Starting your own business is expensive. We know – we’ve done it. With an ever-growing pile of start-up expenses, cost-cutting becomes paramount. That being the case, many entrepreneurs consider using online legal services to assist them with setting up a business entity (such as an LLC or corporation). While the up-front pricing may seem attractive, do-it-yourself lawyering can be extremely hazardous and, if not done right, is likely to end up being more expensive in the long run.
For those not familiar with how these online companies work, the model is usually the same across the board: the company mass-produces and sells one-size-fits-all documents (such as contracts, wills, etc.) at what appear to be very affordable prices. After collecting information from a consumer, blanks in these documents are filled in and a final product is generated and made available for use. But, like anything else that’s one-size-fits-all, the fit will often cover too much or not enough. In the legal world, the risk of “or not enough” should be deeply concerning. This is because, typically, the consumer doesn’t know what may have been overlooked or omitted. If it’s something important, the document you’ve purchased online may end up being worthless. Or, worse yet, it may actually make things more difficult and expensive for you.
With respect to starting a business, here are several significant concerns that should be weighed carefully before using online legal services:
You won’t get personalized advice about which legal entity best suits your business needs. Particularly if you’re a small business, the choice of which entity to use is important. Do you choose a partnership? If so, which kind? Or an LLC? If so, should it be taxed as a partnership or an S-Corp? Of course, you may be able to do some research yourself and make a determination, but you still run the risk of (a) choosing something that could have unanticipated costs or (b) overlooking a better option.
Your options regarding keeping your personal information private will be limited. For example, to form an LLC in Missouri, the business owner must list the contact information for someone who acts as the business’ registered agent. Specifically, the business must list someone’s physical address (which will become publicly available to anyone who wishes to find it). An online legal service will typically give you two options: (a) list yourself or (b) pay a third party an annual fee to do it for you so you can keep your information private. However, if you hire a lawyer to assist with setting up the LLC, law firms such as ours will generally list themselves as your registered agent at no additional cost so that you can maintain your personal privacy.
You won’t have a specific person to call if something isn’t correct or a problem arises. In the event something goes wrong with the service you’ve received, your only option will likely be to wade through an automated customer service department in the hope of getting a refund. Chances are, you won’t have the option to speak to an attorney face-to-face about the problem you’re dealing with. In the long run (and in order to get complete peace of mind) you’ll probably still need to meet with a local attorney in person to ensure that the work is done right and the problems are resolved.
Even if the entity is set up properly with the state, the necessary internal documents you purchased won’t be tailored to your specific needs. Without fully understanding the generic operating Agreement or By-Laws these online services provide, you may be locking yourself into certain processes and procedures that could be harmful later on down the line. For example, if your business runs into hard times and has to seek bankruptcy protection, an LLC’s operating agreement should detail specifically how the owner(s) would like to handle the intricacies and details. An online legal service will generate some default procedures (which a judge will hold you to if need be) that you may not like and which may not be in your best interest.
You won’t receive advice regarding other compliance concerns. For example, if you were interested in setting up an LLC to operate a nightly rental business, you won’t be told how to comply with other mandatory requirements, such as a local business license, Planning & Zoning permits or obtain health department certifications.
Ultimately, when it comes to legal matters, it’s wise to at least consider the “Haircut Rule” before trying to complete things on your own. Nearly every person reading this article is capable of cutting his or her own hair. The question is, should you? Is the potential outcome of doing it yourself (or, in this case, paying an online legal service to do it cheaply) really worth the risk?
Chances are, paying someone to do it right from the beginning is well worth the expense and could help you avoid headaches and additional expenses down the line.