For my first post I decided to write about using the DIY legal document services, such as LegalZoom and RocketLawyer when starting a business. A lot of small business people tell me they used above services to form their companies and to create necessary legal documents – shareholder agreements, company by-laws and others to save on legal fees. I worry for such companies, operating based on do-it-yourself forms that were never checked by an attorney. There are simply too many variables that only an experienced lawyer can catch and address in the legal formations documents.
LegalZoom and RocketLawyer provide customizable legal forms for a low monthly fee. In case an attorney is requested by their member, they offer one at a “discounted rate”.
Let’s first discuss using legal document companies for company formations. Sure, it is enough to get a few forms of the internet if you are running a small solo proprietorship, with no partners. However, once you have partners, LLC members, shareholders or investors, the matters get much more complicated. There are so many things that can go wrong in your relationship with other parties that only a lawyer could predict based on his or her knowledge or experience and address in legal documents. Even when things go right and the company starts making money, conflicts may arise between partners as to profit sharing, work responsibilities or exit strategies. In short, a small saving realized by using LegalZoom or RocketLawyer instead of an attorney when starting a business can come back and haunt you later on.
The legal documents companies do refer attorneys at discounted rates, if needed. However, I see a lot of complaints on the internet that even discounted rates are exorbitant. For example, if a lawyer charged $750 an hour, even a twenty-five percent discount would still be over $550 an hour. The lawyers recommended by LegalZoom and RocketLawyer do not charge fixed fees for company documents, they charge an hourly rate, which can quickly and unexpectedly escalate to thousands of dollars.
My advice is to search for business attorneys through word of mouth recommendations by your peers. To avoid surprises ask for a fixed fee price. Finally, you can always ask to break up this fee into monthly payments. For example, if the legal fee is $3,000, ask to pay it off in twelve monthly payments of $250.
I hope this information aids you to smartly choose legal help in forming a new business. Please contact me here if you have any questions.
Michael Levitis is not an attorney and can not give legal advice. You should consult with an attorney prior to making any decision affecting your legal rights.