You’re starting a company. You’re trying not to spend money. You wonder if you really need to hire an attorney to draft the documents that will comprise the legal foundation of your company. After all, you can google. Or maybe your neighbor’s brother is also an entrepreneur and already has his company’s legal documents in place. You wonder if that’s good enough? Or maybe you plan to use one of those online legal service companies. Surely that will do the trick, right?
These are reasonable questions. I’m going to answer them in an unreasonable way: Do you want to borrow my pants?
Do you think my pants will work for you? Do you want to borrow your neighbor’s brother’s pants? Do you want to be stuck with one-size-fits-all pants? Maybe you’ll be able to get them up, maybe they’ll stay up. Maybe they’ll cover your behind. But they won’t fit properly, and they won’t be comfortable. It’s the same with legal documents. Let me explain.
Yes, you can google “startup legal documents” and randomly pick something from the hundreds of millions of results that come up. You may even be able to pick a document that looks “legal” in your eyes. That said, how many times have you experienced a website or document on the internet that is patently false. There is no comfort to be had in randomly choosing a legal document from an online source.
Yes, you can “borrow” your neighbor’s brother’s legal documents, change the name of the company, and cross your fingers that whatever made the most sense for his company makes the most sense for yours too. But think about how unlikely it is that your company and your neighbor’s brother’s company will target the same kind of investors, necessitate the same management and decision-making, and have the same plans for continued growth and exit.
Yes, you can use an online legal services company. After all, the documents those sites sell were drafted by an attorney somewhere. But think about how those online companies work. An algorithm spits out tons of legal documents created on the cheap based on limited or incorrect information about “clients”. The only way to make that business model work is essentially to produce those documents like widgets: one-size-fits-all.
A one-size-fits-all legal document may appear to fit your company’s needs at first … until you run into a problem.
Here’s just one of the many possible problems that pop up regularly: you and a business partner log on to one of these legal services sites, answer three multiple choice questions, and pay to download what the site says you need. It’s an operating agreement for your LLC. You save it somewhere. Everything is going great. But then a year later, everything isn’t going so great. You have a major disagreement with your business partner. You dust off the operating agreement and you realize that online operating agreement doesn’t deal with this disagreement.
I have spent a lot of time redoing legal documents that somebody googled, borrowed, or bought from one of those online legal service companies. I have yet to meet a client whose company has worn borrowed pants in its early stages and is better off for it.
Best case scenario, the consequence is spending exponentially more money to fix problems down the road than it would have cost to do things properly in the first place. And financial costs aren’t the only costs – there’s also the time, the strained relationships, and the mental agony of untangling a legal mess that you could have easily avoided.
Worst case scenario, there is no way to fix whatever was done improperly. The borrowed pants split at the seam and that’s the end of that.
Your company needs its own legal documents like you need pants that were intended for you from the start and are tailored to fit you well.
