Startup Lawyer | Why LegalZoom Fails Startups
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Why LegalZoom Fails Startups

Posted 21 Feb 2009

Thinking of saving some cash and using LegalZoom to incorporate your startup? Think again. While incorporating with LegalZoom is a viable option for some new businesses, LegalZoom comes up way short for startups.

LegalZoom just doesn’t offer the documents a typical startup needs: Shareholders Agreement? Nope. Stock Purchase Agreements? No. Tech transfer agreements? Nada.

What about the quality of LegalZoom documents? Robert Shapiro, co-founder of LegalZoom, explains the quality of LegalZoom documents in a 2004 interview:

“And everything we do at LegalZoom is an original document. We’re not a form-filling service. Our documents are first-rate.”

Look, I’m sure they have some great documents, but I’m calling bullsh!t on every document at LegalZoom being an ‘original’ document. For those that don’t remember, Shapiro is the dude that represented O.J. Simpson. Take that for what it’s worth.

If you don’t have the resources to hire a startup lawyer (or just don’t want to), then simply don’t hire anyone to incorporate your startup. Not your accountant, not your financial planner, and definitely not LegalZoom.

Instead, do it yourself and save even more money. If you need help, I think you’ll find that employees at the Secretary of State are very helpful. They will not be able to help you draft your documents, but they will answer your questions about incorporating. And some states will have template articles of incorporation you can use.

74 Comments
  • Marshall R. Isaacs
    Posted at 04:26h, 22 February Reply

    I recently decided to perfrom my own arthroscopic surgery based on an article I read on WebMD. Okay, I didn't. But I'd do so long before retaining LegalZoom as my coprorate counsel.

  • Marshall R. Isaacs
    Posted at 23:26h, 21 February Reply

    I recently decided to perfrom my own arthroscopic surgery based on an article I read on WebMD. Okay, I didn't. But I'd do so long before retaining LegalZoom as my coprorate counsel.

  • Dar
    Posted at 06:37h, 22 February Reply

    I agree. I've used a couple websites to incorporate for me, but soon realized how much of a savings it is when it's self-done. All the other documents a company will need should be original or from a trusted legal adviser. Every business is unique and should have unique agreements, articles, bylaws, etc.

    Great blog BTW. I check it daily!

  • Dar
    Posted at 01:37h, 22 February Reply

    I agree. I've used a couple websites to incorporate for me, but soon realized how much of a savings it is when it's self-done. All the other documents a company will need should be original or from a trusted legal adviser. Every business is unique and should have unique agreements, articles, bylaws, etc.

    Great blog BTW. I check it daily!

  • Harsha
    Posted at 08:09h, 22 February Reply

    Ryan, what do you think of Intuit's MyCorporation?

  • Harsha
    Posted at 03:09h, 22 February Reply

    Ryan, what do you think of Intuit's MyCorporation?

  • Ryan Roberts
    Posted at 10:45h, 22 February Reply

    Harsha – It looks like they are offering $0 incorporations as a loss-leader for other intuit services. I guess that's fine but I wanted to barf after reading their "C-corporation Example":


    Gabby and her two best friends, decide to start a company that develops personal budget software for smart phones. They are excellent programmers and developers, not to mention business people, so there is a good chance they will take their company public in the future. They decide they will call their company "G3 Development" and that they will divide all the profits and liabilities of the company equally among the three of them. Since issuing stock and potentially going public is a requirement of Gabby and her friends, they decide to form a general-for-profit corporation or C-Corporation.

    (a) There's a good chance they'll go public because they are excellent programmers? Uh, ok.

    (b) Issuing stock is a requirement of Gabby and her friends? Well, it's a requirement of owning a stock in the corporation.

    (c) Of course, no mention of making sure the IP is properly transferred to the corporation.

    (d) Why a C-corporation? If Gabby and her imaginary friends qualify, they could run as a subchapter S-corporation until they don't qualify anymore (most likely being they issue a 2nd class of stock to a VC).

    I think their C-corporation example just really shows how out-of-touch these quick incorporation services are with the startup world. If you want a quick incorporation simply for liability shielding, I guess it's fine to use either Intuit or LegalZoom.

    In any event, it looks like their $0 services aren't as comprehensive as say LegalZoom. They want to charge you $70 for getting your employer tax ID number. (Which takes about 5 minutes online through the IRS website.)

