Did LegalZoom Setup Your Company Correctly?

Probably not.

LegalZoom has gotten a lot of buzz. It's great for limited purposes, but it's not my favorite. You might be thinking, of course, you're gonna say that–you're a lawyer. Well, yes, that's partially true but I'm going to be honest with you, I've been hired to fix quite a few things that LegalZoom has broken.

Why? Because LegalZoom is pretty much an algorithm where you're putting in information and it's getting spit right back out. It is not a substitute for an attorney and a lot of disclaimers actually say that in there! 

You think I'm making this up? 

I'm not, they recognize it too!

Now, what has happened? Let me give you a few examples where LegalZoom has gone wrong and what you should probably think about.

Partnerships

Number one, partnerships. People come together, they form an LLC. They say, “we're a partnership and LegalZoom did all my documentation. Here you go!” Now they're having a dispute. I pull it up and I look through it and I realize that LegalZoom had not only formed their LLC, it never properly gave them the percentage of allocation in their business. So while we're winding up dissolving, or whatever, one partner got 30% and one got 70%, which is not what they agreed on. How did that happen? That happened because again, it's an algorithm, it can make mistakes and most of these are just push ‘n play on paper. 

Dispute Issues

Number two is going to be dispute issues. Let's say that you want a contract, you get it drafted through LegalZoom. A dispute mandates arbitration. No one ever explained to you what an arbitration clause was. Maybe you Googled it and saw a little bit of information and you gloss over it, so you have someone sign it. Now we're in “dispute world” and arbitration is costing you an arm and a leg. It would have been way cheaper to go to court. People don't realize that arbitration is not necessarily better than going before a judge in many situations, especially if you're a business owner. Arbitration may not be the answer. It's costly, it is time consuming, and it's required and you're bound because it's in a contract that you signed, but no one ever told you about it.

Attorney Fee Provision

Number three, another where LegalZoom has messed up is attorney fee provision. Did you know that in most states, you can not get your attorney fees back unless they're in the contract? That's right! You have to ask for them and they have to be in the contract. If they're not there, you're not going to get them and that's really important–here's why. 

If I am in the right and we sign a contract, and you're in the wrong and you know you're wrong, and you're going to owe me money, I have to go now hire a lawyer to represent me.

That's going to cost me just about as much money to enforce the contract to get my money back from you and I don't get reimbursed for those lawyer fees. That's a huge problem! Why would you want to sign something where you're intending to act ethically and uphold the standards, but you couldn't be reimbursed if things went wrong. You don't want to sign that, right? Again, this is where LegalZoom can get it wrong sometimes, because I've seen where those contracts come from, and I've heard them disputed in a courtroom and a lot of them don't have that language. 

Not a Substitute for Custom Advice

My final point on LegalZoom is that it is not a substitute for custom advice for your business–it's just not! What can happen is you think your business is going one direction and LegalZoom, doing the best they can do, just spit things out to fit the information you're feeding them. They don't know how to probe deeper, they don't know to ask you the questions about your scaling, or to push back on your ideas to make sure that is the correct way to set things up. They just don't know how to do that. That's not what they're designed to do.

What can happen is, your business goes one direction and the paperwork doesn't support it, and then something goes wrong. Let's say you have all the other provisions we just talked about in there and you really love your contract, but something goes wrong and it's not the same type of service or goods that the contract was created for and that happens a lot. They’re not asking those questions. They're not probing you. It's not a human, where you're getting an interaction and a custom response.

Now, it's really important that I tell all business owners to educate yourself. Whatever service you hire to do things for you, make sure you go through and you understand what all the terms are and what terms are missing. Is it sufficient for your business and can this help you grow and scale? My goal, when I work with a client, is not only to protect them today but to make sure we're going in a direction and setting up legal protections so they can grow and scale and stay protected. There's a difference. We can protect you today pretty simply, but we want to make sure that we're contemplating down the road so you're not coming back to meet every month or every six months to change things. We're trying to get you set up so you can just go run your business. LegalZoom just does not do that. 

Ask me how I know!

They have their place for certain things. They're not my favorite because I've been paid many times over to fix things they have broken or they've missed. I've had clients not get their money back from them because of this. It's a problem. It's never a substitute for advice from an actual attorney as long as you do not mind someone digging into your business and ensuring that you are protected and you understand risk. Understanding risk is a big part of being a business owner and you have to have that down.