Years ago now I wrote a post called Zoom Past Legal Zoom. For years it has been one of the most read posts on this site and no post on the site has more comments. In that post I talked about how Legal Zoom does NOT give out legal advice and how the company’s documents are not guaranteed to be correct, complete, or up-to-date. I also talked about how many people may be surprised at the expense comparison between Legal Zoom and business lawyers, particularly here in Iowa. I think most prospective clients would find that many Iowa lawyers charge comparable fees to Legal Zoom in setting up a corporation or LLC.

Of course that has not stopped millions of Americans who have engaged in using Legal Zoom’s "self-help" services and I’ll be the first to admit that the company has done a great job at marketing. Legal Zoom has also withstood several challenges in various states alleging the company engages in the unauthorized practice of law. One such challenge occurred in South Carolina where recently a judge found that the company did not engage in the unauthorized practice of law and the Supreme Court of South Carolina signed off on his recommendation. But the judge’s words are very telling and actually should serve as a warning to consumers:

“LegalZoom’s software acts at the specific instruction of the customer and records the customer’s original information verbatim, exactly as it is provided by the customer,” Newman wrote in the report, adding that its “does not exercise any judgment or discretion, but operates automatically in the same fashion as a ‘mail merge’ program.” 

I know many lawyers are upset about the inroads that Legal Zoom has made into many areas of the practice of law, not just business law. But the judge’s words above are stinging to Legal Zoom in my opinion. Does a software that offers no judgment or discretion, but operates automatically in the same fashion as a ‘mail merge’ program protect the public? There is no doubt people who use Legal Zoom are missing out on three key areas of knowledge that lawyers bring to the table. (Hat tip to Jay Shepherd as he explained what lawyers really sell in his talk at Ignite Law 2011).

  1. Substantive knowledge – this is the knowledge about the law. 
  2. Procedural knowledge – this is knowledge about the rules. What do you file? Where do you file? Where else do I need to register? Do I need licenses? Do I need to register with other state agencies? Do I also file at the county level? There is more to setting up a business than simply filing articles of incorporation or a certificate of organization. 
  3. Judgment – this is most important. This is why lawyers will always have a job in my opinion. Unlike Legal Zoom lawyers don’t sell documents. We sell judgment. Should you form a corporation or LLC? S corp or c corp? Should you just stay a sole proprietorship? What are the tax consequences? Is the name I am considering for my business one that won’t get me in a lawsuit from the outset? These and dozens of other questions are why it is important to hire a lawyer. Plus, it is critical to form relationships with professionals that can help your business including reputable accountants, bankers and insurance representatives. Lawyers can help you make these contacts. Legal Zoom does not.

So again I say:

Use LegalZoom if you must but I highly recommend talking to an attorney before you go that route.  You might be surprised by the expense comparison, and even if the cost is slightly more, the legal advice is usually worth it.  As the saying goes, you can pay now or pay later.  The choice is up to you.