How Should We Pay Our Lawyer?

Small Businesses, especially those that don't qualify for sexy grants, loans or venture capital money, fight a constant battle in their infancy to keep their heads above water in the short term, even if they have a long-term business plan that is profitable. These businesses are the mom-and-pop stores, the bars, the restaurants, the artisans, the contractors and subcontractors, and the low-cost Internet companies that you see surrounding the Pittsburgh area. They struggle first to pay employees, rent, and overhead, and, if the cash flow runs dry after these costs are paid, they too often cannot afford necessary legal services.

Your small business can avoid this problem by working with attorneys to find mutually beneficial, creative means of compensation that you can structure so that you can afford the legal services that you need. Attorneys do not need to work on an hourly basis -- and if you don't think you can afford monthly invoices (or the retainer that an attorney requires for hourly work), then I suggest that you work with a willing attorney to explore the following options.

Consider Compensating Your Attorney with Equity in the Company:

Although it may be a difficult sell, it can't hurt to see if your attorney is willing to work for equity in your business (assuming, of course, that you are willing to give up a slice of your equity). This may be a difficult sell for two reasons. First, in regard to an attorney's reluctance to accept equity, an attorney may think that your business plan is too risky for her to consider equity in lieu of hourly compensation. With a well-presented business plan, you may be able to convince her otherwise.

An attorney may also be reluctant to accept equity for a more subtle reason: Any attorney ought to recognize that she will immediately assume a potential conflict of interest by accepting equity as compensation (i.e. the lawyer's ability to give prudent legal advice may be compromised by her personal stake in the company as a shareholder and her desire to be compensated as such). This conflict is curable -- indeed it would be up to you the shareholders to cure the conflict by waiving it -- but some attorneys may still be uncomfortable at the prospect of the conflict, no matter how vigorously you contend that you are willing to waive it.

You also ought to consider whether you are comfortable with such a conflict and, moreover, whether you are comfortable with giving a slice of equity away to anyone. However, if you are looking for immediate (and competent) legal advice at the company's outset, but you have no means to afford it, this may be the best way of attaining it.

Flat Fees:

Flat fees may not actually save your company much money over paying an attorney on an hourly basis (attorneys will likely set a flat fee for the scope of their work based on their experience in handling a matter on an hourly basis), but it will allow you to plan your budget much more easily. A lot of attorneys purposefully obfuscate the number of hours they estimate they will put into a legal matter, as they don't want to mislead you or be held to any number should a time-consuming problem arise. Requesting a flat fee will hold them to the fee that they quote you and will allow your business to budget for the legal work that will be done. Also, paying upfront as opposed to paying on an hourly basis won't affect your time value of money, as most attorneys will require a retainer that they hold in trust for hourly work anyways (so the money you paid at the outset of a matter for flat fee representation wouldn't be collecting interest for you during the course of your representation had you elected to pay an hourly rate invoiced monthly). Flat Fees are ideal for relatively simple matters like entity creation, simple contract drafting, and simple litigation (litigation matters where the money at stake is under the compulsory arbitration limit in Allegheny County of $25,000).

Find an Attorney Who Will Take a Collection Matter on a Contingency Basis:

Contingency fees are not exclusive to personal injury cases. If your business needs to litigate an unpaid contract and you are having liquidity problems, ask if your attorney will take your collection case on a contingency fee basis. You may be able to negotiate a graded fee that will allow you to pay her less if she is able to reach a quick settlement or more if she must file a law suit. Contingency fees generally allow your company to avoid attorneys fees and the costs of litigation until you successfully recover the debt or the amount in dispute.


There may be even more ways to structure your lawyer's compensation so that you can avoid an hourly rate that your company can't afford (including some hybrids of the above mentioned fee agreements). Each company has a unique situation. Explain yours to your attorney and work together to find an affordable solution to legal problems.

Peter Kurzweg, Esq.