Wednesday, August 31, 2011

Addressing the Legal Needs of Small Businesses

The advance of the Internet has changed how we do business. Now, many businesses have moved online. One can do all the shopping, including the grocery shopping, without leaving home. Legal services have also evolved. While most law firms still hold on to their traditional impressive offices, there are some law firms that communicate with clients virtually, avoiding the costs of expensive office space rental. Virtual law firms apart, there are now companies that offer online legal services while saying that they are not actually practicing law.

Rocket Lawyer and LegalZoom are not set up as law firms. Their staff members do not hold legal licenses. They are not bound by the rules of ethics. They simply offer their clients a low cost DIY option of preparing the necessary legal documents using their templates. The LegalZoom services have been challenged in court for practicing the law without a license. The outcome is pending.

These companies are growing fast. Rocket Lawyer has 70,000 users a day (more than any law firm has clients). Are they competing with traditional law firms?

Yes. They compete, and quite effectively, in a number of ways. First, for a low price, they offer access to document templates. Second, templates enable business owners to create simple and straight-forward documents on their own, thus avoiding costly billable rates. Third, they offer an opportunity for a low-cost consultation with an attorney from their network to check the created documents. Fourth, and most important, they are not bound by the rules of ethics, which prohibit non-lawyers from owning law firms. This last point allows Rocket Lawyer and LegalZoom to accept outside investments and improve their offerings through an infusion of outside capital. In August, Google Ventures, along with several other investors, invested $18.5 million in Rocket Lawyer. A traditional law firm would not be able to get such funding.

In fact, lawyers are feeling the pressure. The law firm Jacoby & Meyers has recently filed law suits in several states claiming that the bar on non-lawyer ownership of law firms was unconstitutional. The American Bar Association voted to circulate a proposal to permit non-lawyers to hold a minority ownership role in law firms. This rule was originally designed to insulate lawyers from any influences by outside investors that may jeopardize client loyalty.

Companies like Rocket Lawyer and LegalZoom may be a good way for a startup to save money on legal fees at the initial stages of development by using templates to create simple and straight-forward documents. However, every deal and every business relationship is unique, and templates, although a good starting point, do not address every situation. Even though a start-up may save some money by purchasing a template instead of having a lawyer draft the agreement, it is still wise to ask a lawyer to review it. A legal consultation is particularly important when considering more complex business arrangements. Business owners should realize that the validity of contracts does not typically get tested right away, but at the time of disagreement among parties when the risk of litigation is high. So, business owners should ask themselves this question: are they really saving money in the long run by going to Rocket Lawyer or LegalZoom? The answer may depend on the task at hand. After all, it is like buying health insurance. You don’t really need it until you get sick.

It looks like, despite all the legal challenges, Rocket Lawyer and LegalZoom are here to stay. However, amendments to the ethics rules, if adopted, will change the way law firms can compete with online businesses like Rocket Lawyer and LegalZoom, leading to more cost-effective client representation.

Please note this is my personal point of view, and should not be taken as an endorsement of any of the companies mentioned above.

This article is not a legal advice, and was written for general informational purposes only.  If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga.  Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.


  1. The LegalZoom services have been challenged in court for practicing the law without a license. The outcome is pending.
    Porter Besshart

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