I think the issue needs to be decided case-by-case, and it depends on the early-stage legal needs of the startup. A few thoughts on what to consider: 1. As in

I think the issue needs to be decided case-by-case, and it depends on the early-stage legal needs of the startup. A few thoughts on what to consider: 1. As indicated by jacquesm, you should never do this where the amount of the equity will cause the attorney to have a conflict in the representation. A rough rule of thumb in the profession is that less than 2% is acceptable for this purpose but I use a less-than-1% measure when I occasionally do these. Very important to keep this part clean. 2. A deferred-fee deal is based on an extension of credit by the attorney performing early-stage services. For example, the attorney might extend up to $20K in fees prior to the earlier of 6 months or first funding in exchange for, say 0.5% of the company. There is real credit risk associated with this because, if the company fails, the attorney has no recourse except against a dead entity. In such a context, it might make sense for a founding group to want to do such an arrangement to avoid having to require members of the founding team to pay their share of such fees and to cut the risks of the formation and company launch. 3. Given the rationale in point 2 for when this might make sense, there are various situations where it obviously does not: (a) where the company does not expect to have too much in the way of early-stage fees (e.g., if it will incur incorporation expenses and not too much more in the early phases, particularly where it will not be going for outside funding - in such a case, the anticipated legal expenses at this stage may be a low as a few thousand dollars); (b) where the deal among the founding team assumes one lead founder will advance such costs and the lead founder is willing and able to do so; (c) where a sole founder is willing to incur the early costs and can comfortably do so; and (d) where a founding team is willing to incur the up-front costs among themselves and does not want to give up the equity. The prototypical case where deferred fees make sense is a founding team going out quickly for VC funding. This is the "big firm" model. In such cases, unless the founders are serial entrepreneurs or otherwise quite capable of paying the rather high up-front fees of such firms, they should at least seriously consider doing a deferred-fee deal. In all other cases, do so only with caution, as the deferred-fee arrangement often makes no sense for the startup (I can say this from the attorney side as well). General rule: always consider it as an option but be careful before entering into such a deal.