Occasionally we meet with a business owner who brings us a contract they downloaded online. They ask us, “is this ok to use?

I may be in the minority, but my first reaction is not, “NO! Those are so terrible and will do you no good!” To the contrary, I don’t think online resources are a bad thing – as long as people understand what they are getting (and not getting). I think it’s good to give more access to legal information – all small businesses need that.

My biggest thing – what I care about most – is that small business owners make informed decisions. All I ask is that you know what you’re buying. For that reason, I’ve laid out some considerations: (1) Pros and Cons charts of online legal forms, (2) a Case Study from my past, and (3) my soap-box opinions.

Have you ever bought (or just downloaded) a form contract online? Have you ever considered it? In case this comes up for you at some point, let’s discuss so that you can make an informed decision based on priorities.

BUYING FORM BUSINESS CONTRACTS ONLINE

PROS
› FAST – almost immediate receipt.
› CHEAP – usually a couple hundred dollars.
› EASY – usually click a button.

CONS
› ONE SIZE FITS ALL – it may or may not fit your business and your situation.
› MAY NOT BE THE RIGHT FORM – there’s no one to guide you to the right form; that’s advice you can only get from an attorney.
› MAY NOT HAVE THE RIGHT TERMS – most online forms are really simple – to the point of being generic; it might not cover what you need it to.
› YOU GET WHAT YOU PAY FOR – no customization unless you do it yourself; and you know that’s dangerous.
› JURISDICTION COUNTS – business rules are state specific, so having a state specific contract matters.

My Soap-Box Opinions:
#1 – Just because there are many more cons than pros in this chart does not mean I am against online forms. If a business owner’s priorities are fast, cheap and easy – those are more important than everything else – then online forms are a good option. Understanding the cons allows the business owner to realize whether it’s a good option. It’s upsetting when someone buys an online form thinking they are getting more than they are – thinking that it protects them. If you buy one, you have to know and accept the risks.

#2 – You may not realize that the form contract isn’t a good fit for you until after a problem occurs. And then it’s too late – you’re stuck with it. Whether the problem is big or small – whatever the contract says is what you have to do. If the contract is silent – it doesn’t say anything about the problem – then it didn’t do it’s job in the first place (see Case Study below). Either way, fixing the problem could end up more expensive than the cost of an attorney would have been to draft the contract in the first place. Sometimes it’s not always what it costs NOW but what could cost you LATER.

GETTING ADVICE FROM A BUSINESS ATTORNEY

PROS
› INTERACTION – you get to have a conversation with a person; ask them questions and get specific answers.
› ADVICE & GUIDANCE – you can tell them your concerns and they can help you address them – to help you protect yourself and your business.
› KNOWLEDGE & EXPERIENCE – you may not know what to ask but the attorney will know what information you need.
› CUSTOM ANALYSIS – a contract written for your business with the right terms to fit your situation.
› ADJUSTMENTS – you may learn a better way of doing something.
› CHOICE – you may not know what form to select, but an attorney does. He or she knows the proper set of rules to invoke for your specific situation.

CONS
› TAKES MORE TIME – meet with the attorney and then give them time to create the contract.
› COSTS MORE MONEY – instead of a couple hundred, it could cost a couple thousand dollars.
› HAVE TO DEAL WITH AN ATTORNEY – I acknowledge this. Attorneys aren’t always easy.

My Soap-Box Opinions:
#1 – Some small business owners think online forms are for small businesses and hiring an attorney is for bigger businesses. The irony is that small businesses can’t afford the mistakes whereas big businesses have the resources to withstand them. So in my humble opinion, it is more important and critical for small businesses to get legal advice from an attorney because it affects their continued existence.

#2 – There’s no judgment here. I do not judge anyone who wants to avoid attorneys. I understand that you may have had a bad experience or you just think attorneys are jerks. And some of us are, no doubt. The reality is that attorneys are human, too, and we each have a personality and experience that may or may not be a good fit for you. Not all attorneys are created alike, so please don’t cut off your nose to spite your face. It is possible to find a good attorney who will be able to help you in the right way.

CASE STUDY: A Partnership with an Expensive Split
*Some of the details of this case have been changed to protect the confidentiality of those involved.

Many years ago, I ended up having to negotiate around an online form. A new client, Justin, came to me with a problem. He and his business partner, David, had started a restaurant and had built it into a very successful business. When they started it, they bought their partnership agreement from an online service (they had an LLC, so the agreement they purchased was called an Operating Agreement). They were a start-up and needed something in writing between them, so they thought an online form would be good enough. They trusted each other.

Fast forward several years and they were both working long hours in the restaurant. Their business is rocking and rolling, making good money and growing steadily. The time came when David wanted to take a vacation. Justin agreed and they found people to cover David’s shifts while he took a two-week vacation in Thailand. David had such a good time in Thailand that he decided he didn’t want to come back home. He wanted to stay and live there. He was burned out on the restaurant and the cost of living in Thailand was amazingly low. He called Justin and let him know he wouldn’t be flying home.

Justin was shocked. The restaurant needed both of them and Justin was already working too much. There were no more hours in the day for him to take any more responsibility. He didn’t know what to do. That’s when he came to see me. He needed to quickly get another partner who would step in and help him run the restaurant. But what to do with David?

Of course, the first place I looked for answers to this problem was their Operating Agreement – which they bought online. Their agreement didn’t mention anything about the owners of the business needing to work in the business. So technically, David could live in Thailand, not work in the business and still collect 50% of the profits of the business (he was 50% owner). Justin would do all the work and David would collect half of the profit. Didn’t seem like a fair deal, did it?

Long (and gory) story short, we negotiated with David’s lawyers for Justin to buy David out of the business. But instead of a reasonable price (which should have been required in their agreement), David insisted on an exorbitant amount and Justin felt he had no choice but to pay it. We just didn’t have any leverage to negotiate a better deal. The agreement didn’t help us and there was no rule that said David had to sell. He could have remained a 50% owner for as long as he wished. To get him to sell, Justin paid much too high of a price.

I will never forget this case. Not only was it a challenging negotiation, it was a situation that could have been easily avoided. Since that time, online forms have become much more prolific and popular. But unfortunately they haven’t also gotten any more sophisticated, so I’m sure other people have had similar experiences. It’s fortunate Justin had the money to buy David out; some may not have that option and have to shut their doors. And that is indeed tragic.

To Wrap It All Up – this is what you need to consider:

1. What are your priorities? What do you care about most?

Getting it done fast vs. Getting it done right
Worrying and wondering vs. Getting answers and feeling protected
Paying as little as possible vs. Knowing your money is well spent

2. If your priority is fast, cheap and easy, then research the online sources for downloading forms. Choose the best possible source you can find. Don’t make any assumptions.

3. If your priority is to get a contract that fits for you, gives you some assurance that it will serve your purpose, then we invite you to contact us to talk about it. We may or may not be the right fit for you, but we’d be happy to have a conversation to figure it out.

About The Legal Department:
At The Legal Department, we maintain an outlook of optimism while being realistic in protecting against what could go wrong. We believe in promoting great relationships between our clients and their clients – and we do that by creating service contracts they can use to demonstrate honesty and build trust.