As an established business owner, you may have heard of “alternative” fee arrangements offered by law firms to better suit your legal needs and legal budget. Attorneys traditionally bill by the hour for legal services; however, there are some circumstances in which flat fee agreements may be more practical and economical for you. Read on to learn more.
What is a Flat Fee Agreement?
A flat fee agreement is used by lawyers in limited circumstances to set firm, fixed prices with their clients for legal services rendered regardless of the number of billable hours.
For example, let’s say a business owner would like to change the structure of their existing business entity from an LLC to a corporation. The business owner might ask the attorney to do it for a flat fee. If the attorney agrees to the arrangement, the attorney cannot bill the client over the specified amount.
A flat fee can be structured so that the attorney earns a fee on a task-by-task basis or in increments regarding a single legal matter. Flat fee agreements are usually used in situations in which clients want cost certainty for services rendered. I particularly like offering my clients flat fee agreement because the predictability of costs that it provides, and the confidence that neither party will be “surprised” as the bills come due.
Experienced lawyers can usually predict with confidence the amount a particular service will cost, and in these circumstances, flat fee agreements work out well for both the client and attorney. If the legal matter is relatively straightforward, or does not involve a 3rd party (uncontested), then a flat fee arrangement may be preferable.
Pros & Cons of Flat Fee Agreements
Flat fee agreements are great because they align both the interest of the attorney and the client. The client does not have to worry about being billed extra for phone calls, emails, or meetings. The benefit to the attorneys is that they do not have to track their time, which (believe me) is a painful and time-killing process.
However, there are some situations in which flat fee agreements may not be appropriate. As mentioned above, flat fees are generally not a good choice when dealing with a counterparty, or if the matter is in litigation. For example, a business merger transaction almost always takes a few unexpected twists and turns along the way which take additional time to resolve. In this situation, an hourly fee would be more appropriate.