Doing DIY legal for your business is like doing DIY earthquake prevention for your business. Chances are, if your business is going to fail, it'll probably fail because you're out of money, time, customers, employees, etc., not because of legal troubles or earthquakes... furthermore, there are tons of small businesses who are of a dubious legal / earthquake preparation, but nevertheless make money and do fine for a really long time. But when a major earthquake or lawsuit does occur, you're probably going to lose everything without proper earthquake / legal protection (you might still lose everything with proper earthquake / legal protection).
So should you do your own legal? Yes if you're <20 employees, no if you're >40 employees or you're putting your business through a hype-generator and you've generated hype or you think the law profession is somehow worshipful and you're cowed by lawyers.
Also, most legal screwups won't cause a company to fail—but they will cause unnecessary expense, distraction, and stress. The point is that all of that's preventable if you are careful.
I formed my LLC for consulting with LegalZoom. Of course a different company might require representation. I'd surmise that if you don't know the difference, and you just go the attorney route out of default, you probably don't have a deep enough understanding of your company for long-term success.
There's also the issue of illusions of grandeur: spending big dollars in legal fees is its own form of cargo culting.
That was VERY anecdotal evidence against using legalzoom. Sure it may turn out poorly in some situations; however, I still think of it as a resource. The Y combinator backed company probably makes more sense for our domain but I would not write off legalzoom based on anything I read in this article.
Quite honestly, I wish I could downvote for this very case. This post provides no actual details or tangible evidence of how LegalZoon fails their customers. Furthermore, the post being on a corporate lawyer firm site doesn't exactly give it credible and unbiased opinion.
Automation will come to all industries, legal counsel included.
Completely self-serve is not necessarily the right answer. But some level of self-serve combined with an expert matching system would be quite interesting. It's not just founding C corps with standard Bylaws and Certs, but everything you can get a good handle on, like;
Terms of Service, Privacy Policies, Offers, Purchase & Sale, Warranty, SLAs, etc.
And it's not about generating some obtuse document which you hope no one will truly read and understand... you could generate, essentially what amounts to truly usable and human friendly documentation, backed by fully automated document generation.
Like any problem it comes down to defining the inputs and the outputs. How dynamic do you make the documents? How complex do you make the user inputs?
I think the one point the article makes is, how often is an automated tool appropriate to use and will the user know if that's not the case? Even in the cited case there's a lawyer involved who messes up.
I've found that if you prepare a document in advance which, lays out what you hope to achieve, and it's not fatally flawed, they will use your docs and ultimately charge you less.
Yeah, I think a good future state would be experts with software augmenting their abilities, like helping flesh out the correct documents. There is precious little of that in the legal industry, though.
For the U.S., It is not hard to create an LLC, and it isn't worth paying legal zoom hundreds of dollars to do something you're tax dollars are already supporting. For example, in California, go to this page
If you are prone to blindly handing over your money whenever someone tells you you're too stupid to do something on your own, you shouldn't be running a business in the first place. Be resourceful damn it.
You're correct when you say that creating a LLC is not hard to do. IANAL, but creating a LLC might not be the best choice of incorporation for a startup though. The referenced Y Combinator company Clerky helps incorporate startups as Delaware C-Corps for a grand total of $381 [1]. That's about as cheap as legalzoom, not including the filing fees for California LLCs (which are $800 a year to the Franchise Tax Board). [2]
If you're based in Calif, there is no benefit tax-wise to filing in Delaware. Calif will tax you on the dollars you earn in Calif., regardless of where you incorporate. As an LLC, the minimum tax in Calif is $800. So, if you're based in Calif. you might as well incorporate in Calif too and save the $381 to incorporate in Delaware and pay the annual Delaware fees. I know this b/c I went through this very mistake a few years back.
If you want to take external investors money, you need to incorporate in Delaware. If you are just bootstrapping then there's no need to do this and you may as well just incorporate in California as you suggest (ie it's not about tax optimization!)
One problem with dealing with the state of California is that mail correspondence sometimes span many weeks. You may not receive your endorsed LLC paperwork for a quite while. And if your form has an error, the state will return your rejected LLC paperwork, and start the clock again. In most cases, its worth paying somebody to avoid these delays.
What's wrong with waiting 'many weeks'? Your idea is not going anywhere, and if it is, it's a bad idea.
If you want to do business before the LLC, you can go ahead. Then, once the LLC is formalized, transfer any assets you've created or acquired to it. For example:
As far as making mistakes goes, the paperwork is simpler than filling out doctor's paperwork on a new office visit. For any gaps, it's not hard to read NOLO, and the experience will help you grow as a business person as you learn self-reliance
And, FWIW, Legal zoom has to push the paperwork through the exact same process. The processing time will be the same either way, but you'll likely pay legalzoom a premium on top of the expedited service fee the state charges them.
