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Is it ideal to give 20% of a start-up company equity to a Law Firm?

Is it ideal for a start-up company to give 20% of the company equity to a Law Firm in exchange to handle all it's legalities like incorporation etc? The company is not yet generating revenue but we managed to create tractions and the site is live. Once we have the legalities sorted we will continue looking for investors and run the site at-least it's legal already.

31 Replies

Mark How
7
0
Mark How Entrepreneur
Co-founder at Shopswell
This idea that you should give a lawyer 20% is absolute garbage unless:
- your business *is* legal (involved in the legal world, pursuing patents etc.)
- you have a massive legal issue, and are likely at risk of infringing on patents, and need to defend yourself legally somehow

It is almost certain that your legal "advisor" will not add more than 1% value if they are a normal advisor, performing normal startup, corporate activities.

Offer them an advisory position with 0.25% equity, or up to 1% if you can't pay them anything at all.

Note - there are many, many firms that will sponsor (read work for free) for a startup that has a great idea and traction.
Irwin Stein
0
0
Irwin Stein Advisor
Very experienced (40 years) corporate,securities and real estate attorney.
In the US an incorporation does not require a lawyer and can usually be accomplished for under $200. Your question telegraphs the fact that you have a lot to learn. When I was a young lawyer, I took stock in companies in lieu of fees and not one worked out. Its a bad idea for lawyres and for clients.
Charles I. Blanton
2
0
Charles I. Blanton Entrepreneur
Founder at Legends Media
No. Sent from my mobile
Abizar Lakdawalla
1
0
Abizar Lakdawalla Entrepreneur
Founder, Proxeom
I thought this was a typo - 20%! Incorporation is typically a few hundred dollars. Patent filings can be >$5000. And you are too early to need accountants. I would dump this "lawyer".
Ema Chuku
2
0
Ema Chuku Entrepreneur
Designer. Product Developer. Founder @ NuPad
Under no circumstances are you to give out 20% of your company equity for services.. Especially in this case. Unless they want partnership and you are ok with that.
Malcolm Baker
0
0
Malcolm Baker Entrepreneur
Business Consultant at Gopha
No. Unless you envisage a massive amount of legal work in the day to day running of the business AND the firm in question have agreed to do ALL legal work for free forever, I'd say that 20% was not appropriate. I don't imagine a law firm would agree to do an open ended amount of work for equity in a company with no revenue. *Warm Regards* *Malcolm Baker* *Business Development / Commercial Director* *30acres *| [removed to protect privacy] | Mobile: 0408 474 140 Office: 02 6680 8858 LinkedIn: http://linkd.in/1coOwj1 *www.30acres.com.au *
John Bailey
1
0
John Bailey Advisor
Accomplished Leader, Business Partner, Integrative Thinker, Startup CFO
There are law firms that will work for equity, and even some that provide a 15% discount (or similar) and relaxed payment terms for startups. So there are other viable options to equity. However, the more established firms are willing to take a chance on startups - but only if they vet them first and consider them a viable longer term company.

The 20% equity stake should be a red flag - especially for only basic legal needs. I would be very wary of this firm. Do some research - see how much it would cost you for your specific needs at other firms and go from there. Regardless of the amount, ask yourself if that is worth 20% of your company. I would suggest using the 20% for other needs - like Cofounders that can help you grow your business.

Adam Bell
0
0
Adam Bell Entrepreneur
Connecting China, ASEAN and the world
I would say you could compare to the cash cost vs present and 18m projected value of your company.

I Corporation is easily done, but a well crafted shareholders agreement and Ipr protection valuable.

Checkout the numbers, how long does the equity buy their services for, how strong is their reputation. Finally negotiate just as with any other stakeholder.

But better, if you can, find the cash..
Michael Leeds
0
0
Michael Leeds Entrepreneur • Advisor
CEO & Founder
No!!!! Don't do this. You can probably find a firm that, if interested in what you're doing, will do some of the work for you and defer the expenses until an initial funding round. So NO, don't do this! I'd be happy to discuss - just message me. --ml Via mobile
Michael McNamara
0
0
Michael McNamara Entrepreneur
CEO at Adapt-IP
As a guideline, the rule of thumb I use would give the law firm the opportunity to invest in your company, and sell them shares sufficient so that their check to you (for the investment) equals roughly your projected legal bills for the first year. Mac
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