Please can someone advise whether the below terms is a good idea. I working on a start-up and engaged a Lawyer on a deferred fee agreement basis, then he sent the following terms. Before I enter any agreement with him, can someone please advise whether it is good because it sounds too good to be true:
I realize that, for now, you wish to work on a fee-paid basis (which is fine with me), but I also realize that cash can be an issue in a start-up situation, so the following information will - I hope - help you make an informed decision on how we might work together over the medium- to long-term. Nothing here is set in stone, and in any case, if you would prefer to continue working with me on a conventional fee-paid basis, that's great - the deferred fee scheme is really designed for situations where the start-up does not have the financing for legal advice initially, but that problem may not apply to you.
Obviously, what I propose here is tempered by the fact that I will be infusing a business perspective into my work with you and, over time, the arrangement may evolve into more of a business relationship than an adviser-client relationship.
Subject to that observation, I propose the following:-
The above is for information purposes, but I hope it goes some way to explaining how a 'deferred fee' scheme might work as an alternative to a conventional lawyer-client fee-paid relationship.
I would never, ever sign something like that. 5% fully diluted? For some legal advice? No way.
He's a shark. He's done this before and you have no idea what you are getting yourself into. What are the requirements for his work? Is there a minimum number of hours he has to work? I could go on and on.
Walk away from this. Pay out of pocket or wait until you have the money. This is a bad deal for you.
Personally, I would rather get a loan to pay for the legal fees. Also £26 per hour is not much at all, at least by United States standards. The work the lawyer does for you should generate business and revenue, and start paying for itself at some point. If you don't see that happening, then perhaps you don't need a lawyer.
£26 per hour was the first alarm bell, his company not being registered for VAT the second. If it walks like a duck, sounds like a duck, it usually is a duck. Avoid like the plague.
5% for legal advice? Ridiculous! Walk away. Your lawyer is important, pick someone with great reputation. Barely known, but even some of the greatest lawyers are willing to guarantee a cap on your payments, so you pay the standard hourly rate, but there's a maximized amount you have to pay. If you involve somebody for stock, the typical - and fair - offering will be like 0,3-0,7 percent NQSO (Non Qualified Stock Option) plus a flat hourly fee. Stock amount depends on the exact work and the stage of the start-up. (The earlier the higher, of course.)