  • Ryan Roberts
    Posted at 05:45h, 22 February Reply

    Harsha – It looks like they are offering $0 incorporations as a loss-leader for other intuit services. I guess that's fine but I wanted to barf after reading their "C-corporation Example":


    Gabby and her two best friends, decide to start a company that develops personal budget software for smart phones. They are excellent programmers and developers, not to mention business people, so there is a good chance they will take their company public in the future. They decide they will call their company "G3 Development" and that they will divide all the profits and liabilities of the company equally among the three of them. Since issuing stock and potentially going public is a requirement of Gabby and her friends, they decide to form a general-for-profit corporation or C-Corporation.

    (a) There's a good chance they'll go public because they are excellent programmers? Uh, ok.

    (b) Issuing stock is a requirement of Gabby and her friends? Well, it's a requirement of owning a stock in the corporation.

    (c) Of course, no mention of making sure the IP is properly transferred to the corporation.

    (d) Why a C-corporation? If Gabby and her imaginary friends qualify, they could run as a subchapter S-corporation until they don't qualify anymore (most likely being they issue a 2nd class of stock to a VC).

    I think their C-corporation example just really shows how out-of-touch these quick incorporation services are with the startup world. If you want a quick incorporation simply for liability shielding, I guess it's fine to use either Intuit or LegalZoom.

    In any event, it looks like their $0 services aren't as comprehensive as say LegalZoom. They want to charge you $70 for getting your employer tax ID number. (Which takes about 5 minutes online through the IRS website.)

  • LegalZoom: not enough for incorporation « Reading Tea Leaves by Randy Wilson
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  • Mike
    Posted at 16:52h, 22 February Reply

    Ryan,

    I couldn't agree more regarding LegalZoom. It has been my experience that their filings are basic and if you have a problem it is up to the customer to fix with the secretary of state. The problem with filing a basic formation document is that if the articles of incorporation do not have certain provisions and the internal documents are silent (if there are any) then courts will look to the statutes to fill in the blanks and if you are forming a LLC that could be a problem. Legalzoom and My Corporation are more interested in becoming your registered agent and receiving an annual fee from you than filing quality formation documents. I have heard that the Unauthorized Practice of Law Committee is investigating LegalZoom.

  • Mike
    Posted at 11:52h, 22 February Reply

    Ryan,

    I couldn't agree more regarding LegalZoom. It has been my experience that their filings are basic and if you have a problem it is up to the customer to fix with the secretary of state. The problem with filing a basic formation document is that if the articles of incorporation do not have certain provisions and the internal documents are silent (if there are any) then courts will look to the statutes to fill in the blanks and if you are forming a LLC that could be a problem. Legalzoom and My Corporation are more interested in becoming your registered agent and receiving an annual fee from you than filing quality formation documents. I have heard that the Unauthorized Practice of Law Committee is investigating LegalZoom.

  • Tom S
    Posted at 04:08h, 25 February Reply

    Thanks for the post and comments, it struck me as extremely timely because I was about to pay an accountant to create a Delaware C-Corp for me today.

    I am an independent software developer close (several weeks) to launching an iPhone application and wanted to get something incorporated as a liability shield. Was going to do 1MM authorized shares, .0001 par value with 8MM issued – with everything else by legal zoom standards. I am the single employee and have no investors but was planning to amend the articles of incorporation as necessary assuming I need to add employees/ raise $ down the line.

    Do you think this is still an unwise use of the LegalZoom type services out there? I would just prefer to limit upfront expense until I see whether there is even basic traction for my soon to launch application. Thanks for your help!

  • Tom S
    Posted at 23:08h, 24 February Reply

    Thanks for the post and comments, it struck me as extremely timely because I was about to pay an accountant to create a Delaware C-Corp for me today.

    I am an independent software developer close (several weeks) to launching an iPhone application and wanted to get something incorporated as a liability shield. Was going to do 1MM authorized shares, .0001 par value with 8MM issued – with everything else by legal zoom standards. I am the single employee and have no investors but was planning to amend the articles of incorporation as necessary assuming I need to add employees/ raise $ down the line.

    Do you think this is still an unwise use of the LegalZoom type services out there? I would just prefer to limit upfront expense until I see whether there is even basic traction for my soon to launch application. Thanks for your help!

  • Tom S
    Posted at 04:09h, 25 February Reply

    Sorry – I meant to write 1MM authorized, 800k issued

  • Tom S
    Posted at 23:09h, 24 February Reply

    Sorry – I meant to write 1MM authorized, 800k issued

  • Ryan Roberts
    Posted at 09:50h, 05 March Reply

    Tom S –

    Here's my ideal "Who's best to handle your incorporation" chart:

    Lawyer>You>LegalZoom>Accountant

  • Ryan Roberts
    Posted at 04:50h, 05 March Reply

    Tom S –

    Here's my ideal "Who's best to handle your incorporation" chart:

    Lawyer>You>LegalZoom>Accountant

  • Sammy
    Posted at 23:02h, 24 March Reply

    Ryan, great post. Two questions:

    Q1: What about filing trademarks through LegalZoom? Your comments about that please.

