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Should your business use online legal services?

(page 1 of 3)

From the pages of In Business magazine.

On the face of it, the controversy over online legal services has unfolded along modern business fault lines in which technology-enabled, disruptive business models begin to threaten an established business or industry. But in the case of online legal services like LegalZoom, Rocket Lawyer, and others, even attorneys admit the online upstarts have tapped into a small business market their industry has largely ignored; now, many attorneys are finding creative ways to reengage with that market.

Part of that courting process is pointing out the alleged shortcomings of such online services, which offer all manner of legal forms and documents for personal and business use and back them up with consultations with licensed attorneys. It’s a classic buyer-beware scenario between choosing a lower-cost option that either serves you just fine or leads to expensive problems, or paying more for traditional legal counsel and benefiting from an ongoing relationship with a competent attorney.

“People do not realize the value of an attorney, and maybe attorneys haven’t done a good job of marketing themselves in this way, but they offer so much more than just creating documents.”
— Rebecca Burkes, supervising attorney, Law & Entrepreneurship Clinic, UW-Madison Law School

In true legal fashion, the advent of online legal services has also spawned lawsuits. First, it was state attorneys general and state bar associations suing LegalZoom for allegedly practicing law without a license. Several cases have been settled and others are still pending, but LegalZoom shrugs them off as a cost of serving an underserved market. Then LegalZoom sued competitor Rocket Lawyer, claiming false and misleading advertising, trademark infringement, and unfair competition — all of which Rocket Lawyer calls meritless.

Disputes aside, these online services point to support from venture capitalists as validation, and claim millions of customers and tens of millions in annual revenue. However, the salient questions for entrepreneurs are: Just how reliable are these services for launching and serving your young business? And how well do they serve as a form of preventive medicine?

The prosecution

In using online legal forms, the worst-case scenario is that business owners can end up in litigation trying to unwind something that competent legal counsel would have helped them avoid in the first place. While online services have hired experts to bring their documents up to date, a common critique from legal professionals, who ridicule online forms as “do-it-yourself” legal service, is that the forms are ambiguous, tend to be one-size-fits-all, and carry disclaimers that no attorney, based on professional rules and responsibilities, would dare rely on.

For a more unbiased view, we turned to a member of the accounting profession. Sometimes, accountants are in the position of having to address mistakes made by attorneys, online or otherwise, because when a client receives incompetent legal advice, it’s usually the accountant who ends up fielding legal questions. So instead of acting as attorneys, accountants make referrals to lawyers.

Carl Schultz, president and CEO of SVA Certified Public Accountants, says SVA does not generally refer its clients to online legal services, although some clients prefer to go that route to save money. “We understand it’s cheaper, and some people are willing to take those risks,” he said. “That’s just the way it is. They want to save those dollars.”

His concern centers on what clients may have forgotten to address based upon the facts and circumstances of an agreement. They might also misinterpret language and insert incorrect language into a document, so at a minimum, Schultz noted that SVA would want an attorney to review any documents prepared online.

“We fear that there are gaps because you have to interpret the documents and/or the additions — the inserted paragraphs,” Schultz says. “It’s difficult for a layperson to understand everything in a legal document for its implications.”

That’s true, he added, even with respect to boilerplate business documents for business formation because they might govern partnerships. If the nuances are such that you have multiple owners, you would need language that explains what happens if someone decides to leave.

However, Schultz acknowledged that the services of an attorney might be unnecessary when an online document is used by someone launching a sole proprietorship. “Maybe the boilerplate thing works because you can always adapt down the road if you add another owner,” Schultz noted. “In many cases, it’s much more complex than people think, and they don’t know what they don’t know. As you expand the ownership group, it becomes much more prudent to have good legal advice.”

(Continued)

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