savings may not be worth the effort. For example, working with a foreign LPO may give rise to language, time-zone, and other communication-related issues that are more problematic for the startup than paying the higher costs.
What Type of Legal Services to Outsource
Five common types of legal work are capable of being outsourced by most startups. These include:
Administrative Work: Data entry; Secretarial services; Electronic Document Review or Management; Transcription; and Claims and Billing Services.
Legal Research & Analysis: Generally Regulatory Standards; Database or Repository Searches.
Litigation Support: Document Discovery and Disclosure compliance
Intellectual property: Patent Drafting and Review; Infringement Searches; and Cease and Desist Letters
Contract Work: General Contract Drafting and Review
It not easy, but there are legal services that can meet all of these needs.
Standards for Legal Services
The following are necessary quality attributes when choosing to outsource in-house legal work. The firm must:
work well with the businesses senior leaders;
understand company objectives, policies, and strategies;
understand company operations, including processes, products/services, suppliers and customers;
be able to identify and mitigate company risks;
deliver work in a timely manner;
work well with existing company employees;
able to add value to the operational process; and
able to perform in a cost-effective manner.
Generally, there is no regulatory limits on a startup in employing outside counsel for in-house work. Issues may arise, however, if the firm deals with private personal information, such as health or financial information. The firm must have a manner of securing and using the information in accordance with Federal and State law.
Today, state bars control the practice of law within that state. If a company has an in-house counsel who oversees the outsourcing of in-house legal work, the state ethics standards will apply. For example, in New York, the state bar requires the in-house counsel to supervise the service provider, always have permission on what work is outsourced, and always conduct a conflict-of-interest analysis. Also, if the company is a public or reporting company, the federal and state security regulators may require a process for not allowing the escape of non-public information about the company.
Let LawTrades be Your Outsourced Legal Counsel
LawTrades is your perfect outsourced, in-house counsel. Our legal outsourcing services and legal professional experts can meet all of your startup needs.