I don't get it. The startup in the example paid a lawyer for advice, and that lawyer didn't have his own good templates to use for this stuff, and just charge the bare minimum for the minimum amount of time?
Sounds like they picked an inappropriate small-town non-startup lawyer. That's a way bigger problem than the legal zoom documents.
Yes it is strange. I felt the article also showed how simply getting a lawyer might not work out for you either.
You have to pay attention, had anyone been paying attention either at the legalzoom review/selection, lawyer selection, lawyer review or combination of both at all they might have been fine.
Having one lawyer all the way through is nice but that rarely happens in reality probably. Somewhere someone has to pay attention, legalzoom usage or with a lawyer.
Mistakes can obviously be made at any level, the best advice from this is probably get multiple lawyers but I am sure that is what the law firm blog wants you to do.
At best this link bait. At worst they've taken up bad practices used by other industries (specifically the personal finance industry).
As others have mentioned the post gives no evidence of how LegalZoom fails their customer.
This is a good sign for LegalZoom and similar startups, the post is one of many legal service firms attempting to scrape the bottom of the barrel and fighting to discredit the inevitable automation of their services.
Sorry, but actually wrong on all fronts. I was genuinely pretty surprised by how bad the situation was and thought it would be interesting to write about. Sorry if you feel differently.
24 comments
[ 2.1 ms ] story [ 64.1 ms ] threadSo should you do your own legal? Yes if you're <20 employees, no if you're >40 employees or you're putting your business through a hype-generator and you've generated hype or you think the law profession is somehow worshipful and you're cowed by lawyers.
Also, most legal screwups won't cause a company to fail—but they will cause unnecessary expense, distraction, and stress. The point is that all of that's preventable if you are careful.
There's also the issue of illusions of grandeur: spending big dollars in legal fees is its own form of cargo culting.
Completely self-serve is not necessarily the right answer. But some level of self-serve combined with an expert matching system would be quite interesting. It's not just founding C corps with standard Bylaws and Certs, but everything you can get a good handle on, like;
Terms of Service, Privacy Policies, Offers, Purchase & Sale, Warranty, SLAs, etc.
And it's not about generating some obtuse document which you hope no one will truly read and understand... you could generate, essentially what amounts to truly usable and human friendly documentation, backed by fully automated document generation.
Like any problem it comes down to defining the inputs and the outputs. How dynamic do you make the documents? How complex do you make the user inputs?
I think the one point the article makes is, how often is an automated tool appropriate to use and will the user know if that's not the case? Even in the cited case there's a lawyer involved who messes up.
I've found that if you prepare a document in advance which, lays out what you hope to achieve, and it's not fatally flawed, they will use your docs and ultimately charge you less.
http://www.sos.ca.gov/business/be/filing-tips-llc.htm
You can get an LLC-1 and fill it out (very minimal). Nolo is a good resource for the rest of your options
http://www.nolo.com/legal-encyclopedia/california-form-llc-3...
If you are prone to blindly handing over your money whenever someone tells you you're too stupid to do something on your own, you shouldn't be running a business in the first place. Be resourceful damn it.
[1] https://www.clerky.com/pricing [2] https://www.ftb.ca.gov/businesses/bus_structures/LLCompany.s...
If you want to do business before the LLC, you can go ahead. Then, once the LLC is formalized, transfer any assets you've created or acquired to it. For example:
http://www.newyorksmallbusinesslaw.com/new_york_small_busine...
As far as making mistakes goes, the paperwork is simpler than filling out doctor's paperwork on a new office visit. For any gaps, it's not hard to read NOLO, and the experience will help you grow as a business person as you learn self-reliance
And, FWIW, Legal zoom has to push the paperwork through the exact same process. The processing time will be the same either way, but you'll likely pay legalzoom a premium on top of the expedited service fee the state charges them.
https://www.legalzoom.com/assets/modals/modal-priority-rush-...
https://legalarrow.com/LLC/ProcessTimes.htm
Sounds like they picked an inappropriate small-town non-startup lawyer. That's a way bigger problem than the legal zoom documents.
You have to pay attention, had anyone been paying attention either at the legalzoom review/selection, lawyer selection, lawyer review or combination of both at all they might have been fine.
Having one lawyer all the way through is nice but that rarely happens in reality probably. Somewhere someone has to pay attention, legalzoom usage or with a lawyer.
Mistakes can obviously be made at any level, the best advice from this is probably get multiple lawyers but I am sure that is what the law firm blog wants you to do.
As others have mentioned the post gives no evidence of how LegalZoom fails their customer.
This is a good sign for LegalZoom and similar startups, the post is one of many legal service firms attempting to scrape the bottom of the barrel and fighting to discredit the inevitable automation of their services.
http://en.wikipedia.org/wiki/Halliburton