Startups

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

Julius Caamic Co Founder at Sentro Web Development Services

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.
A great idea is 1% of the work. Execution is the other 99%. In this course, we’ll teach you how to conduct market analysis, create an MVP and pivot (if needed), launch your business, survey customers, iterate your product/service based on feedback, and gain traction quickly.

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

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) carlos@mainstreetexchange.com We make business easy.

Ema Chuku Designer. Product Developer. Founder @ NuPad

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.

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.

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".

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.

Lydia Sugarman Entrepreneur. CEO + Non-Technical Founder. Seeker. Thinker. Drinker of bourbon.

August 19th, 2016

No. Just. no. No!
Do not negotiate. 
Walk away from this vulture. 

(Startup haiku.)

Andrew Lockley

August 16th, 2016

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

Irwin Stein Very experienced (40 years) corporate,securities and real estate attorney.

August 19th, 2016

There is a larger issue here of small entrepreneurs who have good idea but no money. I deal with a lot of them who need legal or other advice but can't pay for what they need. I give away many hours of my time for free which is my choice, but  I don't want stock in their company and I am unapologetic that at the end of the day I am not a charity. Is it really too much to ask an entrepreneur to either fund their own business or to reach out to friends and family and borrow some money?  I borrowed from an uncle to fund my first business; it failed and it took me a couple of years to pay him back. If they don't have enough credit to get a $5000 "interest free for a year" credit card (or several) why do they want me to carry them until they are financed? One of the things about FD that amazes me is the idea that people are looking for partners to perform tasks that they should be able to pay for. Partners come with more problems than investors or lenders.  Any thoughts?