A lawyer offered service for equity and potentially joining the company


5

A lawyer offered service for equity and potentially joining the company full time as legal counsel/business dev guy. Is this reasonable? What percentage of the company should I offer him? It's a pre-funding startup with significant upside. Is there anything I should be aware of. Thanks for your help

Legal Employees

asked Jul 1 '11 at 09:50
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Jirad
105 points

4 Answers


4

There's a potential for a real conflict of interest. Any document that he drafts will have to be reviewed by an external third party, or you can put your entire business in jeopardy. Ultimately, this may end up costing you much more than just paying him for his services and relying on the fact that he does not have a vested interest in the phrasing of any contract. (Think shareholder's agreement - who's going to draft it - a shareholder, or someone else?)

answered Jul 1 '11 at 11:43
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Elie
4,692 points

3

I'm a lawyer and my firm frequently does work in exchange for roughly standard fees plus a warrant for a small percentage of equity, such as 0.5%. If the lawyer you're talking to wants only equity...and wants to join, that seems a bit odd and I'd be hesitant.

answered Jul 3 '11 at 21:41
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User6492
1,747 points

1

If it's just for incorporation and minor legal advice during the initial phase, it's not that unusual, and you're looking at around 0.5%-0.75%. In ways, it's good news since it's a show of confidence. Just make sure it's a good reputable lawyer.

answered Jul 1 '11 at 12:59
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Dror
1,833 points

1

This raises some serious questions in my mind, in addition to Elie's excellent point about conflicts of interest.

  • Does this guy have a practice? If so, why will he want to throw it over for a job at your company down the road?
  • Why does he want to do business dev? What are his qualifications for that? Why wouldn't he rather practice law?
  • What does he bring to the table that's worth getting married to the guy? (That's basically what happens when he gets equity so early.) Could you get the same things with no long-term entanglement by just paying a lawyer cash? Which would you be better off with?
  • Would you consider an equity arrangement like this for other services vendors, like your accountant, or your janitor?
  • What's this guy's reputation, both as a member of your community and as a lawyer?

I'm not saying this is necessarily a bad deal, but you need to look at the situation and this guy's motivations very carefully.

answered Jul 1 '11 at 13:17
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Bob Murphy
2,614 points

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