Don't Overestimate Legal Self-Help Sites

Don't Overestimate Legal Self-Help Sites

While legal self-help websites may be useful in some instances, there can be problems that arise in relying on legal self-help websites in the place of real expert advice. Self-help websites are not able to provide specific advice about your company and they won't be able to point out ongoing legal problems. Many business owners who try and save money by avoiding lawyers often face difficulties later.

A case in point. Recently, a potential client was seeking information regarding a business she had founded with several partners. Since starting the business, she and her colleagues had contributed large amounts of both time and money into the venture. The business was beginning to grow and experienced some success, but she was concerned about the lack of formal agreements among the owners, especially with respect to the owners' rights regarding profits and distributions from the corporate entity. Two years prior to this, she and her partners had used incorporation services from a legal self-help website and had not given the legal needs of the business another thought since. So, she was understandably unhappy to hear that they faced a multitude of unforeseen issues as a result.

This isn't the first situation where I have seen entrepreneurs or individuals coming together to start a business endeavor from experiencing problems after thinking they had their legal needs addressed after utilizing the services of a self-help website to set up the initial paperwork for a corporation. Here are some reasons why individuals shouldn't rely on legal self-help websites alone:

  • General Guidelines Can't Be Applied to Every Business. Legal self-help websites have their uses in that they provide an overview of the legal process, act as first good stop for learning the basics before speaking to a professional, and can serve as a useful provider in fulfilling certain procedural hurdles like a state's registered agent's requirements. However, it is important to understand that because these websites are not authorized to practice law, they may not give direct legal advice. In effect, this means all they can provide is a generic form and some very basic information regarding the form. The self-help website cannot give advice on strategy or give opinions as to how to structure an entity. The truth is, every business is going to have unique legal issues and will need an expert to resolve beyond what a self-help website can provide. 
  • A Self-Help Website Is Not Watching Your Back. These websites won't follow up with you regarding ongoing issues or give any assurance that all legal requirements were met. For example, the potential client's company hadn't completed its corporate formalities, and such dereliction of responsibilities is a factor some courts will consider in piercing the corporate veil when it comes to issues of liability. In simple terms, this means a court could potentially ignore the limited liability provided by the corporate entity and expose the owner's personal assets to the liabilities of the corporation. Limited liabilities is one of the biggest benefits to incorporating a business, and yet the requirements for maintenance of limited liability protection would be unknown to someone who never visited an attorney in that the self-help website is not going to follow up and ensure that these requirements are met. Given that many forms that are necessary to incorporate an entity are available for free at most jurisdictions' Department of State websites, the real product these self-help websites are selling is a false sense of legal security. 
  • Legal Mistakes Can Tear the Team and Company Apart. The corporation I described above had not documented several hundred thousand dollars worth of contributions by owners which would have watered down the other owners’ ownership percentages in the company, or if the contributions were accounted for as loans, the loans would have substantially affected the bottom-line profit of the company. Other partners had contributed years of labor without employment agreements setting forth what their duties were and what their resulting ownership stake would be. This lack of documentation meant that the ownership breakdown between the partners was uncertain and up for debate. Having an attorney from the beginning would have made sure that the owners understood how various transactions affected their personal stakes. Unfortunately, because of the murky ownership situation, combined with the success the company was beginning to have, it does not take a lot of imagination to think that the next time this entrepreneur reaches out to an attorney, it will not be to represent the company. Instead, she will probably seek to represent her personal interests against her fellow owners in protecting her ownership stake. 
  • The Initial Intention to Save Money Can Backfire – Badly. People avoid attorneys and consult self-help legal websites to save money in the moment, but they inevitably run into legal problems. I have encountered many clients in my practice who believe they could save a few dollars by representing themselves. Without fail, they then end up spending much more money in the long run on legal fees that they would have avoided if they had hired an attorney and done things correctly from the very beginning. 

While legal self-help websites can be useful sources for basic legal information and forms, too many people are finding out the hard way that a legal self-help website "is not a law firm and is not a substitute for an attorney," as the disclaimers already make clear.

Just like retaining other professionals, while it may be easier on your bottom line in the short run to skip the doctor or dentist visit, in the long run, it could be an unpleasant experience when you finally go for that checkup.