In today’s digital age, entrepreneurs are often tempted to use online legal services such as LegalZoom, Nolo, or similar platforms to form their businesses, or in some instances, even artificial intelligence. While these services promise quick, low-cost solutions to setting up a company and can seem like an attractive option for startups operating on a tight budget, the reality is that relying on these platforms may expose businesses to avoidable risks and long-term consequences.

1. Limited Customization

Any new business needs to ensure that its internal documents relating to business structure, contracts, and compliance measures are tailored to the individual business itself. Online legal services often rely on standardized forms and templates, which are not tailored to the unique needs of individual businesses. The business structure, industry compliance requirements, and specific goals of a company can vary significantly, but these services rarely account for such nuances. For example, a boilerplate operating agreement may fail to address critical issues such as how profits and losses are divided, what happens if a partner leaves, or how to handle disputes between owners.

2. Lack of Legal Advice and Guidance

Starting a business involves complex legal considerations that require professional judgment. While these online legal service platforms may provide limited general legal guidance, they do not offer personalized legal advice. LegalZoom and similar services are not law firms, and they explicitly state they do not provide legal advice or representation. This leaves business owners vulnerable to making uninformed decisions that could lead to costly errors.

3. Choosing the Right Business Structure

When forming a business, a business owner must choose whether to form the business as a corporation, limited liability company (LLC), partnership, or sole proprietorship – choosing the right business structure is critical to the long-term success of a business. Each structure has distinct implications for taxes, liability, and operational flexibility. Online legal service platforms typically provide little to no insight into which business structure is the best fit for the business, potentially leaving entrepreneurs with a structure that does not align with the long-term needs or goals of the business.

4. Compliance with Local Laws

Businesses must be in compliance with federal, state, and local regulations, which can vary widely from state to state, county to county, or municipality to municipality. Online legal service platforms typically do not account for jurisdiction-specific requirements, leading to gaps in compliance. For example, they may not ensure proper registration for state tax purposes, adherence to zoning laws, or fulfillment of industry-specific licensing requirements, leaving businesses exposed to avoidable fines or legal action.

5. Inadequate Protection of Intellectual Property

For many startups, intellectual property (IP) is one of the business’s most valuable assets. Online legal services often lack the expertise to help businesses properly secure trademarks, copyrights, or patents. They also fail to provide guidance on how to prevent inadvertent IP infringement, which could lead to costly litigation or even the loss of a business’s competitive edge.

6. Poorly Drafted Contracts and Agreements

The documents generated by online platforms typically do not account for the full scope of a company’s needs and often are simply full of legal terms with no actual substance to the agreement. For instance, a template employment agreement may fail to include key clauses protecting the business from potential disputes. Similarly, partnership agreements may omit critical provisions about decision-making authority, capital contributions, or dissolution procedures. Having an attorney draft your contracts and agreements will ensure that each legal documents provides the business with the protection it needs to operate with minimal risk.

7. Hidden Costs and Misleading Savings

While the upfront costs of online legal services may initially seem lower than hiring an attorney, the hidden costs can quickly add up. Correcting mistakes, re-writing documents, addressing compliance issues, or resolving avoidable disputes stemming from poorly drafted documents can be far more costly than working with an experienced attorney from the onset. Additionally, when you have an attorney assist in setting up your business and drafting your documents from the start, the attorney already will have a familiarity with your business, which can lead to legal savings down the road if any potential issues arise.

8. Ongoing Legal Counsel

Running a business requires ongoing legal counsel for issues that arise after formation, such as contract negotiation, employment matters, and regulatory changes. Online legal service platforms typically do not provide this level of service, leaving businesses without the comprehensive support needed to operate effectively. When an attorney assists with forming a new business, that attorney will have the familiarity needed to provide tailored legal counsel as the business operates and grows.

Conclusion

While online legal services may initially seem like an affordable and convenient option for forming a company, the risks often outweigh the benefits. The lack of customization, limited legal advice, and potential for compliance issues can lead to significant challenges and costly errors for startups down the road.

Engaging a qualified attorney ensures that a business is set up correctly from the beginning, with tailored solutions and ongoing support that help mitigate risks and pave the way for long-term success. While the initial investment may be higher, the peace of mind and protection it provides are invaluable.

Entrepreneurs should view legal counsel not as a luxury, but as a necessity—an investment in the foundation of their business and its future growth.

To learn more about how Tucker Arensberg can help startups, visit https://tuckeraviator.tuckerlaw.com/.