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How Can My Startup Pay Legal Fees? 

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As a startup business owner, you may struggle to pay your legal fees. The available payment methods depend on whether you want specific legal advice concerning setting up your startup and protecting its interests or advice on a dispute your business is involved in. This article will highlight the benefits of seeking legal advice when setting up a new business and explain how your startup can cover the cost of legal services.

Experienced startup lawyers can help you make informed decisions while setting up and growing your business. For example, they can: 

  • protect your business; 
  • ensure a legally sound endeavour; and 
  • mitigate the risk of potential disputes further down the line. 

Particular matters on which you may want a lawyer’s advice might include: 

  • the legal formation of your business;
  • protecting your intellectual property;
  • preparing contracts; and 
  • property-related matters. 

Having a lawyer support you in your new business venture can help you increase your chances of success. The cost of potential future legal disputes will likely be higher than your investment in legal advice at the start of your new business. 

The amount you need to invest in legal services varies from business to business. It can depend on factors such as the:

  • amount of advice you need; 
  • aspects you need advice about; 
  • complexity of your operations; and
  • industry you operate in.

Be aware that each law firm varies in pricing and accepts different payment methods. Before hiring a lawyer, understand their fee structure to avoid unexpected costs. A solicitor will give you a cost estimate upfront.

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When you engage a startup lawyer, you will likely be responsible for paying their fees. This section explains the various ways you may pay for legal services. 

1. From Your Own Pocket 

Many founders pay their legal fees privately, from their own pocket. When starting a business, you should factor legal costs into your calculations of the initial amount of capital you require. Typically, this is how founders pay for legal advice, especially if the advice pertains to something other than a dispute. Such (non-contentious) advice includes drafting and reviewing contracts and a legal professional’s advice on an aspect of your startup. 

Most solicitors charge an hourly rate. If you have a restricted legal budget, there are ways to limit the cost of professional advice. For example, rank the areas where you need professional advice by importance and prioritise those at the top of your list. Alternatively, some solicitors offer a free (or one-time payment) advice session where you can seek their guidance for a limited period of time.

2. Debt Financing 

You may use a form of debt financing, such as a bank loan, to pay for your initial legal fees. When financing this way, be aware of the risks associated with accumulating debt and understand the repayment schedule clearly. 

If you become involved in litigation, alternative payment options may be available. The following sections detail these alternatives. Be aware that the next three methods only apply when you seek legal advice concerning a dispute.

3. Insurance 

Some founders have insurance policies that cover some of their legal expenses. Legal insurance often covers specific types of commercial legal disputes. It is improbable that an insurance policy will cover the cost of the initial legal advice you need to set up your business. Instead, insurance is usually for unexpected legal disputes and will pay for expenses such as legal advice and representation in court.

You will likely pay a regular nominal fee for this coverage. If you seek such insurance, ensure you read the policy and understand what is and is not included. You may already have a relevant policy; some car and home insurance policies cover some legal expenses. 

4. Conditional Fee Arrangements

Conditional fee arrangements, commonly known as ‘no-win, no-fee’ agreements, apply only to those involved in litigation, not those seeking legal advice when setting up their business. These agreements mean you will only pay for legal services if your claim succeeds. 

5. Damage-Based Agreements 

Damage-based agreements involve a lawyer agreeing to take a percentage of the damages you receive as payment as a result of a successful claim.

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Key Takeaways

Legal advice from the outset of your journey can contribute to the longevity of your business. If you are setting up a new business and want a lawyer’s advice, you will likely need to pay for this service yourself. Therefore, you should consider this cost when calculating your required initial capital. To pay for non-contentious legal advice, you might pay from your funds or use a form of debt financing.

Alternatively, if your startup becomes involved in a dispute, you may be able to pay for legal services using one of the following options:

  • paying the hourly rate of the lawyer; 
  • via a conditional fee arrangement; or
  • a damage-based agreement. 

If you need legal advice relating to your startup, our experienced startup lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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