    Q2: What are your fees for filing a trademark?

  • Sammy
    Posted at 18:02h, 24 March Reply

    Ryan, great post. Two questions:

    Q1: What about filing trademarks through LegalZoom? Your comments about that please.

    Q2: What are your fees for filing a trademark?

  • Ryan Roberts
    Posted at 16:39h, 29 March Reply

    1. I assume the same issues will apply, with one caveat: Filing for a trademark is not the "end" of the potential services needed. If you get a substantive refusal, you'll need to respond to the USPTO. I doubt legalzoom covers that.

    2. I don't do trademarks enough to even know what fees are for them. I've probably done 5 in the last 3 years.

  • Ryan Roberts
    Posted at 11:39h, 29 March Reply

    1. I assume the same issues will apply, with one caveat: Filing for a trademark is not the "end" of the potential services needed. If you get a substantive refusal, you'll need to respond to the USPTO. I doubt legalzoom covers that.

    2. I don't do trademarks enough to even know what fees are for them. I've probably done 5 in the last 3 years.

  • John Williams
    Posted at 12:11h, 31 March Reply

    I saw an interview on CNBC with the founders of legalZoom and guess what? Mr. Shapiro was not named as a founder, it's two guys in their early 30's.

    Most incorporation services offer blank forms and no advice. We have a company that tries to go a little further, because we are run by attorneys. Having spoken to thousands of entrepreneurs, I'd be very reluctant to let people incorporate themselves because the default forms from the Sec. of State's office does not have many optional provisions which protect the business owner, such as indemnification of officers/directors and director amended bylaws. We typically suggest an LLC that can make the tax elections of a corporation and it comes with an LLC operating agreement that has provisions akin to a shareholder agreement…and people can agree to whatever they want, freedom of contract.

    I saw thestartuplawyer.com in an ABA Article about law firm websites. I really like it. Nice work.

  • John Williams
    Posted at 07:11h, 31 March Reply

    I saw an interview on CNBC with the founders of legalZoom and guess what? Mr. Shapiro was not named as a founder, it's two guys in their early 30's.

    Most incorporation services offer blank forms and no advice. We have a company that tries to go a little further, because we are run by attorneys. Having spoken to thousands of entrepreneurs, I'd be very reluctant to let people incorporate themselves because the default forms from the Sec. of State's office does not have many optional provisions which protect the business owner, such as indemnification of officers/directors and director amended bylaws. We typically suggest an LLC that can make the tax elections of a corporation and it comes with an LLC operating agreement that has provisions akin to a shareholder agreement…and people can agree to whatever they want, freedom of contract.

    I saw thestartuplawyer.com in an ABA Article about law firm websites. I really like it. Nice work.

  • Unauthorized Practic
    Posted at 19:39h, 22 April Reply

    The North Carolina State Bar issued a warning to Legalzoom to stop doing business in their state, as what they do is illegal. EVERYONE should read this and stay away from that renegade company: http://forctlawyers.com/wp-content/uploads/2009/0

  • Unauthorized Practic
    Posted at 14:39h, 22 April Reply

    The North Carolina State Bar issued a warning to Legalzoom to stop doing business in their state, as what they do is illegal. EVERYONE should read this and stay away from that renegade company: http://forctlawyers.com/wp-content/uploads/2009/0

  • George Grellas
    Posted at 12:07h, 24 May Reply

    I have been an early-stage startup business lawyer in Silicon Valley for 25 years. I have often had clients bring in their corporate papers from LegalZoom for a "cleanup" after they tried incorporating their startup through that service. What I invariably find is a minimalist kit that has left the clients with a mess, sometimes easily fixed and sometimes not. On my website, I try to educate clients on the differences between a startup and a conventional small business, emphasizing why startups cannot be done through online kits.

    Your site is quite excellent, by the way, and this post is spot on.

    • rebeca mercedes
      Posted at 23:04h, 11 November Reply

      I agree, this site is excellent and I am spooky grateful I found it early enough to keep me from incorporating with legalzoom.

  • George Grellas
    Posted at 17:07h, 24 May Reply

    I have been an early-stage startup business lawyer in Silicon Valley for 25 years. I have often had clients bring in their corporate papers from LegalZoom for a "cleanup" after they tried incorporating their startup through that service. What I invariably find is a minimalist kit that has left the clients with a mess, sometimes easily fixed and sometimes not. On my website, I try to educate clients on the differences between a startup and a conventional small business, emphasizing why startups cannot be done through online kits.

