There are many terms commonly used in the legal funding industry and are important for plaintiffs to understand when entering into funding agreements. This week we’re taking a look at what a funding agreement is and how it works in the legal funding process.
A funding agreement in legal funding is a contract between the plaintiff or law firm and the funding company. It outlines the terms and conditions of the financial arrangement whereby the funding company provides an advance to the plaintiff or law firm to cover legal expenses related to a lawsuit.
Funding agreements are legally binding contracts and are essential for clarifying the rights and obligations of both parties involved in the legal funding arrangement. It’s important for plaintiffs and law firms to carefully review and understand the terms of the funding agreement before entering into it.
Below are the key components typically included in a funding agreement.
Advance Amount
An advance amount specifies the amount of money the funding company agrees to provide to the plaintiff or law firm.
Repayment Terms
Repayment terms outline how and when the advance will be repaid. In non-recourse funding agreements, repayment is typically contingent upon the successful outcome of the case, while in recourse agreements, repayment may be required regardless of the case outcome.
Funding Fee
Funding Fees detail any fees charged by the funding company for providing the advance, usually calculated as a percentage of the amount funded.
Interest Rates: If applicable, specify any interest rates that may apply to the advance amount.
Case Evaluation
Case Evaluation describes the process by which the funding company evaluates the merits and potential outcomes of the case before providing funding.
Use of Funds
A Use of Funds states how the funds can be used, typically including legal fees, court costs, medical expenses, living expenses, and other related costs.
Assignment of Proceeds
Assignment of proceeds specifies the assignment of the right to receive future settlement or verdict proceeds to the funding company as repayment for the advance.
Confidentiality
Confidentiality addresses the confidentiality obligations of both parties regarding the terms of the agreement and any information exchanged during the funding process.
Termination
Termination outlines the conditions under which the agreement may be terminated by either party.
Jurisdiction and Governing Law
Jurisdiction and/or Governing Law determines the jurisdiction and governing law that will apply to any disputes arising from the agreement.
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