This post was authored by Trippe Fried, Esq., and appeared at http://www.sourcedgeneralcounsel.com/news/2015/8/16/its-like-the-plague-why-entrepreneurs-should-avoid-legalzoom.
Though LegalZoom purportedly offers a low-cost alternative for routine legal matters, in reality it sells only one thing: A false sense of security. And let's dispense at the outset with the myth that it is self-serving for a business lawyer to be critical of an incorporation service. There is usually more to be made in attorneys' fees helping clients clean up the messes LegalZoom (or Clerky, or the like) leave behind than handling routine incorporations. But it still needs to be stressed: LegalZoom's "why use a lawyer when you don't need one" logic is disingenuous, misleading, and potentially very costly.
You don't need a lawyer, accountant, or service to incorporate. Anyone can do it by visiting the official government website of the jurisdiction of formation. Some states like New York and New Jersey offer self-explanatory online filing; others like Delaware and California provide easy to complete forms that you submit by mail. Follow the instructions and . . . Voila! . . . you're business is incorporated.
Starting a business is about forming relationships. You have new partners, co-owners, vendors, customers, and investors. The rights and responsibilities of each need to be discussed, clearly established, and then documented. A lawyer's ability to guide clients toward well-defined, workable, and mutually beneficial relationships and then to capture the spirit and intent of the parties in writing is indispensable. A well-drafted contract is tailored to the signatories' specific needs and easily understood by them without consulting counsel. The boilerplate, one-size-fits-all tomes LegalZoom cranks out look nice but are often confusing to the point of uselessness and contain pages of superfluous language. Just this week the owners of two different companies with which I work learned that the canned documents they used to incorporate prior to hiring me, while voluminous and very official looking, contained provisions that could prove very costly because they didn't meet the specific needs of the businesses and their owners.
This is not to say that a business should spend a lot on legal services at the start-up phase. Quite the contrary: The key is to find out what your business needs. Triage is part of the process: Don't pay now for services that won't be necessary until a later date. But simply buying a bunch of documents and assuming you're covered is foolish. Entrepreneurs - that is, people serious about starting a successful business - know better than to use form-fillers for legal advice.