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

Julius Caamic Transforming digital ideas in to reality through the web

August 16th, 2016

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.

Mark How Co-founder at Shopswell

August 16th, 2016

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.

Charles Blanton Founder at Legends Media

August 16th, 2016

No. Sent from my mobile

Ema Chuku Product Developer. Founder.

August 16th, 2016

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.

Carlos Cruz-Abrams Co-Founder and CEO of Main Street Exchange

August 16th, 2016

Hi Julius, don't walk...RUN away from any lawyer who makes an offer like this to you. You could find a qualified lawyer who could do this all for about $1500 or so or, not ideal but much better than giving away equity, you could do your own incorporation simply enough. This is not only not ideal, it is a swindle! Carlos Cruz-Abrams Chief Executive Officer Main Street Exchange 1035 Pearl Street, Suite 503 Boulder, CO 80302 (970) 445-0782 (mobile) (970) 633-2999 (main) We make business easy.

Abizar Lakdawalla Founder, Proxeom

August 16th, 2016

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".

John Bailey Accomplished Leader, Business Partner, Integrative Thinker, Startup CFO

August 16th, 2016

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.

Jennifer Ernst

August 16th, 2016

A highly reputable firm I know will sometimes take 2% in lieu of a limited amount of expenses and deferral of additional fees until post funding.  20% is nuts.

Andrew Lockley Investments & consulting for tech startups

August 16th, 2016

Not unless your firm is carrying out an inherently legal trade, eg patent trolling

Peter Kestenbaum Advisor, Investor, Mentor to Emerging firms

August 17th, 2016

Not that there might not be extenuating circumstances but to be blunt NO....

Martin Omansky Independent Venture Capital & Private Equity Professional

August 17th, 2016

NO NO NO. Equity for legal work used to be common, but has fallen out of favor. Lots of reasons why this arrangement is not practical. Find a law firm that will discount its fees. Sent from my iPhone