LegalZoom as a Cost-Effective Alternative?

LegalZoom sells “do-it-yourself” wills, Trusts and just about any other legal document you could wish for via the Internet. They offer rock-bottom prices and claim that ”virtually anyone” can create valid legal documents using LegalZoom’s site. Can this be true? Many LegalZoom customers across America have some cautionary tales.

Some unhappy customers have fallen for LegalZoom’s low prices and have ordered living Trusts and entity formation kits only to find out that customizing these critical documents to fit their personal situation is not possible. For example; Estate planning legal documents do not offer a way to change beneficiaries or direct who gets your 1964 Corvette or your priceless Boston Whaler fishing boat. This is unfortunate as the one of the main points of an Estate plan is to specify and customize where and to whom you wish your assets and belongings to go to.

There are some LegalZoom Lawsuits Making News

In a class action lawsuit, Katherine Webster sued LegalZoom. Ms. Webster was the executor of an estate that used LegalZoom to create their Trust documents. According to Ms. Webster, she was forced to hire a lawyer to fix the numerous problems with the LegalZoom Trust and had to spend thousands of dollars in legal fees and court costs to remedy these problems. Webster claimed LegalZoom engaged in unfair and deceptive business practices and misled customers with their claims that their documents were of comparable quality to those prepared by a lawyer.

Ms. Webster states in her complaint that “Nowhere in the LegalZoom manual is it made clear that using LegalZoom is not the same as using an attorney and that LegalZoom’s documents are only customized to the extent that the LegalZoom online service inputs your name, but the resultant legal documents are not tailored to your specific circumstances.”

LegalZoom for Business Formation

Sparse legal advice can be given you. – The biggest and most common problem that LegalZoom and other do-it-yourself, or D.I.Y, websites have is their inability to give legal advice because they are not lawyers. These companies are not allowed to tell you how to structure your company and cannot advise you as to the best business formation for you and your business; They cannot legally advise you on the appropriate legal rights each owner should have, or what potential risks you are opening yourself and your company up to in regards to avoidable taxes. However, in 2015, LegalZoom added attorney’s on their staff, and how this impacts their contracts has yet to be tested and seen.

No observation of formalities. – Limited Liability Companies (LLC’s) and Corporations must observe legal and procedural formalities to maintain their entity status. To have your business entity remain legal and offer you the protections you expect, you are required to follow certain rules such as holding annual shareholder meetings, electing directors, adopting shareholder agreements and bylaws, registering with the Secretary of State on a yearly basis, maintain required entity formalities etc. Without the guidance and demystification of the incorporation process by an attorney, many clients are left with broad and non-specific documents that are supposed to safeguard yourself and your business. However, many clients are flummoxed as to what their duties and responsibilities are in relation to their new incorporation–and thus often do not operate their entity correctly and open themselves, both personally and professionally, to liability and risk.

The protections you need are all for nothing. – If you don’t comply with entity formation requirements and State and Federal guidelines, you unknowingly lose the protections you sought when setting up your business formation. You unknowingly open yourself up to losing the legal protections that an incorporation status would have provided.

Multiple Business Owners. – When you have additional business partners or investors they are often considered significant shareholders. It is critical for your business that you hire an experienced business and tax lawyer to set-up and advise you and your shareholders on entity formalities and guidelines that will protect everyone. Additionally,it is a good idea to plan ahead for unanticipated events such as; What happens if you find yourself in a dispute with your other shareholder? What happens if your shareholders want to bail out on you and sell their shares? What happens if one of your shareholder’s passes away? Does his or her spouse become your new business partner?

A Business and Tax Lawyer’s Job is to Protect You from the Start. – Well written by-laws, astute and comprehensive shareholder agreements, and thorough buy-sell agreements, all with the shrewd eye of a tax attorney, can anticipate the most common disputes that are likely to arise. It is always better to negotiate these terms at the outset and set out these agreements in a well-written and comprehensive business contract.