Starting a business is exciting. You have an idea, do some research, check out your competition and write a business plan. Then you run some numbers and realize it’s more expensive than you thought it would be, but you decide to go ahead anyway because you believe in yourself and your idea. Already stretched, what is the last thing in the world that you want to spend your quickly evaporating start up cash on? Might it be legal fees to prepare your legal documents? The prospect of having to pay legal fees is all the more daunting when you consider the high hourly rates charged by many traditional law firms.
So it should come as no surprise that start ups have been quick to embrace legal forms sites such as Legal Zoom, Rocket Lawyer and Law Depot. What could be better than having your legal documents prepared without having to pay for a lawyer? Is it absolutely necessary for a lawyer to prepare your legal documents? Why not just download a contractor agreement, NDA or other contract from Legal Zoom? What could possibly go wrong?
Quite a lot, as it happens. Buried away right at the bottom of its website, Legal Zoom itself helpfully alludes to the danger of using its site as your substitute lawyer. In Legal Zoom’s own words:
“We are not a law firm or a substitute for an attorney or law firm. We cannot provide any kind of advice, explanation, opinion, or recommendation about possible legal rights, remedies, defenses, options, selection of forms or strategies.”
That’s quite a disclaimer! In a nutshell, they are providing you with legal documents but are disclaiming all responsibility for the appropriateness, suitability and effectiveness of those legal documents. Is that an alarm bell I hear ringing in the background?
Case in point: I reviewed an independent contractor agreement that a start up company had downloaded from a legal forms site. Within 10 minutes, I had identified that a “time is of the essence” clause had been included in the document. The clause read as follows:
“Time is of the essence in this Agreement. No extension or variation of this Agreement will operate as a waiver of this provision.”
Seems harmless enough doesn’t it? It isn’t. If you set up a new business and want to start providing services to customers, what do you think should happen if you’re a little late in performing your obligations under the contract? I assume that your answer is “nothing.”
And that is generally the position that the courts take. So if you tell your customer you’re going to deliver 3D images for their new product by next Wednesday and you deliver them on Friday instead, most courts will not allow the customer to claim that this is a serious breach of contract entitling the customer to declare the contract terminated and sue the contractor for damages.
Enter the “time is of the essence” clause. This clause makes it more likely that a court will find that any trivial delay in performance by the contractor enables the customer to claim that a serious breach of contract has occurred and the contract is at an end. This could have serious financial consequences for the contractor, depending on the circumstances. If I had drafted that contract, I never would have included a “time is of the essence” clause as it is potentially so punitive for the contractor. But the contract was prepared by a legal forms site, not a lawyer.
All that being said, on one point I am in agreement with the founders of the legal forms sites. Lawyers have been over charging clients for the preparation of legal contracts, which means that for most people starting businesses, hiring a lawyer is simply not an option. To the extent that legal forms sites are trying to make legal services more accessible to people, I wholeheartedly support that objective. Indeed, that was one of the reasons I set up my law firm.
But the answer is for lawyers to provide low cost, fixed fee pricing for drafting or reviewing legal contracts for start ups, as my firm does. That way, you can have legal contracts prepared by a lawyer who understands the consequences of including or omitting certain clauses and potentially save yourself a lot of time and money if things go wrong down the road.
Despite what the legal forms sites would have you believe, reports of the demise of the legal profession have been greatly exaggerated.