    Your site is quite excellent, by the way, and this post is spot on.

  • Ryan Roberts
    Posted at 17:00h, 26 May Reply

    Thanks for the compliments, George.

    It can be difficult for co-founders to understand that their incorporation is more complex than setting up an entity for 3 guys buying a $10MM commercial property. Add that to the fact these entrepreneurs are smart, resourceful, and budget-conscious…and you get the self-incorporation/online-incorporation.

  • Ryan Roberts
    Posted at 12:00h, 26 May Reply

    Thanks for the compliments, George.

    It can be difficult for co-founders to understand that their incorporation is more complex than setting up an entity for 3 guys buying a $10MM commercial property. Add that to the fact these entrepreneurs are smart, resourceful, and budget-conscious…and you get the self-incorporation/online-incorporation.

  • Kim Sherwood
    Posted at 02:26h, 28 May Reply

    After reading the your comments and then the postings. I am at a lost. I a small business and only have one investor to date. I have decided to file S Corporation. After reading your posting and the several that have committed I don't want to use this company but can anyone suggest one that I could utilize. Although, I don't want sound cheap I don't have the extra money to hire an attorney and would do this on my own but I don't want to screw anything up. Is there a site that I can go to for assistance? Any help will be greatly helpful. Thank you.

  • Kim Sherwood
    Posted at 21:26h, 27 May Reply

    After reading the your comments and then the postings. I am at a lost. I a small business and only have one investor to date. I have decided to file S Corporation. After reading your posting and the several that have committed I don't want to use this company but can anyone suggest one that I could utilize. Although, I don't want sound cheap I don't have the extra money to hire an attorney and would do this on my own but I don't want to screw anything up. Is there a site that I can go to for assistance? Any help will be greatly helpful. Thank you.

  • Christopher Price
    Posted at 23:00h, 15 August Reply

    I read this post in the past, and when it's time to put pen to paper… I've got to say that LegalZoom might make sense.

    I'm still undecided, but I'm wrapping up my decision-making on incorporation work. First off, thanks for all the breakdowns… it's good to be able to just hyperlink to folks and sum up why we're making business decisions.

    People outside the startup world are confused when you do a Delaware C-Corp for a startup; they just think you're making a small business.

    Still, as someone running a startup, time is my greatest enemy. I don't have time to chat it up with the Secretary of State's office. Purely from that perspective, knowing there will be some flaws in the incorporation docs, I'd rather pay someone else to delegate the work away.

    Yes, there will be cleanup. But, if the IRS wants to give me a tax credit to hire someone to do the work right… I'd be happy to pay the money to do it. When bootstrapping, sometimes you have to make decisions that keep you at work now, knowing that they will cost more money than average down the road.

  • Christopher Price
    Posted at 18:00h, 15 August Reply

    I read this post in the past, and when it's time to put pen to paper… I've got to say that LegalZoom might make sense.

    I'm still undecided, but I'm wrapping up my decision-making on incorporation work. First off, thanks for all the breakdowns… it's good to be able to just hyperlink to folks and sum up why we're making business decisions.

    People outside the startup world are confused when you do a Delaware C-Corp for a startup; they just think you're making a small business.

    Still, as someone running a startup, time is my greatest enemy. I don't have time to chat it up with the Secretary of State's office. Purely from that perspective, knowing there will be some flaws in the incorporation docs, I'd rather pay someone else to delegate the work away.

    Yes, there will be cleanup. But, if the IRS wants to give me a tax credit to hire someone to do the work right… I'd be happy to pay the money to do it. When bootstrapping, sometimes you have to make decisions that keep you at work now, knowing that they will cost more money than average down the road.

  • Christopher Price
    Posted at 00:06h, 16 August Reply

    Well, I just decided to go for it. I went with LegalZoom for the heck of it.

    What really amazed me was that, had I not boned up on all the complexities of startup incorporation, just how much LegalZoom could screw up the works.

    For example, setting the Par value… they don't even tell you that if you don't set it extremely low that you're going to pay massive fees to Delaware. Zero notice of that. Nada.

    Really scary considering someone could, quite easily, be a few clicks of a mouse away from a $25,000 tax from a state government… simply out of ignorance.

    In the end, I was prepared for all the questions, thanks to reading countless materials, including this blog. While I might have been able to do it myself, paying $139 for LegalZoom to do it probably winds up saving you money.

    Just be absolutely sure to check, and then double check what a question really implies. They aren't going to help you clean up their mess.

