So Much Of What We Do Has Now Been Adapted To Online Processes
Buying airfare, ordering just about anything and even meeting mates have become mainstream online. The convenience is so prevalent that it’s difficult to remember what it was like NOT to use these services. Some functions—particularly legal functions—are best handled by professional human beings rather than relying on the keyboard and monitor to solve all problems. Online do-in-yourself outfits such as LegalZoom launch you into a hazy world of risk. The mistakes can cause more headaches and end up costing far more in dollars, aggravation and time.
Here’s One Example
A NY LLC had operated for more than five years experiencing profits and growth within agreements that they had purchased using LegalZoom. The documents reflected a 70/30 split and when years later, the relationship soured, a court case ensued resulting in the liquidation and dissolution of the business. As in any business divorce, the reasons were complex and unique but the LegalZoom operating agreement contributed to the both sides’ legal positions and willingness to litigate.
The operating agreement contained two separate articles that dictated decision-making by the members. One article under Management said if a dispute arose, final determination would be made by a vote of the majority of the Members. But another provision said that final decisions were made in proportion to the ownership interests.
Remembering the agreement was a 70/30 split; the majority member claimed his 70% would trump the votes of the other member holding 30%. The judge, though, noted that each provision could be read to give way to the other. His ruling left the situation unresolved. After spending thousands of dollars on trial lawyer fees, the parties finally decided on a resolution.
Even when a lawyer drafts an LLC agreement, imperfections can arise. It remains very confounding that a standard operating agreement sold online by a major player in the online legal forms business could contain a fundamental flaw that encourages conflict.
I recommend owners of rental properties to own them in an LLC to reduce their liability and to separate these assets from their other assets. Naturally, it’s tempting to want to save money when you think your LLC is “simple”. It is hard to believe that anyone could navigate the complex and obscure LLC online questionnaire without legal advice and end up with an agreement that he or she believes will meet the long-term and ever-changing needs of his or her business.
Everything may seem cut and dried when you are just starting out and everyone has a singular goal of growing your business. It’s only when relationships get rocky does the true value of these agreements emerge.
When You Are In Business, It’s YOUR Money & YOUR Assets
You carefully choose your properties or business purpose; you make sound, well thought out decisions. Why would you risk such huge stakes by cutting corners in using a do-it-yourself service that can collapse under the weight of attacks from trial lawyers? You should compromise elsewhere; not with your legal protections.