Should You Use LegalZoom to Incorporate a Startup Business?

Posted on December 8, 2009 by H. Scott Johnson, Jr.

One question that I am frequently asked by prospective clients is whether it is best to use an online incorporation service like LegalZoom or to retain an attorney to incorporate a startup business. My answer is always the same: if you are looking to form a startup business -- such as a limited liability company (LLC), an S-corporation (S-corp), or any type of business entity -- your best bet is to retain an attorney instead of relying on LegalZoom or other similar online legal document preparation services.

Although LegalZoom is a viable alternative for the preparation of some legal documents, it is not the best option for entrepreneurs looking to start a new business. First, LegalZoom cannot provide legal advice. It can only provide “self-help services at your specific direction.” Most entrepreneurs looking to start a new business need individualized advice from an attorney. They not only need to understand the incorporation process, they also need assistance with a host of other legal issues that accompany starting a new business including the hiring of employees, reviewing and negotiating leases, and drafting business contracts.

Additionally, LegalZoom uses a standard online questionnaire to determine what should go into the incorporation documents that it prepares for you. However, given that incorporation documents (e.g., Bylaws, Operating Agreements, etc.) are the foundation for the operation of your business, an attorney is often needed to ask important questions regarding various business contingencies and intricacies. For instance, although I may start the process of forming an LLC with a basic set of questions to the client, I always have hundreds of “what if” questions based on the initial answers provided by the client. The client’s answers to my litany of additional questions are essential to my determination of what to include in the incorporation documents or whether other legal documents are necessary to effectuate the client’s goals.

The process of starting a new business is much like the process of building a new house: you want it done right the first time around! Although it may be tempting to cut a few corners and save some money with a legal document preparation service, it is worth your while to retain an attorney to ensure that you are building a solid foundation for your new business. For startups in Virginia, a great resource for obtaining basic information on the incorporation process can be found at the website for the State Corporation Commission.
 

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Efficiently Managing Due Diligence in Acquisition Transactions

Posted on November 18, 2009 by Angela France

Are you or your company considering the acquisition of another business? If so, you will want to discover and analyze all material information necessary to fully understand the target company before signing on the dotted line.

Due diligence is one of the most risk-fraught elements of the transaction; however, it rarely receives the attention it deserves in acquisitions involving small privately held companies most often because of budgetary constraints.  You don’t need to skimp on this phase, though – the proper implementation and execution of a well conceived due diligence review can control costs and expenses, reduce risk, and maximize the value of your investment.

A due diligence review reveals more than just potential “deal killers” in the target, it provides information that will be useful for valuing the stock or assets of the target and defining representations and warranties in the final sales agreement. Otherwise, how will you confirm that the business is what it appears to be and is worth the asking price?

The key to effectively and efficiently managing the due diligence phase of an acquisition is to include the following organizational elements into the review process:

  • Prepare a Player’s List: Prepare a spreadsheet of contact information for each responsible person involved at the target company as well as your own team (i.e., address, telephone numbers, facsimile numbers and email addresses).
  • Organize a Due Diligence Checklist: Prepare and organize a comprehensive Due Diligence Checklist with items grouped together in categories and columns for the names of the responsible team members, notes and status of each items.
  • Assemble a Due Diligence Team: Assign a key staff member(s) to gather certain categories of documents. For example, make your accountant responsible for gathering and reviewing relevant financial documents and tax returns of the target company; chief operations manager responsible for gathering customer contracts; human resource manager responsible for gathering employee contracts and benefit information; etc.
  • Structure the Due Diligence Process: Develop key phases for specific tasks, such as, the gathering documents, including on-site and off-site review; conducting research on target’s organization, liens, and litigation; researching the target’s industry, competition, long-term prospects; meeting with key management of the target company; document review; etc.
  • Develop Milestones: Set reasonable deadlines for the review process with check points along the way to ensure complete and proper implementation of the due diligence process.

Due diligence should be approached as a business process in order to maximize the monetary benefits of the deal. Achieving success and efficiency in this phase of the transaction can be as simple as organization plus disciplined implementation.

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