  • Christopher Price
    Posted at 19:06h, 15 August Reply

    Well, I just decided to go for it. I went with LegalZoom for the heck of it.

    What really amazed me was that, had I not boned up on all the complexities of startup incorporation, just how much LegalZoom could screw up the works.

    For example, setting the Par value… they don't even tell you that if you don't set it extremely low that you're going to pay massive fees to Delaware. Zero notice of that. Nada.

    Really scary considering someone could, quite easily, be a few clicks of a mouse away from a $25,000 tax from a state government… simply out of ignorance.

    In the end, I was prepared for all the questions, thanks to reading countless materials, including this blog. While I might have been able to do it myself, paying $139 for LegalZoom to do it probably winds up saving you money.

    Just be absolutely sure to check, and then double check what a question really implies. They aren't going to help you clean up their mess.

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  • Mark Turmell
    Posted at 03:05h, 20 October Reply

    Wow… this is an exceptionally great article and does drive some really valid points home, however while they aren't my favorite company, it really an unfair slam to LegalZoom. They are what they are. They are NOT an attorney – they state that over and over again. While I don't personally consider them "the best" in their field, their work generally gets the job done most of the time as far as filing goes. The problem is later when the user doesn't keep up their corporate formalities which is more likely to happen and REALLY bad news!

    And… I really have to take issue with your "Lawyer>You>LegalZoom>Accountant", "who best to handle your incorporation" paradigm. I have a lot of experience in this, and "YOU" is 99 out of 100 times the last person that should do it. I would say more like…

    >Lawyer > Service company (LegalZoom/BizFilings/InCorp) > Accountant > YOU.

    … and I think on thinking about this rationally, you would agree with me on this order.

    I choose that order because 80% of the time, the information "YOU" will get from the Secretary of State is incorrect. 50% of the time, "YOU" will choose the wrong entity type whereas an attorney or YOUR accountant will likely be more qualified than yourself to make that determination. Ideally, the entity type should be chosen by your CPA and counsel planning together, but this is prohibitively expensive for a lot of people. A lot of people will choose the wrong jurisdiction to incorporate choosing Delaware, Nevada, or Wyoming when they should have chosen their home state (or choosing their home state when they should have chosen Delaware, Nevada, or Wyoming!)

    Odds are that a service company such as LegalZoom, BizFilings, InCorp, MyCorporation, is going to get the documents right the first time. If it is in a jurisdiction that the lawyer doesn't practice in that he or she is just sending documents to, I would bet that the service company's documents are probably 10x less likely to be rejected by the state. This isn't saying anything about attorneys, just that if they aren't familiar with the idiosyncrasies of a certain jurisdiction, they will probably miss something (Must be black ink – or some other weird things), whereas since service companies file in all states all the time, they know the little things.

    The last thing is that not all attorneys or CPAs are created equal. A personal injury attorney likely won't have the knowledge to competently choose your entity type, etc. Choose an attorney with a track record. Referrals are a must!

  • Mark Turmell
    Posted at 22:05h, 19 October Reply

    Wow… this is an exceptionally great article and does drive some really valid points home, however while they aren't my favorite company, it really an unfair slam to LegalZoom. They are what they are. They are NOT an attorney – they state that over and over again. While I don't personally consider them "the best" in their field, their work generally gets the job done most of the time as far as filing goes. The problem is later when the user doesn't keep up their corporate formalities which is more likely to happen and REALLY bad news!

    And… I really have to take issue with your "Lawyer>You>LegalZoom>Accountant", "who best to handle your incorporation" paradigm. I have a lot of experience in this, and "YOU" is 99 out of 100 times the last person that should do it. I would say more like…

    >Lawyer > Service company (LegalZoom/BizFilings/InCorp) > Accountant > YOU.

    … and I think on thinking about this rationally, you would agree with me on this order.

    I choose that order because 80% of the time, the information "YOU" will get from the Secretary of State is incorrect. 50% of the time, "YOU" will choose the wrong entity type whereas an attorney or YOUR accountant will likely be more qualified than yourself to make that determination. Ideally, the entity type should be chosen by your CPA and counsel planning together, but this is prohibitively expensive for a lot of people. A lot of people will choose the wrong jurisdiction to incorporate choosing Delaware, Nevada, or Wyoming when they should have chosen their home state (or choosing their home state when they should have chosen Delaware, Nevada, or Wyoming!)

