Every business entity has expenses, but how they’re incurred varies by industry. As a law firm, you have the option to disburse fees to your clients. Some of the most common operating expenses legal professionals incur on behalf of their clients include the following:
Corporate registration fees
Fees to continue, convert, or dissolve the status of the entity
Name reservation and approval fees
Annual return filing expenses
Corporate constitution and by-law amendment fees
Document issuance and certification fees
Title protection fees
Expedited services fees
It’s entirely appropriate for your legal team to disburse those costs to your clients as part of your billable hours. However, those disbursements must be fair and appropriate for the amount of work undertaken to complete the clerical duties.
Additionally, there are two ways to pass on disbursements to clients. The first way is on an individual basis for each and every expense incurred on behalf of the client. The second way is to use entity management software and digitize all records, ensuring that all invoices are appropriately disbursed to the clients.
In this post, we’ll summarize the two options and the benefits to your firm.
What are common examples of disbursement fees?
Let’s begin with the biggest question of all: what are examples of disbursement fees that can be billed to clients? Here are four of the top ways legal professionals can incorporate fees to their billable invoices to clients.
Annual fee for acting as agent for service representing an entity
Suppose you represent a foreign entity that wishes to conduct business in Canada. As the legal representative of that entity, your firm operates as an agent for service on behalf of your client. An agent for service fee is an annual emolument that retains your firm to handle corporate registrations and entity management with Canadian regulators.
Registered office fee for acting as the registered address of an entity
This is another example of how best to represent foreign entities operating within Canada. Since the business entity is headquartered overseas, your firm legally substitutes as the official registered address of the business entity within Canadian jurisdiction. The registered office fee is a disbursement cost you invoice to the client for assuming that responsibility.
Monitoring fee as compensation for compliance monitoring for an entity
Once your clients are registered with the proper regulators, they need to adhere to the laws and regulations of the industry. A compliance monitoring fee is how your firm is compensated for all the time spent identifying and managing compliance risks for your client.
Ownership & control monitoring fee for an entity
The beneficial owners and shareholders of a business entity require representation to ensure beneficial ownership information shared with regulators is accurate. An ownership & control monitoring fee compensates your firm for that representation.
How to bill disbursement fees
Disbursement fees can be billed to clients in a number of ways. Note: this is a recommendation rather than strict legal advice. It’s best to negotiate the billing options with clients prior to commencing with any professional legal services.
There are three primary ways that your legal services can be charged to clients:
Hourly rates for the time that your team spends on clerical tasks
Sequential fees that represent each stage of the clerical duty
A flat fixed rate that covers the total cost irrespective of the time
Ensure disbursement fees are fair and reasonable
Disbursement fees can be passed onto clients by lawyers and paralegals provided the fees are fair and reasonable. Part of what constitutes fair and reasonable is that the clients are given ample warning that the expenses are part of the legal services rendered by your firm.
The exact terminology that defines fair and reasonable may vary by jurisdiction. For example, the Law Society of Ontario describes a number of factors that must be accounted for when passing on disbursement costs to clients in Ontario. These factors include, but are not limited to each of the following:
Time and effort spent on clerical tasks for a business entity
Any additional skills or services necessary to complete the tasks
Circumstances that can result in delayed payments or lost retainers
Any established agreements between legal professionals and their clients
A client’s consent to receive disbursement fees
Some jurisdictions demand multiple disbursements
How disbursed expenses are deemed fair and reasonable is similar across many jurisdictions. The most important requirement is that clients be made aware of what disbursement costs will be charged to them, and why.
In some jurisdictions, your team may incur multiple fees for individual clerical duties. For example, a voluntary dissolution of an entity in British Columbia requires a fee for both the filing of the resolution to dissolve the entity, as well as a fee for an affidavit. A dissolution cannot proceed without the payment of both fees to the regulators.
In this scenario, it’s imperative to inform clients about the dual fees to complete the dissolution. Only with their knowledge and consent can the filing proceed and the cost pass onto the client.
Disbursement fees option #1: individual filings
Now, there are two main ways to manage disbursed fees that you pass onto clients. The first option is through individual receipts and invoices. This is a traditional method often used by many legal professionals. It does, however, carry significant risks and inefficiencies.
For one thing, you need documents for each expense. A disbursed cost is only fair and reasonable if the client knows what costs are passed onto them. Suppose regulators have charged your firm multiple fees to complete one clerical task for a client. You need the proper documentation for all those records.
Each record must be filed and organized within your office storage space. The risk with this approach is that there’s always the possibility a record could be lost or misplaced. It also carries significant costs for your firm that you can’t pass onto clients. More records require more storage space, and a single five-drawer filing cabinet costs up to $2,000 in most offices. If you’re storing records for many different clients, you need a lot of filing cabinets to organize the documents. Are all those storage costs really worth it?
Additionally, sorting through each of those records takes up precious time for your legal team. Clients may be unhappy paying for filing expenses and then additionally paying for the time spent by your team to sort and organize the records for those expenses. Unhappy clients risk churning away from the firm, putting a dent in opportunities for repeat business.
Disbursement fees option #2: entity management software
The second option is to eliminate the need for paper records, multiple invoices, and expensive office storage space. How do you do that? You use entity management software.
Entity management software is cloud-based technology. It includes built-in professional scanners that allow your team to upload all receipts for expenses, filings, and other documents into the cloud. Entity management technology can also support your accounting managers and how they use software. You can use your entity management platform’s billing component to track expenses and assign the appropriate disbursement costs to clients as needed.
This means there’s even less need for expensive office storage space. You don’t need to maintain binders and filing cabinets full of paper documents that just take up space. Automatically, you’re saving money while also passing on the appropriate expenses to clients as part of your billable hours.
Not only is this a more cost-effective workflow; you save valuable working time for your legal team. Everything is digitized so that you can sort, tag, and organize documents in minutes instead of hours or days. The platform’s advanced search parameters allow you to instantly pull up any records in question. You can avoid charging clients additional fees for time spent organizing clerical records, improving client satisfaction rates and repeat business opportunities.
Don’t miss out on the modern approach to legal entity management. Join the MinuteBox revolution, become more efficient, and ensure your clients get the greatest value from your professional legal services.