Frank Becking, co-founder of Panthera Medtech, provided commentary for this article in National Federation of Independent Business (NFIB) on do it yourself legal services for small businesses.
DIY LEGAL SERVICES: ARE THEY RIGHT FOR YOUR BUSINESS?
Author: Clare Curley Date: February 13, 2015
Aalap Shah wanted to launch his social media management agency, but he suffered a common problem: lacking capital to invest in all the legal documentation.
So the co-founder of SoMe Connect in Chicago hopped on a growing trend for startups: “We chose the more DIY approach.”
Relying on a monthly subscription to online legal service company Rocket Lawyer—and occasionally using the site LegalZoom—Shah acquired templates online for their initial independent-contractor agreements, sales-order agreements, terms and conditions, and incorporation. Shah also did his own research, talking to colleagues and reading samples of other companies’ contracts.
Do-it-yourself legal services offer bootstrapped businesses broad instructions on everything from starting an LLC to corporate compliance to filing for bankruptcy. Businesses customize documents by filling in the right spaces and are promised access to advice online if they have questions. But is this a reliable solution for costly legal consulting?
Risky Business
The legal establishment is generally critical of these types of services. Bar Associations in both North Carolina and Connecticut have called into question whether LegalZoom is operating legally. Businesses that build their foundation using online templates should be cautious, warns Shushan Barsegyan, a small business attorney in Glendale, California. “If something goes wrong, you can’t hold anybody responsible.”
Barsegyan says that some of her clients initially saved money that way, but ended up paying twice as much after the fact. Unexpected complications can arise, like when one client’s partnership was falling apart. Hiring a lawyer in the first place “would have saved them thousands of dollars,” she says.
“The stress that they had to go through, the uncertainty and the bickering could have been prevented,” Barsegyan says.
A Starting Point for Some
Your new business may be able to take some legal actions without the assistance of a lawyer, such as DBA registration, a step that is sometimes required when you name your business.
If you’re merely in the exploratory phase, online service providers might steer you in the right direction as to which documents you need, says Barsegyan.
Shortly after launching, SoMe Connect landed a five-figure contract with a new client. Now that Shah and his team could afford a lawyer, they hired one. While the initial templates helped educate them about termination terms and liability concerns, their lawyer examined—and in some cases rewrote—their contracts and other documentation to more accurately reflect the interests of the business.
Self-Education
Don’t use DIY services for any purpose other than browsing, says Frank Becking, co-founder and intellectual property counsel of Panthera MedTech, a medical-technology company in San Jose, California. A risk in using canned forms is that “non-lawyers may not know when they should depart from a given template,” he says.
Companies like LegalZoom do, however, provide dozens of templates that can help entrepreneurs build a better legal vocabulary. “By reading a number of these agreements, entrepreneurs can become self-informed to help formulate the type of questions they should be asking legal counsel,” Becking says.
If startups can’t afford a lawyer, many attorneys will offer an initial consultation for free, Barsegyan says. By speaking with a licensed attorney, you’re more likely to get legal advice that protects your long-term goals.