    Odds are that a service company such as LegalZoom, BizFilings, InCorp, MyCorporation, is going to get the documents right the first time. If it is in a jurisdiction that the lawyer doesn't practice in that he or she is just sending documents to, I would bet that the service company's documents are probably 10x less likely to be rejected by the state. This isn't saying anything about attorneys, just that if they aren't familiar with the idiosyncrasies of a certain jurisdiction, they will probably miss something (Must be black ink – or some other weird things), whereas since service companies file in all states all the time, they know the little things.

    The last thing is that not all attorneys or CPAs are created equal. A personal injury attorney likely won't have the knowledge to competently choose your entity type, etc. Choose an attorney with a track record. Referrals are a must!

  • D-on Sansers
    Posted at 15:26h, 03 November Reply

    Those form filler stole $400+ dollars from me. I was trying to form my sole proprietorship and still haven't heard back from the state.

  • D-on Sansers
    Posted at 10:26h, 03 November Reply

    Those form filler stole $400+ dollars from me. I was trying to form my sole proprietorship and still haven't heard back from the state.

  • Jim in D.C.
    Posted at 14:08h, 21 November Reply

    My cousin is a staff attorney for a house oversight committee on nonprofit regulation. He says the big reason states are not regulating Legal Zoom and others are 1. state government staff have adapted to accommodate Legal Zoom users; 2. there has been a huge boost in incorporations now paying taxes; 3. Legal Zoom is better than 40% of practicing attorneys and 4., when there is a problem, it's much easier to work with Legal Zoom customers than dealing with attorneys' huge egos.

  • Jim in D.C.
    Posted at 09:08h, 21 November Reply

    My cousin is a staff attorney for a house oversight committee on nonprofit regulation. He says the big reason states are not regulating Legal Zoom and others are 1. state government staff have adapted to accommodate Legal Zoom users; 2. there has been a huge boost in incorporations now paying taxes; 3. Legal Zoom is better than 40% of practicing attorneys and 4., when there is a problem, it's much easier to work with Legal Zoom customers than dealing with attorneys' huge egos.

  • startup guy
    Posted at 12:33h, 09 December Reply

    just a quick touch of reality here…

    legal zoom and my corporation are FORM FILING companies. If you think you're going to get an experienced, authorized person to give you perfect, 100% advice on how to shape and structure your company — all for $100 — you're out of your mind. These companies FILL OUT FORMS. That's it. You need to decide – whether with the help of an attorney or on your own – all the decisions you need to make on how to structure you company.

    come on people. you've all been shopping at walmart too long and think the world is going to do everything for you for pennies on the dollar. Spend some money and hire a pro to figure it all out – then use legal zoom (or others) to fill out the forms and submit if it's more cost-effective than using the attorney to submit the forms.

  • startup guy
    Posted at 07:33h, 09 December Reply

    just a quick touch of reality here…

    legal zoom and my corporation are FORM FILING companies. If you think you're going to get an experienced, authorized person to give you perfect, 100% advice on how to shape and structure your company — all for $100 — you're out of your mind. These companies FILL OUT FORMS. That's it. You need to decide – whether with the help of an attorney or on your own – all the decisions you need to make on how to structure you company.

    come on people. you've all been shopping at walmart too long and think the world is going to do everything for you for pennies on the dollar. Spend some money and hire a pro to figure it all out – then use legal zoom (or others) to fill out the forms and submit if it's more cost-effective than using the attorney to submit the forms.

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  • Juergen
    Posted at 17:35h, 24 January Reply

    Ryan,

    I currently have a condo with a mortgage on it. As of this month it is on the rental market. Is an LLC a good way to go or just file the income/expenses with my personal tax return?

    • Ryan Roberts
      Posted at 05:42h, 08 February Reply

      Juergen-

      Typically you'd put a rental property into an LLC as a personal liability shield, since it is technically run as a business. There's a few other considerations (such as clauses in your mortgage financing docs, if any) in doing this so I would speak to a local RE attorney as well as your tax advisor.

  • Jose
    Posted at 18:17h, 03 February Reply

    would you say a book like this from Nolo, http://www.amazon.com/Form-Your-California-Corpor… , be better than legalzoom? The complexities of structure!

  • Jose
    Posted at 13:17h, 03 February Reply

    would you say a book like this from Nolo, http://www.amazon.com/Form-Your-California-Corpor… , be better than legalzoom? The complexities of structure!

  • Ryan Roberts
    Posted at 10:40h, 08 February Reply

    Jose-

    They are probably on the same level. The book probably will go in greater detail re incorporation and what to look out for, but it won't actually get you filed. Legalzoom will get you filed, but won't go into great detail.

  • Ryan Roberts
    Posted at 05:40h, 08 February Reply

    Jose-

    They are probably on the same level. The book probably will go in greater detail re incorporation and what to look out for, but it won't actually get you filed. Legalzoom will get you filed, but won't go into great detail.

