LegalZoom: When the Law Goes Public
LegalZoom has filed its S-1 registration statement with the SEC. The direct link is here. I really think most lawyers should read parts of it; the link gives you hyperlinks to the table of comments. I focused on “Risk Factors” and “Business” along with “Legal Proceedings,” which is part of “Business” (and starts at page 70).
The first Risk Factor is important to LegalZoom, as it involves the Unauthorized Practice of Law:
Our business model includes the provision of services that represent an alternative to traditional legal services, which subjects us to allegations of UPL. UPL generally refers to an entity or person giving legal advice who is not licensed to practice law. However, laws and regulations defining UPL, and the governing bodies that enforce UPL rules, differ among the various jurisdictions in which we operate. We are unable to acquire a license to practice law in the United States, or employ licensed attorneys to provide legal advice to our customers, because we do not meet the regulatory requirement of being exclusively owned by licensed attorneys.
The concern about UPL and related issues has not been academic for LegalZoom, as it has over $5 million in litigation reserves, which is intended to cover litigation in California and Missouri. LegalZoom obtained a potential settlement of a California-based class action last month for an estimated cost of $2.9 million. Note 6 to the financial statements (find it here) lists cases pending in four other states.
It’s often lonely being a pioneer. Much of what LegalZoom has been doing the past 10 years is finding out how far they can push the UPL envelope, and that hasn’t been cheap or easy. (Ken Adams of Koncision provides some helpful thoughts about the UPL issue here).
LegalZoom has been advertising a lot on radio, and encourages listeners to reach out to them for help with legal matters. Each spot ends with something like this rather lawyerly-sounding proviso:
LegalZoom is not a law firm. Its self-help services are provided at your specific direction.
If you look closely, there is similar language in tiny print at the bottom of this 30 second patent promo video:
(Apparently this video was dubbed to translate it from the original lawyerese).
Now this is fine, and understandable given the regulatory climate that LegalZoom faces. But exactly how is someone supposed to “specifically direct” legal services if they are not a lawyer? No problem, I guess, since LegalZoom can put you in touch with a lawyer. Or sign you up to a plan to do the same, within policy limitations.
While doing some research for this post, an ad popped up on a web page I was reading. Here it is:
To this I might add (4) Find out you need a custom-tailored operating agreement months later and (5) realize after that perhaps you shouldn’t have been an LLC in the first place.
Over a year ago, there were reports that LegalZoom was considering an IPO. At that time, I examined what LegalZoom really was offering.
Since then, it has swung from losses to a profit, as it tries to move from selling forms to offering subscription services to consumers. In addition to hopefully growing profits, this focus should also provide more predictability, which potential investors need to see and financial analysts will hold management accountable for.
On Friday, why LegalZoom is not technically disruptive, and why that may make it a great business.