I run a small business: how much will my lawyer cost me?

By Zack Dovitz

What lawyers do. It may be useful to split “legal representation” into three basic subcategories: civil litigation, criminal litigation, and (civil) transactional work. For businesses, civil litigation could involve things like contract enforcement disputes, torts, employment suits, etc. Criminal litigation for a business would likely involve “white collar” crime, such as securities fraud or violation of environmental regulations.

Transactional work, on the other hand, is much more closely related to the “bread and butter” of businesses. Transactional work is comprised of things like drafting contracts, advising on mergers, etc. A simplified way of thinking about the distinction is that transactional work is done for a business client during its ordinary, rule-following business, whereas litigation is done for a business client when it is accused of violating the law.

How attorneys are paid. Lawyers are typically paid on an hourly basis (e.g. $100/hour). In some cases, attorneys will instead charge on the basis of a flat fee (e.g. $500 to draft a contract) orcontingent fee (e.g. one-third of the money awarded to the client in the case). In another common arrangement, attorneys may be paid a retainer. A retainer is like a salary for an attorney– the business pays the attorney a regular fee (e.g. $5,000/month) to cover all of its legal needs. Of course, some businesses simply hire their own staff attorneys; these attorneys are known in the legal world as in-house counsel. The table below displays the various types of payment regimes and some advantages & disadvantages of each.

Table: Payment Methods for Businesses Hiring Legal Counsel

Payment TypeProsConsHourly

  • Industry standard
  • Accumulates gradually
  • Lawyer submits “timesheet” to client. Allows business to see exactly how lawyer spent time working on their case
  • Not tied to outcome
  • May incentivize lawyer to work slower (although this would be unethical)
  • May require business to engage in review of attorney timesheets if business is concerned with accuracy

Flat Fee

  • Simple
  • Predictable
  • Discrete. Ideal for transactional work
  • No need for business to spend time reviewing detailed timesheets
  • Not tied to outcome
  • May incentivize lawyer to rush (although this would be unethical)
  • Typically reserved for predictable matters like simple bankruptcy filings

Contingent Fee

  • Tied to outcome. Incentivizes lawyer to get best possible result for client
  • Lawyer typically gets one-third of the money paid to the client. May be more costly than other payment methods
  • Typically used only in personal injury or debt collection matters

Retainer

  • Thorough coverage
  • Predictable
  • Not tied to outcome
  • Costly. May require cost-benefit analysis for given business
  • Paid-for services may go unused if no need for attorney services arises during the payment period

In-house Counsel

  • Focuses attorney on your business
  • Thorough coverage
  • Predictable
  • May simplify communication
  • Active relationship with business
  • Not tied to outcome
  • Costly. In-house counsel are paid salary. May require cost-benefit analysis for given business

The needs of businesses are so varied that it is difficult to determine an average cost of legal representation for them. Still, some brief data may be informative: according to the US Bureau of Labor Statistics, in 2012 lawyers were paid an average of $54.58/hour and $113,530/year. This data is not specialized to business law, but may nonetheless provide a general idea of market prices.