January 24, 2020

Starting An LLC: LegalZoom Or The Do-It-Yourself Method?

An LLC (limited liability company) provides separation of the business from its owners. Therefore, the owners aren't personally liable for business debts that accrue. Typically, LLCs are more flexible than standard corporations and far simpler to set up. Plus, they tend to have lower reporting requirements.

The Steps To Starting An LLC

When starting an LLC via LegalZoom or other means, you'll need to file documentation in the state that your business will be operated in. All states have their own sets of procedures and rules.  However, there are a few necessary steps that need to be followed to set up your LLC properly. These steps are present regardless of the state of incorporation.
  • Choose a name:
Most states don't allow two registered companies to have the same name. This extends past LLCs (so there can be no Fora Financial, LLC, and Fora Financial Inc in the same state). Entity name checks are available to ensure your name is unique to your state of incorporation.
  • If possible, reserve an LLC name:
This is ideal if you don't plan to file articles of incorporation immediately. Reservations require a fee and an official form.
  • Select a registered agent:
Almost all states require LLCs to name registered agents. Registered agents are people agreeing to receive official documentation on behalf of the company. Then, they pass them to the proper entity within the LLC for review.
  • Develop your operating agreement:
LLC operating agreements represent the roadmap describing how your company will be managed and run. They typically aren't filed with the state. Sometimes they aren’t even required by state law. Regardless, an operating agreement is crucial to define responsibilities and minimize future issues within your organization.
  • Filing articles of organization: Articles of organization are required for all states to formally start an LLC. These articles explain the power, rights, liabilities, duties, and obligations of each LLC member.
  • Obtaining your Certificate of LLC: Once the paperwork is filed through your state’s system, you'll receive your official LLC certificate. From here, you can obtain tax ID numbers, business bank accounts, and more.

Considering LegalZoom

One of the simplest and most effective options for those looking to start an LLC is LegalZoom. They are an online legal service offering, built as a one-stop-shop for the legal needs of small businesses. These businesses can pay low fixed rates for all sorts of legal work. In addition to LegalZoom LLC formation, this includes options such as:
  • Developing customized legal documentation with e-signature technology
  • Registration of trademarks, copyrights, and patents
  • Consultations with lawyers, legal document review, and accountant analyses
  • Creation of living wills, trusts, and estate planning
The main client base for LegalZoom is smaller businesses lacking in-house counsel and lawyers.

The Pros of LegalZoom

There are many advantages to starting an LLC through LegalZoom. Some of those advantages include:
  • LegalZoom has a long track record of success:
They claim to have assisted over four million consumers and businesses. The professionals at LegalZoom are adept at the steps to starting an LLC and relevant filing processes. They have an arsenal of resources to ensure success and a smooth, streamlined experience.
  • They offer a sixty-day money-back guarantee:
This is the longest in the business formation industry. Also, they offer membership cancellation at any time, with a prorated refund. This plan provides regular attorney access for a low monthly cost. It includes phone consults, document review, tax advice, annual business evaluations, and more.
  • Easy Process:
The process through LegalZoom is incredibly hands-off for business owners unaware of the LLC formation process. After the necessary information has been included, LegalZoom takes on the remainder of the grunt work. This is ideal to allow business owners to focus on running operations.

The Cons of LegalZoom

Regardless of the advantages included above, there are also some distinct downsides to consider. These pros and cons should be weighed before deciding to utilize LegalZoom to start your LLC. Some of these potential cons include:
  • Customer Service Issues:
LegalZoom has been known to have excessive customer service problems. They have ample phone support available every day of the week except Sunday. They also have email support as an option. However, online reviews note that the overall customer service quality when forming LLCs is subpar and underserved.
  • It Can Be Costly:
LegalZoom may not be the most robust platform cost-wise for LLC formation. Therefore, business owners on a budget will need to consider the cost when determining their options. The pricing is dependent on state, but starts at $79 plus filing fees. In comparison, companies such as IncFile charge nothing aside from filing fees.
  • Not All Services Included in The Basic Plans:
Some specific LegalZoom services are only “unlocked” when signing up for monthly business legal plans. This is the Business Advisory Plan listed above. If you need one-time assistance with a legal matter, there's no access to an attorney or law firm to assist. Instead, you're required to register for their monthly plan. This plan is known for being difficult to cancel, as it integrates heavily with your LLC formation.

