Engagement Letter

engagement letter

The Essential Components of an Engagement Letter

The engagement letter is a legal contract between a client and a professional firm. It sets forth the terms of the engagement and specifies the scope of the work to be performed. It also outlines the terms of payment for the firm. It may also stipulate the duration of the engagement, the scope of work, and any adversity that may arise. This article outlines the most important components of an engagement letter. We will also touch on how to structure your letter for maximum effect.

Include everything in an engagement letter

It is critical to include everything in an engagement letter, from the scope of work to the specific services the firm will perform. By defining the scope, you avoid any potential misunderstandings and improve your relationship with your client. Be sure to include deadlines and fee structures. Use a service like TaxDome to itemize services. You should also include a space for signatures and dates. It’s a good idea to include an example of what the engagement letter will look like and how the engagement will progress.

The letter also protects both parties from the risk of scope creep, whereby the scope of work grows to cover additional tasks without the additional resources. This can be due to miscommunication or unreasonable expectations. In addition, it will protect both parties from potential legal liabilities. Here are a few things to include in an engagement letter. It may seem like an overwhelming task, but it’s easier than you think. Hopefully, this article will answer some of the most common questions about writing an engagement letter.

Limit scope in engagement letter

An engagement letter is a document that states the scope of a legal professional’s services. The letter states the specific purpose for which the lawyer will be retained and the specific area of expertise for which the lawyer is qualified. For example, a contractor who hires an attorney cannot call on that lawyer to consult on divorce. Likewise, an attorney who is hired for construction projects cannot call on that lawyer for divorce advice. In this manner, a clearly written engagement letter protects the lawyer.

Many lawyers do not use the letters. In fact, many small firms and sole practitioners do not use them. Listed below are some of the main reasons for not using engagement letters. While it is possible to create one without a contract, a firm can create an unintended scope expansion by providing services outside the scope of the original engagement. For example, if the firm provides tax preparation services, the client might assume that no other state returns will be required. This should be avoided by using a new engagement letter.

Limit payment

An engagement letter should clearly state the client’s taxpayer. An individual taxpayer may have business entities or trusts, and it is important to separate the letter for each. If the client has a minor child, the letter should specifically exclude the filing responsibilities of the minor child. However, some engagements include a clause that limits payment to a specific amount for each tax return. A good letter should also make clear which types of services will be excluded.

Another thing to consider in an engagement letter is the timing of payments. Some firms require payment on the date of closing. It is essential to set up terms that will avoid disputes later. A delay in payment could mean an inability to collect the fee. By making the terms clear in the engagement letter, the client will be more likely to pay. The investment banker may not object to this clause, but they will be able to consider the contingent payments at closing time.

Address potential adversity

A multi-client case must contain provisions to address potential adversity between the parties. It must be signed by each client, including a provision for their written consent to joint representation. It should explain how confidential information is shared routinely and how the firm will withdraw from a matter if adversity arises. In some cases, the firm may continue to represent one or more parties after the client has withdrawn from the matter.