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Home | The Perils of On-Line Do-It-Yourself Legal Services

With explosion of the internet and e-commerce in the past twenty years, the internet has become the primary source for consumers for obtaining information and conducting business.  The fact that we can now have access to the world with just a click of the button 24 hours a day, 7 days a week from the comforts of our bedroom is certainly alluring to consumers seeking a convenient and expedient way to get things done at the lowest possible price.
The furnishing of legal services is no exception.  The proliferation of Online Document Production Services (“ODPS”) like Legalzoom offer consumers legal documents and contracts traditionally prepared by lawyers by merely answering a few questions online, and thereby reducing (as consumers are led to believe) the complexity and cost of traditional legal services. This has certainly been an attractive alternative for consumers.  While their marketing is certainly adept at portraying the services as a win-win for the consumer, are the interests of consumers truly served when important legal documents that affect  your rights and responsibilities are prepared by a computer, and ultimately your money is at stake?
At KKOS, we frequently see the consequences that may result when consumers sacrifice the knowledge and expertise that an attorney can provide in favor of convenience.  In fact, our office has a specific service called a “clean-up” where we fix entities that have been set-up on-line or through a state filing system. We get about 100 clean-ups a year and many of them have to be shut-down and entirely scrapped and then we have to start over with a new entity. Some entities can be kept and fixed but it always costs the business owner more in time and money to fix an entity than it does to set one up right the first time.
Therefore, before you decide to click that button to have a legal document prepared for you by an automated service, please consider the following:

  1. An Online Document Preparation Service (ODPS) May Not Provide the Correct Structure for Your Specific Situation Because It is Incapable of Analyzing Your Specific Needs and Goals. An ODPS is used most frequently in the context of business formations or other form contracts.  However, there are infinite number of reasons, purposes or goals in a business or other legal relationship, and different purposes may warrant different types of structures or considerations.  For example, will the entity be running an operational business that creates a need for savings on self-employment tax?  Will it be an entity that holds investments warranting more asset protection?  Is the entity owned by only one person or are there partners involved?  The answer to these questions may result in very different types of entity structures, and contrary to the suggestions of some ODPS Companies, an LLC may not be the appropriate entity for every type of business.   Moreover, if the business is a partnership, an ODPS is ill equipped to be able to reconcile the varying and potential competing rights, duties, responsibilities and interests of the various partners.   In our office, we often called upon the handle or even litigate partnership disputes and often times, resolution of these disputes could have been much more efficient or even avoided had they sought to prepare a partnership specifically catered to their needs and goals.
  2. No one is Available to Counsel and Advise You Through the Process nor Answer Your Questions. While some ODPS Companies do offer the opportunity to speak with a lawyer, in most cases you do not have the opportunity until after you have already paid them to prepare the document, which is like asking you how cold is the water after you’ve already been thrown in. Choosing an appropriate legal structure or preparing legal documents that adequately protect your rights necessarily entails that you have an advisor there understand the situation, and to explain your rights, options, and the legal consequences of any actions you propose to take.     In our experience, many who use ODPS Companies do not have the training and sophistication in the area they are requesting services, and thus do not know the risks or pitfalls involved.   What you don’t know can certainly hurt you, and there are few better examples than when you are dealing with your legal rights or protecting your money.
  3. You Have No Recourse If They Set You Up Incorrectly. Our office has seen many instances where clients were harmed by relying on an ODPS.  For example, clients setting up their entities may have set up with the wrong entity or in the wrong state requiring our services to completely unwind the structure and start over.  Another Client using an ODPS was not told about annual tax filing requirements and was shocked when the taxing authority came after them for back taxes and filing penalties over $10,000.  Still another Client set up a trust, but wasn’t told to transfer real estate into the trust, and now the beneficiary is facing probate.  Some ODPS services tout the fact that they are not a law firm and therefore can pass the savings on to you, but what that really means is they have no license, no accountability, and that you have no recourse if the decisions you make using their services are wrong.
  4. They’re Actually Just as Expensive As a Small Law Firm.  While many ODPS services market a $99 price, when you go through the process you end up paying around $650-700 plus state filing fees for a complete entity set-up. For example, take Legalzoom, you may be able to file articles with the state through them for $99 but if you want an EIN, an operating agreement or bylaws, minutes, membership/share certificates, a corporate book and seal and the rest of the items that are part of a complete entity set-up you will end up having to add all of those items on and that brings you to between $600 and $700. Filing articles through an ODPS for $99 is like going to McDonalds and buying a burger where you only get the burger. Maybe that’s all you really want but most people are at least expecting a bun, some lettuce, and ketchup. That’s just like an entity. Make sure you get what you need and don’t get lured in buy the low price of $99. Our full attorney set-up is only $800 plus state filing fees and that’s only $100 more than a complete entity set-up on Legalzoom.

The internet is a fantastic resource for information and commerce, and can be a valuable tool for individuals seeking information on their rights and the law, and ODPS definitely plays a role in providing access to legal resources to some who would otherwise do nothing.  However, it is important to understand that, in the delivery of legal services, there are limits to what technology can do and to carefully consider what could be at stake when using the services of an ODPS.

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