How Much Does a Lawyer Cost for a New Business
The following are some of the fees you may incur when you speak with a lawyer or law firm about starting a business. Almost all firms will charge you an initial consultation fee. An initial consultation is often charged on an hourly basis, and can range from $100 to $500 or more per hour. Some firms may apply this amount as a credit to future services, so it can be a good option if you want your consultation with a law firm to be free or discounted.
Retainer fees are a common fee structure for law firms that have complex and continuing work with clients. If you hire an attorney to start your business and you need ongoing legal work, a retainer will likely be your best option. Not every law firm offers a retainer fee structure, and some only offer it under certain circumstances. The firm requires that you pay a retainer fee based on an estimate of how large and complex the job is and how long it’s going to take to complete . Depending on the complexity of the work, a retainer fee can be anywhere from a few thousand dollars to tens of thousands of dollars. A project-based fee is a flat fee that you pay for a specific legal project, such as filing an LLC application. Retainer fees and hourly fees are not project-based fees, since they are billed while the work is being done, not upon completion. Flat fees are also not the same thing as hourly fees, where you pay a lawyer an hourly rate to provide representation. A project-based fee is a flat rate to have a lawyer or law firm complete a specific task. Some firms may have flexible payment options for project-based fees, including the option of payment in installments. Depending on how quickly you need the work done, you may just be able to pay the fee in one lump sum or over several months or weeks.
What Factors Influence the Cost of Legal Services
There is no simple answer to the question of how much legal fees are going to cost you. A number of factors influence the cost of legal fees. The first of which is the complexity of the business structure. If you ask the lawyer to create a simple corporation or limited liability company, they can put the documents together for a few hundred dollars. But if your company is much more complex in nature, the drafting will be much more significant and thus it will cost more to prepare.
Another factor is the geographic location of the business owner. Legal fees are generally higher on both coasts (the East Coast and the West Coast) than they are in the Midwest or South. States that are less developed or have not had a lot of businesses incorporate (or organize) within them usually have lower rates just because they have to train their lawyers and justify charging unusual rates. These economic factors, however, only affect the legal fees for the more simple types of legal work (for highly complex work, the location of the lawyer is generally not going to affect the fees you pay).
Finally, the level of experience and sophistication of the lawyer will also affect the cost of what you are asking the lawyer to do. A lawyer that has no experience with working on the type of business you need work on will spend more time learning your need, talking with other people in the firm, and doing research into the area before they start to do work on your project. If an attorney has done this work numerous times, they can usually do it in a much shorter period of time (and thus charge you less).
Estimating Legal Costs for Businesses
Various types of businesses have different legal requirements and costs associated with starting and running a business. While it would be impossible to identify exact legal expenditures for your business, there will be some common considerations based on entity type.
Sole Proprietorships
If you plan to operate your business as a sole proprietorship, your start-up legal costs may be fairly low. That said, you should still consider how you will fund your business, and consult with an attorney about licensing and permits that will be required in order to conduct business where you live. A professional can help you form a business plan and offer guidance on how to obtain financing. Additionally, you will still need to navigate contracts, whether you will have employees, or if you will be working with vendors and suppliers. If financing is necessary, and you are alone in the business, then you might use credit cards to fund the business, or seek loans from family or friends. The costs for these loans, and legal fees to represent you in contracts would be a consideration.
Partnerships
When multiple people want to form a business together, or maintain control over a corporation, a partnership offer a way to handle management of growing the enterprise. In addition to paying for the licensing of the business (which will vary depending on the nature of the industry), and the business itself (sole proprietorships are less formal, and usually do not have any filing requirements to the state or federal government), you will also need to pay for drafting and executing a Partnership Agreement. It is critical that this agreement is comprehensive, and legally binding.
Corporate Formations
The costs for forming a corporation will also vary depending on the size of the business you are forming, as well as the type of industry. You will need to file Articles of Incorporation with the state, which include information such as the directors of the company, and a cost associated with this filing. You will also need to draft Bylaws, and establish a Business Plan. Once your business is in operation, maintaining the corporation will require filing various forms, as well as tax returns.
Limited Liability Companies
Those who choose to operate their business as an LLC will have the same concerns as filing an Articles of Incorporation and Bylaws, but they will have the advantage of limited liability. LLCs are considered to be separate business entities from the owners, and owners cannot be personally liable for debts incurred by the business, as they are with corporations. Owners of the company can also enjoy pass-through taxation, meaning that each member of the LLC is taxed as an individual, and not as a corporation.
What Is the Way to Budget for Legal Fees
An essential strategy for budgeting for legal fees is to break down the costs into initial and ongoing categories. Certain legal fees will be incurred upfront such as those for organizational matters, incorporation, developing key contracts, payments to register trademarks, intangibles, securing intellectual property and costs of transitioning licenses and permits from one entity to another. Ongoing expenses will arise from continued contract development, growth, expansion plans, compliance with state, local, and federal regulations, intellectual property issues and litigation. It is important to budget for both initial and ongoing costs so that unaffordable expenses do not surprise you later on.
How Do You Choose the Most Suitable Legal Service?