  • Ryan Roberts
    Posted at 10:42h, 08 February Reply

    Juergen-

    Typically you'd put a rental property into an LLC as a personal liability shield, since it is technically run as a business. There's a few other considerations (such as clauses in your mortgage financing docs, if any) in doing this so I would speak to a local RE attorney as well as your tax advisor.

  • Bob G.
    Posted at 15:56h, 23 February Reply

    Hi Ryan:

    I live in Nevada. I and my business partner want to incorporate our start up as an LLC. Problem is our very limited funds prohibits us from hiring an attorney. Now, I have heard both good and bad things about Legalzoom. I'm more confused than ever. My question in a nutshell Ryan is for people with a very limited budget (for the time being hopefully), wouldn't it be better to at least get the proper papers filed with the Sec of State's office here in Carson City, using Legalzoom rather than taking a chance and for us to try and do it ourselves when we have practically no legal experience? Every accountant (CPA), and/or attorney wants an arm and a leg up front. Also, I've heard from others that when they went to the Sec of State's office for help, they didn't receive much of anything in terms of real help, and consequently became even more confused as to what to do. They tried to do it themselves and it ended up costing them a lot more than they had anticipated. They said that they then tried Legalzoom, and although not anything like having a real attorney, they had their correct papers hand delivered to the S of S's office. They told us that had they known before hand, they would have gone with a service company instead of trying to do things on the cheap and by themselves. So, any adive that you can provide to supplement the little that we have would certainly be appreciated. Thank you.

  • Bob G.
    Posted at 10:56h, 23 February Reply

    Hi Ryan:

    I live in Nevada. I and my business partner want to incorporate our start up as an LLC. Problem is our very limited funds prohibits us from hiring an attorney. Now, I have heard both good and bad things about Legalzoom. I'm more confused than ever. My question in a nutshell Ryan is for people with a very limited budget (for the time being hopefully), wouldn't it be better to at least get the proper papers filed with the Sec of State's office here in Carson City, using Legalzoom rather than taking a chance and for us to try and do it ourselves when we have practically no legal experience? Every accountant (CPA), and/or attorney wants an arm and a leg up front. Also, I've heard from others that when they went to the Sec of State's office for help, they didn't receive much of anything in terms of real help, and consequently became even more confused as to what to do. They tried to do it themselves and it ended up costing them a lot more than they had anticipated. They said that they then tried Legalzoom, and although not anything like having a real attorney, they had their correct papers hand delivered to the S of S's office. They told us that had they known before hand, they would have gone with a service company instead of trying to do things on the cheap and by themselves. So, any adive that you can provide to supplement the little that we have would certainly be appreciated. Thank you.

  • Bob G.
    Posted at 16:00h, 23 February Reply

    The word in the last line should be "advice".

  • Bob G.
    Posted at 11:00h, 23 February Reply

    The word in the last line should be "advice".

  • Ryan Roberts
    Posted at 09:40h, 25 February Reply

    Bob – You need to do what you feel most comfortable with. If you think the $X using legal zoom is worth it, then I suggest going for it.

  • Ryan Roberts
    Posted at 04:40h, 25 February Reply

    Bob – You need to do what you feel most comfortable with. If you think the $X using legal zoom is worth it, then I suggest going for it.

  • Yosef Solomon
    Posted at 00:50h, 01 June Reply

    Hey Ryan,

    Thanks for the heads up! From my understanding every business is different and in terms of legal structure, it might not be such a good idea to go with a "one-size fits all lawyer" in Legal Zoom. Just out of curiosity, how much would it cost to get a lawyer like you to file for a startup incorporation?

    Thanks!

    -Yosef

  • Yosef Solomon
    Posted at 19:50h, 31 May Reply

    Hey Ryan,

    Thanks for the heads up! From my understanding every business is different and in terms of legal structure, it might not be such a good idea to go with a "one-size fits all lawyer" in Legal Zoom. Just out of curiosity, how much would it cost to get a lawyer like you to file for a startup incorporation?

    Thanks!

    -Yosef

  • Trang Hai
    Posted at 11:37h, 18 August Reply

    I don't know what the fuss is all about. I used them to get incorporated, then found a lawyer to take care of all the other stuff. Started an online shoe business that's booming. Still saved me a about a grand.

    As for doing it yourself, of course! I can change a leaky toilet myself. I can go stand in line at the post office and not pay the UPS store premium. But I value my time, and I'd rather pay someone else to do it for me.

