There are a number of ways in which startup lawyers charge fees to their clients.
Just to preface, I’ve had some success with starting 2 internet based businesses along with spending a lot time/money navigating all the legal stuff.
Currently I’m helping 100’s of early-stage startups find and hire lawyers at a prices that work for them with.
Okay, now that we have some credibility out of the way, let’s get it on.
There are a number of ways in which a lawyers may charge to their clients. Here are a few common types:
For some of the larger companies, a common method of payment is to receive equity in the company in exchange for their services. However, this method comes with risks as stake in the company is being offered for services that may not be of equal value.
1. Monthly fee arrangement. Perhaps the most common payment method for smaller businesses is to accept a monthly payment or fee arrangement towards the total balance. This method is rather simple and involves an hourly rate being charged with the company making an agreed upon payment at a designated time every month.
2. Hourly rate. Some lawyers offer the option of an hourly fee. This is when the lawyer would work for X amount per hour, and you would pay for those hours worked. Pretty straight forward. You may also get offered a capped hourly fee in which the total cost would not be above Y amount. For example, the hourly rate may be $200.00 but the total cost will not exceed $2,500.00. If the total hours end up being more than 12.5 on this specific project, then the lawyer will be working for less than their hourly rate.
3. Fee deferral. Another method of payment is deferring fees. This serves as an advantage since the deferment will free up cash to invest elsewhere in the business. On the other hand, if startup fees and other expenses have to be deferred then this could imply that the fees are rather large and may not be what the business needs at such a crucial juncture, especially when it is in its infancy.
4. Fixed fee. A fixed fee is when it is agreed that the entire project will be completed for X amount regardless of the hours worked. This puts you in control of the maximum you’re willing to spend in legal fees.
5. Equity compensation. For some of the larger companies a common method of payment is to receive equity in the company in exchange for their services. However, this method comes with risks as the stake in the company being offered for services might not be of equal value.
6. Contingency. Finally, some lawyers will accept a contingency fee as a form of payment. This is primarily reserved for specific projects or cases where monetary compensation is involved such as in a lawsuit. In this instance the lawyer will accept a certain percentage of the recovery, and receives nothing if the case or claim is not successful.
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I hope you find this answer useful! Best of luck with the venture. Don’t hesitate to reach out if you have any further questions.