Considering The DIY Route

Those who decide to utilize LegalZoom are looking for the least expensive and lowest stress option for filing legal documents. What's being misunderstood is LegalZoom is stellar at marketing, but not so much service personalization.  LegalZoom has built a large, hugely successful enterprise with a straightforward premise: affordable, efficient legal services. However, they aren’t a law firm. In fact, LegalZoom is prohibited from providing real legal advice. They've had issues with this in the past. Instead, their services are more of a shotgun blast approach. They aren’t tailored to the legal needs of the individual. For this structure, the do it yourself methodology of LLC formation is surprisingly effective, shockingly easier, and cheaper.

The Pros of DIY

There are some benefits to the do-it-yourself route for starting an LLC compared to an all-in-one package. Some of these advantages include:
  • Choose Third Parties to Assist At Will:
Want a specific lawyer to help with one small piece of the LLC development process? Not being tethered to a service such as LegalZoom provides that option.
  • It Can Be Affordable (If You Know What You're Doing): 
An LLC can be registered for only the cost of the filing fee with the secretary of state. These fees vary from state to state. Plus, you'll never be caught with an unexpected rebill after a set subscription period expires.
  • Control Over The Process:
Business owners who like to ensure oversight of all steps of their business management will love the DIY process. No stone is left unturned, and no operation is unknown. With entities such as LegalZoom, the behind the scenes work is unknown.

The Cons of DIY

Despite the numerous advantages above, there are some potential disadvantages to starting an LLC independently. A few of these disadvantages include:
  • Difficult to Write an Operating Agreement Without Legal Help:
Do you have partners in your limited liability company? If so, you're going to have a rough time writing a legally binding operating agreement without getting a professional involved.
  • Potential Complications Involved in the LLC Creation Process:
If you opt for a do-it-yourself solution, these complications must be navigated alone. All the Googling in the world can’t provide the insight that a lawyer can. This is especially true when it comes to business incorporation matters.
  • Reporting Challenges:
When the time comes to file required annual reporting, there will be significant hurdles that need to be overcome. If you handle your accounting and business expenses, you'll  be expected to handle annual reporting to the state.
  • You'll Likely Need Legal Counsel Eventually:
There aren’t many circumstances where a lawyer will never be needed. For things more complicated than a subpoena response or small claims court, you’ll need legal counsel. To undo errors caused by DIY legal documents, you'll lose more money than you would've saved in the first place.

Middle Ground: Hiring A Lawyer

Are you concerned with the lack of personalization associated with services such as LegalZoom LLC formation? Do you lack the time or expertise necessary to foray into the do-it-yourself method of starting an LLC? If so, a strong (but more expensive) alternative option is hiring a lawyer. There are many advantages to hiring a lawyer for your incorporation needs. Skilled legal professionals know better than anyone how to navigate the murky waters of business legalese. They'll be able to provide a one-on-one approach to your specific business needs. Lawyers can also ensure your DIY method won’t result in your paperwork being returned by the state. Lawyers can also craft the perfect operating agreement that fits the needs of yourself, other team members, or stakeholders. They'll also have the experience to let you know if a different business structure is better for your operations. The downside to hiring a lawyer compared to the options above is the associated cost. Hiring lawyers in your LLC formation will be far more expensive than LegalZoom or a do-it-yourself alternative. However, the benefits involved with the professional, personal approach may be far more pronounced. Are you looking for some additional tips to starting and growing your small business? Subscribe to the Fora Financial newsletter! [cta-newsletter]