That Do-It-Yourself Legal Form May Be A Costly Mistake
If you’ve decided that 2023 is your year to launch your new business venture, CONGRATULATIONS! Opening that new business involves lots details to arrange and decisions to make: choosing the best organizational structure, arranging financing, locating office space, hiring your staff or consultants, and contracting for supplies, inventory, or services.
For each of these, there are legal issues and considerations – and (unfortunately) serious consequences if you get it wrong.
So your first – and perhaps most important – decision is about whether and when you should seek legal help.
Many entrepreneurs feel overwhelmed when they are just starting out. They worry there is not enough initial capital to get the business up and running and also to pay legal fees. They decide that a do-it-yourself approach will work well enough in the short term, especially with the help of the many online legal-form sites.
At our firm, we often say that if you are going into business with someone else (or someone else’s money) you had better have clearly written, rock-solid legal documents prepared for you and your partners. It’s much more expensive to clean up a legal mess than to prevent it by getting it right in the first place.
So, What’s the Problem with Online Legal-Form Sites?
The internet has been a great tool for individuals and businesses; it’s a quick and free – or relatively inexpensive – source of information and help. It may be tempting to save some valuable dollars by using these sites for the legal documents to form a corporation, or a limited liability company, or a partnership.
However, there’s much more to creating the appropriate legal structure for a business than downloading an online form or cutting and pasting parts of several generalized templates.
The decision about which type of organizational format to use is a complex one that depends on a careful analysis of the type of business involved, the financial situation and needs of the key people, the availability of start-up money or the need to raise capital, and many other factors (like taxes) dependent on the unique circumstances of that business.
Online forms are, by their very nature, one-size-fits-all. Even sites that let you customize a template to some degree are still working within a very generalized framework that may apply to many businesses, but not necessarily to yours.
There’s also no way for you to know whether the forms are complete and correct. You don’t know the credentials of the individuals who drafted them, whether the templates have been updated regularly, and if the forms meet all of the requirements of your state’s laws. Many of the sites are designed for nationwide audiences, although every single state has its own business-formation laws specific to that state alone.
Consider an example. If you want to draft an Operating Agreement for your Florida limited liability company (LLC), but you access an online template, it will likely not include each and every clause necessary to protect you under Florida’s LLC laws. One particularly thorny part of the Florida Revised Limited Liability Company Act, (Chapter 605, Florida Statutes) grants LLC members certain rights if they elect to leave the company. If your document isn’t carefully written to anticipate this event, then a disgruntled business partner might be able (legally) to blow up your otherwise rock-solid business on their way out.
In the Long Run, Hiring a Competent Attorney is the Best Choice
Each business needs specialized advice, so it makes business and financial sense to spend some money up-front for competent legal advice from an experienced attorney who handles business clients, knows the ins-and-outs of your state’s laws, and can advise you on how business really gets done in your community. You don’t get that kind of advice from the internet.
Minimize future problems and disputes: Have your counsel help you make appropriate decisions about the proper legal structure for your venture and then draft custom documents to meet all of your business, financial, and tax needs.