Attorney Fees – Flat Fee vs. Hourly Rate
Question from potential client:
Dear Mr. Knellinger,
How much would it cost someone to setup a new LLC or Corporation, including drafting an operating agreement, buy/sell agreements or bylaws, etc.? Additionally, what is the charge for handling contract review, handling employment matters, including, without limitation, hiring, firing, FLSA (Fair Labor Standards Act), exempt v. non-exempt, overtime, and others.
Thank you for your inquiry. I have no flat fees for the tasks you mention because quoting them may be unfair to the potential client when complicating factors arise, as they frequently do. If a potential client is knowledgeable and experienced in business matters, they are able to explain to me the nuances of the situation which they know may impact the work that I do and the expense associated with it. I can usually provide a pretty close estimate of fees and costs in that situation. If a potential client is not familiar with the options available to her or the consequences of some “minor” fact which she may have omitted in our initial conversation, she might feel that the attorney should have anticipated that minor fact and feel that she has been taken advantage of when she is charged to address the omission. The easiest example is the most common. A flat fee is quoted for an LLC and then the attorney discovers that there are other members who thought they were lenders or vice versa. The operating agreement will be greatly complicated as a result of buy/sell, and other exit scenarios. Negotiating an operating agreement may be easy or very complicated depending on a variety of factors that the parties may not have even considered.
We offer our clients questionnaires which are designed to uncover undiscussed or undisclosed issues. Sometimes when those issues are openly discussed, the parties are not willing to go forward with the venture. For example, when I ask what each party expects of the other party in terms of money, time, and effort, frequently their expectations of each other do not match their own expectations for themselves. Another example is three persons join to form an LLC. One brings money, the other experience in the industry, and the third the labor for day to day operations. When do their interests vest? The money person wants immediate vesting when she puts in her money. The experienced person and the day-to-day person are going to be providing their experience and labor over time. Should they get equal shares immediately or should it vest as they provide the consideration they promised? Most frequently, they have come to the table expecting equal shares immediately. That discussion could change the result.
I hope that this helps you to understand why I feel that flat fees are misleading. Flat fees tend to result in the tendency and economic reality that an attorney will not ask the difficult questions because resolving them will require much more time than the flat fee will accommodate. For example, I noticed on a web site recently an attorney here in Gainesville advertising a flat fee for a prenuptial agreement for $175.00. If one understands the complicated and integrated issues that must be analyzed and addressed in such an agreement, such a flat fee is utterly ridiculous unless you consider your time worth a cent per hour. I am sure that the client could walk out with a document titled “Prenuptial Agreement”, but I am equally sure the client has been grossly short changed. If potential clients depend on the lowest common denominator in advertised legal fees, they can expect the lowest common denominator in the result as well.
I think the best course of action is to hire the attorney for a first conference at their hourly rate and exchange information, goals, and options and costs for achieving them. The client can then make an informed decision about how to go forward or whether to do so at all.
I have clients that I have continuously represented for decades even though there are attorneys that advertise much lower hourly rates. I trust that their good judgment and my fair services to them are the reason they remain. Best wishes to you in your endeavor.
Attorney at Law
Knellinger, Jacobson & Associates | 2815 NW 13th Street #305 | Gainesville, FL 32609 | (352) 373-3334