  • Trang Hai
    Posted at 06:37h, 18 August Reply

    I don't know what the fuss is all about. I used them to get incorporated, then found a lawyer to take care of all the other stuff. Started an online shoe business that's booming. Still saved me a about a grand.

    As for doing it yourself, of course! I can change a leaky toilet myself. I can go stand in line at the post office and not pay the UPS store premium. But I value my time, and I'd rather pay someone else to do it for me.

  • Jason
    Posted at 14:37h, 28 February Reply

    Most law firms will just take the exact same info from the same type of questionnaire and then have a paralegal enter your info into a little bit better looking boilerplate template to generate your ‘original’ documents.

    Legalzoom has a great model; they provide no-frills services and they are capturing business from people who probably wouldn’t otherwise go to the trouble or expense of setting up a trust, an llc, writing a will, power of attorney, etc, etc.

    The legalzoom clients by and large are the ones that most law firms will just look down their noses at and treat like crap.

  • Ryan Roberts
    Posted at 11:00h, 01 March Reply

    Jason,

    The point of the post is that LegalZoom does not even offer the documents that a true tech startup needs to get properly incorporated.

  • Susan
    Posted at 21:59h, 24 March Reply

    I’m glad I found this because I’ve been debating between shelling out the $1100 to have an attorney draft up the LLC needed or do it on LegalZoom. I think by reading the comments, I’ve decided.

  • Bill
    Posted at 12:45h, 05 May Reply

    If you want to hire someone to help you fund raise, what is the best option? I understand Finder’s fee agreements are illegal.

  • Monica D. Johns
    Posted at 21:47h, 27 August Reply

    Ryan: what about trademark applications – do you feel LegalZoom falls short in that area? Thanks.

  • Brian
    Posted at 16:23h, 31 October Reply

    Ok, we get it…..legal zoom sucks. Has anybody used rocketlawyer? I know they have better forms, but I want to know if anyone has experience using them to incorporate?

    I have a side question. If You were starting a social web site that wasnt going to make any money for a while, would you incorporate or just do nothing. I think it took 3-4 months before mr. Sucker burg incorporated Facebook.

    Thoughts?

  • Brian
    Posted at 16:26h, 31 October Reply

    …and no, I wasn’t trying to make fun of Mr. Zuckerberg’s name, it just auto spelled it that way.

  • John
    Posted at 12:18h, 23 November Reply

    Hi All

    Nice Blog
    We are looking to develop reseller contracts to allow resellers to sell our hardware / software.
    Also we need terms of sale contracts for end uers.
    (Basically want to ensure our IP is protected etc)

    We dont want to purchase legal templates online, but this is such a minefield…. any recommendations as most layers pick a price out of of the sky?

    Thanks
    John

  • Ronald
    Posted at 16:54h, 19 January Reply

    I like your post, but what about registered agents. If I file myself then someone like LegalZoom or RocketLawyer can’t be my registered agent.

    If I form my corporation in Delaware and live in Nebraska, do I need a registered agent in Delaware or can I be my own registered agent?

  • Kristen Hyslope
    Posted at 08:58h, 04 May Reply

    Hi Ryan,

    I see you’ve provided the list of documents everyone should have to form a startup C-Corp, but what about an LLC, LLP, or S-Corp? What documents are needed? I passed my 1L classes before dropping out, and I took a business law class in undergrad, but neither of those experiences equipped me with enough info to file properly (and not for lack of trying to obtain them). Also, I’ve heard of people starting as LLC, but as they grow they want to change entities – are there drawbacks here regarding initially filing incomplete documents? If you know what documents you need couldn’t you just file them with the state you wish to incorporate in yourself without the help of an attorney OR legal zoom? Or is this a situation like future gifts/wills where language is carefully analyzed by the court and you could get really screwed? I’m trying to wrap my arms around this because I hired an attorney to review the paperwork when I bought a house and he didn’t even bother to let me know that I might want to rethink my purchase since it was a quit-claim deed, which later I found out in property class can be a risky undertaking… I guess my point is even when I used an attorney I never felt like he protected my interest to the best of his ability anyways.

    On another note, how do you feel about Nolo? They offer a “group benefit” through my work. I had it, but cancelled it when I started law school. I’ve been thinking about picking it back up again and using the attorney’s they provide to file papers for an LLC. What is the legal community’s view of the quality of attorney’s that Nolo uses, if you are familiar?

    Thanks,

    Kristen

  • seth
    Posted at 11:22h, 04 June Reply

    Hi Ryan, really appreciate your site, it’s a great resource at this pinnacle moment of having to form a new business.

    Any opinion on incorporate.com, the Company Corporation? I couldn’t find any mention of it on your site.

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