Without naming names, I understand the appeal of Mad-Libs Style legal service providers that sell pre-drafted, one-size-fits-all legal solutions that you customize with the particular details of your business or transaction. These at-your-fingertips resources are tempting, in part because you can get things accomplished on your own schedule and at budget-friendly rates.
I’d like today to discuss one issue with such Mad-Libs style legal service providers, specifically the hidden costs of this type of self-help, as compared to hiring a real, live, human attorney.
The Hidden Costs of Self-Help
It may seem like a bargain to pay $150 dollars to website that will organize a Limited Liability Company (“LLC”) business entity, file the paperwork with the relevant state autority, and provide a fill-in-the-blanks operating agreement.
There are many reasons why forming an organized business can be beneficial: you may be looking for limited personal liability, or consolidation of your finances into one business entity for easier tax preparation, or to allow for outside investors to get a piece of your business in exchange for a capital contribution.
But there are also a number of reasons that it would not be in your business’s best interests to organize as an LLC. For example:
- You might be better served by a differenty type of entity, such as a Corporation (either a S-corp or C-corp), a general partnership, a limited partnership.
- You may be needlessly paying filing fees and mandatory taxes. For example, in the state of California, there is a mandatory minimum yearly tax of $800 on certain organized business entities in the state, regardless of annual revenue. That is on top of the initial filing fees and the yearly fiiling fees you must submit with annual written statements about your company. If you are not taking full advantage of your organized entity, or if it is wholly unnecessary for your business, then that minimum tax and those filing fees are just draining your bottom line.
- There may be benefits of organizing your business entity in a state different than the one you live in. It may cost you less, provide tax incentives, or better position for your business for growth.
- You may need a more complicated structure to achieve your business goals, and that is something that an attorney would need to analyze, sort out, and implement.
These are issues only a real live lawyer can spot.
The Cost to Redo
Inevitably, when a client comes to me and has already organized a business entity using a Mad-Libs Style online legal service provider, my first task is revising the documents the client obtained online. The documents may be missing crucial language. Or they may have factual or legal inaccuracies.
In my experience, and more often than not, a client coming to me with Mad-Libs style leagl documents doesn’t really even understand the purpose of the documents and the terms and conditions they contain.
Clients who have already spent money with Mad-Libs style legal service providers often end up paying an attorney like me to redo the documents and filings. And those hidden costs are unadvertised on Mad-Libs style legal service provider websties.
So, what seems like a bargain (i.e., organize a business entity for as little as $150) in the end turns out to be substantially more costly, and perhaps even unnecessarily costly.
Take my advice and speak to a real, live attorney. It’s worth it.