The Do’s and Don’ts of Internet Legal Forms
Oftentimes in the course of representing business property owners, I am asked the question whether or not forms from the internet can be used to effectuate purchases, sales, employment arrangements, or other business, either associated with running a company or buying and selling real estate. The old adage “you get what you pay for” applies under these circumstances.
Internet forms for simple transactions might be suitable for some people. If you were to loan a family member money and wanted to evidence it by a simple note, the internet might be the place to go. However, if you are engaging in more complicated transactions, the general rule “you get what you pay for” applies. A good example is an operating agreement. An operating agreement is the document that controls how a limited liability company functions. They are very prevalent in real estate transactions and also for a business that will be providing a pass-through income stream. The problem with most operating agreements found on the internet is the persons utilizing them don’t know what questions to ask or how to fill them out in order to protect themselves from risk.
The real issue in using internet forms is to assess what you are trying to accomplish. I generally try to put clients in a position of doing simple things as best as I can. As an example, for my real estate clients, I usually teach them how to set up limited liability companies and educate them on one-owner limited liability operating agreements. If I have the same group of people buying real estate over and over again, I generally prepare an operating agreement that they can use in most situations for each new entity they create. If they have a situation that is outside of the norm of their transaction, they only need to bounce off of me those changes to the operating agreement document. I also suggest yearly reviews of operating agreements in use to make sure that any of the changes in the law or ownership structure are reflected in the agreements.
A good example of an unanticipated risk is a situation I recently had that involved three people who bought a piece of real estate and used an internet operating agreement. The form did not discuss what would happen if the limited liability company needed additional capital because of a loss of income. In this instance, the loss of income was tenants moving out. The limited liability company needed to make the bank payments. Two of the three unit holders contributed to a loan to the limited liability company so that the limited liability company could make the payments to the bank. The third owner chose not to. The operating agreement did not have any clause that would force the third owner to contribute, nor did it state what would happen if the two other unit holders contributed and the third unit holder did not. These are discussions that a lawyer has with a client when setting up a limited liability company and entering into an operating agreement. It is the training and experience of the lawyer that gives the document full force and effect and essentially business life. The problem with internet forms for situations other than the most mundane is that they contain traps that the user does not even know exist or understand. The true value of a lawyer in any type of transaction or document drafting is their experience in guiding you to what you want and to avoiding problems in the future in your personal and business relationships.
In closing, if I were truly cynical, I would be thrilled to have more and more people using internet documents without consulting a lawyer as it creates complex litigation and estate planning problems, thus ensuring future legal work. But the best attorney is the one who can guide you through aspects of your personal and business life and ensure that you do not end up in courtrooms with frustrated expectations because you used documents you did not understand or could not identify issues within your business or personal relationships. With Axley, we want to be the guide that takes you through life. A quote from Abraham Lincoln is most poignant in that regard, “A lawyer’s time and advice are his stock and trade.” A good law firm, like Axley, is your partner in navigating you through the complexities of your life, both business and personal.
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