This article originally appeared as a column for the Cleveland Jewish News.
Are you starting a small business? If so, are you thinking of structuring it as a limited liability company or partnership? Are you hoping to incorporate your business?
Are you forming an S-Corporation or a C-Corporation? Are you in business with some partners? Do you want to clarify your and your partners’ respective rights and interests with a partnership agreement? Are you looking for investors? Do you want to trademark your business logo? Patent your invention? Enter into an agreement for consulting services? Are you looking at these questions and panicking because you don’t know what these terms mean? If you answered yes to any of these questions, you should consider whether you need some legal help.
Good legal advice costs money, no doubt about it. For that reason, many people try to handle it themselves. To be certain, if you don’t mind doing your own legwork, an overwhelming amount of information – from statutes to case law to blogs and scholarly articles – is available on the Internet free, and a quick Internet search will turn up several free or inexpensive document templates. Or, you can pay a flat fee and sign up for a company like LegalZoom or Rocket Lawyer, both of which have entire sections of their websites devoted to small business issues. Companies like these provide access to a number of different types of forms, and indicate they provide some basic guidance in completing them.
These going to be good enough, right? After all, standardized form documents are pretty useful. Even experienced lawyers make use of them. Not so fast. Before you head down this path it is imperative that you ask yourself if you can be certain these form documents are going to accomplish what you actually want them to. Are you confident they will stand up to a legal challenge down the road? How big of a problem is it for you if they don’t? Registering your new LLC with the office of the Ohio Secretary of State is easy. You need only fill out a form or two and send in with the appropriate payment. Determining that an LLC is the right corporate option for you is far more difficult. re you willing to take the risk that you get it wrong?
There is an old joke about a homeowner who calls in a plumber to fix a broken washing machine. The plumber arrives, studies the machine for a few moments, pulls out a pipe wrench and gives the machine a hard whack. The washing machine starts working again, and the plumber presents a bill for $200. “Two hundred dollars,” exclaims the customer. All you did was hit it with a wrench.” So the plumber presents an itemized bill: “Hitting the washing machine with a pipe wrench – $5. Knowing where to hit it – $195.”
The parallel to legal services is pretty clear. The LegalZoom form may give you standard language for a binding arbitration clause. But it takes some legal analysis to determine whether your partnership agreement should include it.
The Ohio Secretary of State will give you the blank form to fill out to incorporate your business. But it takes some knowledge of corporate entities to conclude that incorporation is the best option for you. Unless you have some understanding of contract law, all of the blogs in the world won’t tell you if your service agreement would withstand a court challenge and ensure you get paid. And, if you use a form and you get it wrong, you have little recourse. Even paid services like LegalZoom and Rocket Lawyer have disclaimers clearly stating they are not giving legal advice or offering legal opinions.
When you start a new business, you are working through issues and making a multitude of financial decisions. It is tempting to skimp on lawyer fees and save some time by just using a form that you found online. Can you do this and get the job done? Sure. Should you? It depends. If you are willing to commit the time to learn “where to hit the washing machine,” you will minimize your risk of problems down the road. If you cannot devote that kind of time, you would be much better served by hiring a good attorney to help you get it set up right the first time.
After all, in the wise words of Benjamin Franklin, an ounce of prevention is worth a pound of cure. You can pay a little now to get it done right the first time, or you can pay a whole lot more down the road in litigation if it is done wrong.
*Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.