One way to avoid high-priced surprises later on, is to hire the right kind of legal service up front. If you don’t need an elaborate legal organization, (or want the expense), look for a sole practitioner or law firm that specializes in your area of business. A part-time general attorney may be adequate for limited legal needs, but if your legal needs are complex and you plan to operate on a significant scale, you should foster a continuing relationship with an attorney or firm that specializes in your area of business. The right attorney will be seen as a business advisor rather than as a problem-solver because, as you develop a rapport, you’ll get to know one another’s attitudes, interests, goals and working styles. You will also come to expect a high volume of interactions with the attorney , who will always have knowledge of your business and of what is needed. A key factor in selecting the principal attorney is whether or not that individual or firm has experience and knowledge of your area of business. In some cases, if the firm lacks that experience, you could ask them to refer you to an attorney they know that has the necessary experience. A qualified and experienced attorney will be able to sort through the various requirements that you will need to obtain for your business, and should be able to recommend other qualified professionals to assist you. In addition to selecting the right type of legal representation for your business, you should also try to establish a working relationship and rapport with that person. Selecting the right kind of legal representation is critical. But establishing a good working relationship with that attorney or firm is equally important.
What Is the Best Way to Save Costs When Opening a Business
However, thanks to the proliferation of technology and online resources, innovative small business owners can significantly reduce their legal costs. If you’re starting a new business, consider the following cost-saving measures:
Bundle services: As with buying in bulk, bundling a number of services is usually more cost-effective than purchasing them separately. If you’re going to need a variety of legal services on an ongoing basis — with an attorney to serve as your go-to legal adviser — ask your attorney if he or she can offer a package deal.
Engage alternatives: If your needs are pretty straightforward, online resources such as RocketLawyer.com and LegalZoom can save you time and money on things such as choosing a business entity and drafting a partnership or shareholder agreement. But don’t cut corners when it comes to more complex legal issues. Many legal sites offer their documents in standard form, which may or may not apply to your situation.
Use free or low-cost resources: The Small Business Administration and SCORE, a nonprofit affiliated with the SBA, both offer free advice, workshops, sample business plans, loan package assistance and other services for startups. You should also check out your state and local chambers of commerce for free services.
There’s no shortage of opportunities for small business owners to cut costs at startup. Be sure to include minimizing legal fees on your list.
How Important Are Contracts and Agreements?
One of the surefire ways to minimize your legal fees is to reduce your legal exposure by having in place the contracts, agreements, and legal housekeeping which the law requires you to have to operate properly with the least chance of having a problem. Miscommunication and lack of proper documentation are two of the chief ways that the lawyers on either side rack up legal fees in divorce cases, can waste time and thus money in business relationships and partnerships. It is just as important to make sure that your business relationships and partnerships are properly documented and clearly set out before there are discrepancies and accusations. Every entrepreneur should have in place the key contracts such as:
- Operating Agreement,
- Service Agreement,
- Shareholders’ Agreement,
- Partnership Agreement,
- License Agreement,
- Confidentiality Agreement,
- Noncompete Agreement (for key executives or technical personnel), and – Employment Agreement.
Some of these Agreements may not be necessary for every new business, depending on the particular circumstances of each business owner, but it is wise to at least consider them and to properly document, if possible, the key points of your agreements by letter, email, or other appropriate means.
When Should I Get Help From a Lawyer?
When you are starting a business there are certain times when you will need to seek the advice of an accountant and there are other times when you will need the advice of a lawyer. There are numerous occasions where getting some advice now may save you large amounts of money and frustration in the future.
The first time you should consider seeking the advice of a corporate lawyer is when you are determining the type of entity through which your business will operate. Will you start out as a sole proprietorship, partnership, corporation, limited liability company ("LLC"), or limited liability limited partnership? Before choosing the entity that suits your business model, consider at the minimum, the following factors.
If you don’t set up the entity before starting your business, rather you operate as a sole proprietorship, and you are sued in connection with your business, personal assets may be included in the lawsuit if you do not have adequate insurance coverage to cover all potential liabilities to your business. By operating it as a sole proprietorship, you are personally liable for every debt incurred by the business.
The second time you should consider seeking the advice of a corporate lawyer is when you are preparing ownership and/or employment agreements. These are very specific agreements that have many provisions which affect your business. If you are a corporation or LLC, you should have bylaws or operating agreements. If you are a partnership, a partnership agreement would benefit your business greatly. In addition, any employment agreement with your key employees should contain non-compete and confidentiality provisions. Payroll, employee benefits , stock options and employee stock purchase plans can also be legally complicated issues that a lawyer should be consulted on.
The third time you should consider seeking the advice of a corporate lawyer is when you are seeking an investor for your business. You may want to issue stock or convertible bonds. You may want to offer options as an incentive to an employee. You may want a shareholder buy/sell agreement. All of these can be legally complicated issues that a lawyer should be consulted on.
The fourth time you should consider seeking the advice of a corporate lawyer is when you decide to sell or license the rights to one of your business’s products or services. It is important that you have a lawyer prepare your licensing agreements, or sale agreements so that the transferring of your business’s rights is performed correctly and contains all of the language which will protect your rights afterward.
The fifth time you should consider seeking the advice of a corporate lawyer is when you are getting large enough to need outside financing or bank financing. Since you are a corporation or LLC, the corporation or LLC will be the entity that engages in the transaction. A securities lawyer may be needed to handle any securities issues. Licenses may be needed again. Insurance certificates may be required from service providers. A large amount of legal work may be necessary at this time.
The sixth time you should consider seeking the advice of a corporate lawyer is when you are buying or selling a business. Most of the above mentioned issues will arise during these transactions and all of the previously discussed factors for considering a corporate lawyer will apply.
No Responses