LegalZoom: Breakdown and Review

LegalZoom

According to their website, LegalZoom has over 1 million satisfied customers.

They even “ensure your pleasure” at LegalZoom.

Maybe LegalZoom should rewrite its guarantee since we’re always using the legal broom to clean up this do-it-yourself legal paperwork. On a regular basis, we come across businesses that have utilized LegalZoom or similar legal document providers only to discover that their company formation or legal structure is flawed.

“What you pay for, you get…”

So, what exactly is LegalZoom? LegalZoom is a fee-based business that delivers legal papers. LegalZoom’s website states (although in small text at the bottom of its main page) that “LegalZoom is not a legal firm and is not a replacement for an attorney or law practice.” According to its disclaimer, “LegalZoom cannot give legal advice and can only provide self-help services at your specified direction.” Although many people believe LegalZoom operates as a legal practice, this is not the case. With these legal document services, you simply get what you paid for.

LegalZoom is not the issue in every instance; it gives legal answers that may be appropriate in certain circumstances. Some firms, for example, may survive and even thrive with the aid of a legal document provider, since a cheaper, do-it-yourself option is sometimes “good enough” and gets the job done. As a client, you must assess if this sort of service will provide the legal documentation that your firm needs. If you utilize a self-help service, you should not expect trained lawyers with the necessary subject matter knowledge to analyze, modify, and adjust your company’s legal papers in accordance with your specific legal, tax, and financial circumstances.

“Last night, I stayed at a Holiday Inn Express.”

Even if you had a good night’s sleep and a strong cup of coffee to start the day, do you have the time, knowledge, attention, and skill set required to plan, organize, and record the establishment of your new company? (Not to mention the ongoing maintenance of its structure.)

Will you complete all of the activities required to successfully incorporate your company? We often see entrepreneurs who used a legal document provider to do the first state file to create their firm. They are then given a notepad or a CD with numerous legal paperwork that sits unfinished for months, if not years. You have a company to establish, so it is understandable that your focus may be distracted. However, resolving these administrative and legal issues after the event is complex, costly, and often impossible, particularly if a legal conflict has emerged.

Is your new business led by a group of founders with varying degrees of engagement and equity ownership? Do you have any stock buyback agreements in place? Have you signed any contracts to safeguard your company’s trade secrets and other intellectual property? For example, in the case that a founder departs the firm, it is critical to address adequate ownership and intellectual property rights.

When reviewing a do-it-yourself company, we frequently encounter: I an insufficient capital structure that does not allow for future equity issuances or stock incentive plans; (ii) a lack of documentation regarding the company’s equity ownership (e.g., no stock ledger, no governance approvals, no stock certificates, etc.) with promises to founders, employees, and consultants regarding their equity stakes in the company; and (iii) no attempt to protect the company’s intellectual property Furthermore, the corporate documents are unlikely to demonstrate effective governance ties, since there is no clear indication or appointment of corporate officials and the Board of Directors.

“You have the option of paying me now or later.”

Some businesses may be fortunate enough to avoid future shareholder, governance, or other problems that would call into question the legal frameworks or commercial arrangements that they have sought to put in place. Other organizations, on the other hand, may discover too late that their do-it-yourself legal papers are flawed, and it may then be a very hard and expensive exercise to unravel and clean up the earlier legal troubles.

For example, even in the early phases of a business formation, it is not a less expensive way to unravel and correct past do-it-yourself legal work. We often have to redraft and refile organizational papers because they are inadequately prepared (and so incomplete or ambiguous) or lack the essential legal terminology necessary. As the famous Fram oil filter commercial once said, if you do not pay for the necessary legal solution from the start, you will ultimately need to retain experienced counsel to get your legal problems back on track.

It all boils down to the sort of business you want to start and grow. You should evaluate the right legal basis that will enable your firm to acquire funds, distribute shares, create essential technologies, offer goods and services, and so on while managing your company’s legal risk and exposure effectively. When you establish a business, you should spend the required time, energy, and resources in the early organization and structure of your firm as you position it to grow.

Now it’s your turn:

Have you used do-it-yourself legal document services before? Please let us know if this is the case! How did you get your company back on track after that? Have you used do-it-yourself legal document services before? Please let us know if this is the case! How did you get your company back on track after that?


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Oliver Moore