With any new business comes a laundry list of potential legal issues that can quickly become outrageously expensive, starting with city, state and federal filings and continuing on through the drafting of operating agreements, alongside various other documents.
We know that attorneys play a very important role through these processes, among many others, to help mitigate your risk and ensure you don't end up in jail. Yet it is vitally important that you have a firm understanding of how attorneys often work and paid to get a true picture of their motivations, and thus, your expenses.
To be clear, this article is not devised to attack or berate attorneys. I have and will continue to use them for nearly everything I do in business, and believe, without question, that a good attorney is an incredible asset. At the same time, attorneys are like doctors and accountants -- some are great and some are terrible. The purpose of this article is to help provide some direction on how to deal and work with your attorney to ensure that you aren't being taken advantage of and are getting the most out of their expensive legals fees.
Disclaimer: I am not an attorney. The following points are laid out based on my experience over the last decade in working with a number of different attorneys and law firms for a number of different businesses and a whole variety of legal issues. If you have a legal question, seek legal counsel.
Now that we've got that out of the way, let's jump right in!
1. Fill out your own forms. Most attorneys bill in increments of one tenth of an hour -- or every six minutes. This means that your $500 per hour legal counsel costs $50 for every six minutes they work on your behalf -- take note that seven minutes translates to twelve minutes from a billing perspective, and so on. When it comes to filing documents such as "articles of organization" for an LLC or "articles of incorporation" for a C or S corporation, save yourself on billable hours and do them yourself. You'll find that these documents are pretty straightforward, particularly in states such as Delaware, so take the time to complete them and, if necessary, have them briefly checked over by your attorney prior to filing them. Unless you are attempting to create some highly unique structure or series of attached companies, the forms are simple and very similar in nearly every state.
When it comes to items such as operating agreements, ask if your attorney has a template that they can use without having to create one from scratch. Otherwise, use an operating agreement from another business that you can update for your needs, then have your attorney review the document after it's complete. This will save time on the creation of a new document, and time is money.
2. Ask yes or no questions. Many attorneys have a tendency to get off track and meander through other completely unaffiliated issues when asked a question, all while racking up billable hours. To avoid this, you need to be crystal clear with your question and frame them in such a way that the only possible answer can only be "yes" or no." Instead of saying, "what are the issues regarding our expansion into this product line?" say, "Are there legal issues regarding our expansion into this product line?" -- yes or no.
3. Don't pay for their education. When you ask your attorney a question, it's their job to provide you guidance, not to perform hours of "legal research" devising an answer to your question. For example, you need them to draft an agreement about the creation of a medical business with Medicare accreditation, which they've never done. You should only be paying billable hours for the actual drafting of the agreement and not for the education they must seek to draft the agreement.
You can avoid a lot of the issues above by dealing with an attorney that is interested in creating a long-term relationship with you and your business, as they will be more conscious of both your needs and their billable hours. When searching for a law firm, start with a recommendation from someone you trust. Seek firms that are more modest in size and specialize in working in the startup world. Meet with at least a couple of attorneys to ensure that they are a good fit for your business and that your business is a good fit for them. Remember that the world is built on relationships, and having the right legal counsel can do incredibly things for your business.
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