When It Comes to Legal Matters, DIY = SOL
One of my continuing frustrations as a business attorney is the availability of online forms and canned document services that purport to be able to provide the necessary structure and assistance to a small business owner.
It is a well known fact that one can file articles of incorporation (for a corporation) or articles of organization (for a limited liability company) online through the Secretary of State, and that the IRS provides an online option to obtain a taxpayer identification number for said entity. However, the Secretary of State’s website will not (1) tell you the difference between an LLC, an S corporation and a C corporation; (2) provide samples for the other needed documents (such as LLC operating agreements or buy-sell agreements for multi-owner entities); or (3) provide legal advice as to what you need to do with your entity once filed. Ever heard of a concept called “piercing the corporate veil”? No? Sounds painful, doesn’t it? Trust me, it is.
Then there’s LegalZoom. You know LegalZoom? It’s the canned forms service founded by one of O.J. Simpson’s defense attorneys. The commercials claim that you can accomplish all these great things – form a corporation, prepare a will, apply for a patent – all without paying “tons of money” to an attorney.
Here’s the problem I have with LegalZoom. First, its selling point plays off a stereotype: that we business lawyers are fee-grubbing scriveners looking to nickel and dime the most out of a set of forms which we use over and over again. Second, LegalZoom’s forms are either incomplete or result in unnecessary expenses for the business owner.
As to the fees issue, I and most of the good business lawyers I know ALWAYS work with our clients on the fees. The idea is we are investing some of our otherwise billable time to help cultivate new businesses. I call this “relationship-focused business law” as opposed to “transaction-focused business law”. We also spend a lot of time – which we do not bill for – helping our clients find other necessary advisors for their businesses (CPAs, insurance agents, business plans, realtors and the like). I also spend a lot of otherwise billable time planning timely educational programs for my clients…or writing blog posts and other articles on timely topics, such as how every Minnesota LLC owner who formed their entity prior to August 1, 2015 has some work to do on their documents before the ball drops in Times Square on January 1, 2018.
In other words, the idea that business lawyers are focused only on fees rather than building trust-based client relationships is simply incorrect.
As to my second point – the quality of LegalZoom’s product – in my opinion, using canned forms leads to unintended consequences. I have worked with clients in the past who initially formed their entity through Legal Zoom and later discovered that they were being billed $160.00 per year for a professional registered agent. There is no reason for someone living in Minnesota and operating a single-member Minnesota LLC to have a paid professional registered agent; they can serve as their own agent for free. My first step with these clients is to prepare and file an amendment which terminates the use of the agent and ends my client’s continuing obligations to pay said agent. In regards to multi-owner entities, particularly LLCs, given Minnesota’s revised LLC law, there is absolutely no way that LegalZoom can adequately explain the various defaults and structuring options the way that we business lawyers can.
I’ve seen and heard of other issues with the quality of the services provided through LegalZoom, such as no buy-sell agreement for a multi-owner business. a former colleague of mine once told me about a problem he saw with one of LegalZoom’s “$99 Wills” that would have resulted in a very expensive probate later on. These issues lead to later expenses for the LegalZoom user which outweigh any purported cost savings at the outset.
The bottom line is that a good business lawyer can be much more than a scrivener of documents, especially in the startup business context. Most of us – myself included – genuinely want to do everything possible to help our clients succeed, from drafting the appropriate documents, making introductions to other key advisors, and opening up our Rolodexes to promote their businesses. This role as a “trusted advisor”, over the course of the relationship, outweighs any alleged “cost savings” which is advertised by the canned forms providers.
I always say that when it comes to legal matters, going the “DIY” route usually winds up with someone being “SOL”, and that is certainly the case when it comes to entity formation.