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What's a reasonable budget for forming a proper shareholder agreement in a new start up, formed as a corporation to be owned between 4 founder/shareholders? I understnad there's some variation depending on complexity, but for basic exist scenarios, and some vesting, how much can you expect to pay to have a lawyer prepare a formal agreement?

We're in the early stages of starting up a new venture, with funding and partners in place, and an understanding (on paper in non-legalese) between us. I've been quoted a fee of about $5000 to prepare such a contract.

Is this reasonable based on others' experience? Is this lawyer out to lunch, or would we be getting a good deal?

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6 Answers

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That's a lot more than what we paid, and we have very decent lawyers. We paid about half of that for ours.From what I understand, the more people involved in your agreement, the more complicated it is, and the more it will cost to draft. You'll also have to take care of I.L.A. (Independent Legal Review). It's really important to get a lawyer to revue your Shareholder's agreement from your perspective to make sure you understand what you are signing. Sometimes what's in your interest is separate from the best interest of your firm. And since you have four partners, there are many interests to consider.

Here's some tips going into the process that can help make the process simpler:

  1. Ask for provisions that protect all members equally, and expose all members to the same amount of risk.

  2. Leave the non-mandatory items out of the agreement and agree to revisit the agreement when (and if) you make some money.

And my final piece of advice: Don't be afraid to spend money on a great lawyer for a solid agreement. It's a tiny price to pay in the long run, and protecting your and your partner's best interests are well worth the hit you'll take.

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up vote 2 down vote

What?? 5K is ridiculous. Either they will have to start from scratch (then don't use those lawyers because they probably don't know what they are doing) or they are taking advantage of you.

You shouldn't pay more than about 2-3 hour fee for this - MAX!

P.S. I'm a lawyer who creates this document on a regular basis and I know what I'm talking about here.

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Hmm, I agree with you, the higher price is outrageous for what seems like it should be a relatively standardized process and document.... Could you suggest where entrepreneurs can look -what kind of people and networks should we get in touch with- to find more reasonable lawyers. Also, unfortunately I'm not in the US where I do see a shift towards standardized startup legal tools. Do you any good tips for Canadians? – Michael Apr 19 '10 at 1:30
Please send me a private email at sdrew@pkjlaw.com and I will give you some ideas for your to consider. I can also draft the document for you and you will then be able to have it vetted at much lower cost than the cost of drafting. – Sharon Drew Apr 19 '10 at 13:31
up vote 1 down vote

I know several lawyers, and it very much depends on both the lawyer, their specialization area, how busy they are, and how long it's going to take them to put together what you want.

A lawyer who specializes in corporate law and works for a large firm is going to cost a lot of money. A private-practice lawyer who has a general knowledge of this area is going to be much less costly (on average).

I would expect quotes to range anywhere from $1000 and up. $5000 sounds a little high to me since I've been quoted ~$2000 for a similar situation, but again, your situation may be different.

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up vote 1 down vote

It can also depend on whether you are signing up for an ongoing relationship. Some firms might start you up at a reasonable rate, if also agree to a big retainer for future work; it really just depends on the firm or the lawyer. Generally speaking, smaller is cheaper than big. However, big firms have connections that can help a small company meet money.

DISCLAIMER: This is not legal advice. I am not your lawyer.

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up vote 1 down vote

While the fee (obviously) will depend on the complexity of the arrangements, I typically have prepared shareholder agreements for a fee closer to half of what you were quoted.

Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.

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up vote 0 down vote

I think a range of between 2500-3500$ CDN is much more reasonable and realistic considering the time required to meet the shareholders, understand their needs, answer their questions and draft a docuement that reflects their situation and expectations.

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