The Pros and Cons of New Online Legal Services
It can be difficult to assess the credibility of the many available reviews of non-traditional legal service providers, as many critics, like law firms and established service providers, have a vested interest in discrediting the services. However, it is worth noting that the services have very real issues and limitations. Here we will consider two new types of legal services, non-firm affiliated online legal service providers such as Rocket Lawyer and Legal Zoom, and firm-affiliated online legal resources, such as Cooley GO, and assess their pros and cons for entrepreneurs.
Non-Firm Internet Legal Service Providers
In the last fifteen years, legal services have come to the internet. In 2001, LegalZoom, the first of these non-firm online legal service providers was founded. Rocket Lawyer, LegalZoom’s biggest competitor, joined the market in 2008. Both use similar models to offer three types of services. First, they provide document generators for a number of matters, from wills and trusts to entity formation. Second, they provide limited consultation services, connecting customers to affiliated attorneys. For the second function, the two companies differ slightly. Legal Zoom offers a subscription model matching you with a lawyer that you may consult with for a specified amount of time each month. Rocket Lawyer offers “on call” attorneys that will answer discreet questions at any time, for a fee. Legal Zoom offers an on-call service, but their service connects customers with “specialists” rather than attorneys. Finally, both services post articles on legal matters, such as articles detailing the pros and cons of LLCs and corporations.
The most obvious advantage of these companies over a traditional law firm is cost. Costs of these services are quite low. Formation of an LLC with LegalZoom, including filing fees, can be done for $149, and their subscription model begins at $31.25 per month. Hourly rates for lawyers at big law firms are usually several hundred dollars.
These companies may be especially useful to entrepreneurs with a broad variety of legal issues, not all of which relate to their company. Unlike the firm-affiliated services discussed below, LegalZoom and Rocket Lawyer also provide documents and information for personal legal issues. Like the services discussed below, these companies will also likely be useful to very early-stage companies wishing to get the lay of the land before proceeding with other types of counsel.
However, there are important downsides to these services that should not be dismissed. First, for entrepreneurs in relatively small legal markets such as Ann Arbor, the counsel accessible through these companies may not be able to provide market-specific insights, and will likely only be able to provide a national perspective. For example, LegalZoom’s subscription service is not available in Michigan at this time. This can be especially important when forming a company: if you choose to form an LLC, you will most likely form that LLC in the state in which you are located, and the laws relating to LLCs and other entities vary by state. Second, both LegalZoom and Rocket Lawyer disclaim all liability stemming from use of their documents. This means that if you use their document and later discover, for example, that a provision is unenforceable, you have no recourse against the company. This is not the case if you hire counsel to review or draft your documents. It should be noted that the accuracy of the documents may be a real issue. A number of practitioners have publicly criticized the quality of the documents, and the documents may not be updated promptly to reflect changes in the law or the market.
Online Firm Resources
Many law firms that service startups have responded to this increased availability of legal services on the internet by creating their own platforms for entrepreneurs to get information and begin building their business. One such service, Cooley GO, is provided and maintained by Cooley LLP, a law firm based in Silicon Valley that specializes in counseling startups. Cooley GO provides a number of resources, including articles written by Cooley lawyers on topics important to entrepreneurs and document generators. On Cooley GO, entrepreneurs can read articles answering questions on many aspects of their business, including “what entity form is right for me?” and “what factors do I need to consider when allocating equity?” and advice on seeking venture capital and other financing. In addition, Cooley GO provides a document generator that allows entrepreneurs to input their information into a form and generate documents such as the full suite of documents necessary to incorporate, and different employment documents.
These websites can be very beneficial to entrepreneurs because, unlike Rocket Lawyer and LegalZoom, these websites are tailored specifically to their needs and come from firms with particular expertise in their issues. Rocket Lawyer and LegalZoom both cover a broad range of issues and as such provide less industry-specific expertise, and in fact both websites were originally intended for personal rather than business services. However, the important caveat to this benefit is that services like Cooley GO only provide resources for entrepreneurs and their legal issues. Answers to other legal issues individual founders may have that are tangentially related to their business will not be found on Cooley GO.
In addition, as discussed throughout this article, the advice offered throughout Cooley Go and other similar services are not personalized, and no regional advice is available. Further, the document generators suggest you consult a lawyer and no guarantee is made as to their accuracy. Finally, unlike the online services discussed above, there is no instant way to consult a lawyer through Cooley GO. However, using Cooley GO can provide a gateway to engaging the services of a Cooley attorney. While engaging an attorney may be expensive, many startup-focused law firms offer deferred payment plans for early-stage companies.
While these services provide a wonderful jumping-off point for entrepreneurs looking to familiarize themselves with the legal landscape, there is no substitute for counsel. While in all circumstances the judgment and expertise counsel can provide are helpful, there are some circumstances in which hiring counsel is especially important.
First, when you have questions relating to a very specialized area of law, such as immigration or tax law, counsel in those issues can guarantee the matter is handled correctly. Second, if you are negotiating an agreement or term sheet it is important to hire counsel to advocate on your behalf. In that situation, counsel can also assess whether or not the terms you are being offered are market and help you evaluate your options. Third, if your matter involves any intellectual property, you should hire counsel to ensure that you are legally protecting your intellectual property in both the short and long term. Unfortunately, some actions may void your rights to protections such as a patent, so involving counsel early ensures you keep all your options open. Fourth, if you are looking for connections to other resources in the community, such as incubators, financing, or other entrepreneurial services, hiring counsel can allow you to connect with those services more easily. Finally, if your situation differs from “the norm” in any way or specifically requires a judgment call, hiring counsel is critical. The documents provided both by services such as LegalZoom and Rocket Lawyer, and Cooley GO are sufficient only for the most basic and typical of situations.
The Michigan Law Entrepreneurship Clinic can be a perfect option for many area entrepreneurs. In addition to providing the benefits just discussed that come with obtaining counsel, the services of the Clinic are pro bono, meaning no hourly rate for the services is charged. Some matters are outside of the scope of the clinic, but in those situations the Clinic can refer you to local counsel that would be a good fit for those particular issues, allowing you to spend money just on those matters that really require it. Applications for Clinic services are evaluated on a rolling basis, and may be submitted here.