LegalZoom surged 39% after making its trading debut. Here’s what you need to know about the legal tech.

Legal-tech company LegalZoom celebrates its debut on the Nasdaq.

  • LegalZoom, which provides services to small businesses, made its Nasdaq debut on Wednesday.
  • The stock surged as much as 39% on its first day, valuing the company at more than $7 billion.
  • The company has faced a string of lawsuits for unauthorized practice of law.
  • See more stories on Insider’s business page.

Legal-tech company LegalZoom made its trading debut on the Nasdaq today, trading under the ticker LZ.

The stock opened at $36.75 per share – 31% above the offer price of $28, valuing the company at more than $7 billion. Shares then extended gains to as much as 39%.

The company was founded to “democratize law” through flat-fee subscription services for small businesses. Robert Shapiro, best known for representing O.J. Simpson, is one of the company’s co-founders.

LegalZoom, along with legal-tech software Intapp, made waves when they filed for IPOs earlier this month. Intapp also debuted on the Nasdaq on Wednesday, opening at 3% below its offering price.

We scoured LegalZoom’s S-1 filing for everything you need to know about the company, its legal risks, and its plans for growth:

LegalZoom targets the growing small-business market

LegalZoom has a network of more than 1,300 independent attorneys and 75 in-house tax advisors. In 2020, 10% of new LLCs and 5% of new corporations in the US were formed via LegalZoom, according to its S-1 filing.

The burgeoning small-business market means a $48.7 billion serviceable addressable market, according to LegalZoom. Small businesses have created 65% of new jobs since 2000, per the Bureau of Labor Statistics.

Since its founding in 2001, LegalZoom has expanded to provide compliance, tax, and business services. Its compliance solutions now make up most of its subscription services, according to its S-1. For instance, in most states, small businesses must have a registered agent to receive mail and court documents at a physical address during normal business hours. LegalZoom offers a registered agent subscription to digitize this process.

LegalZoom earned more than $134 million in the first three months of 2021 – up 27% from the same period last year. The growth was spurred by the pandemic, according to legal-tech expert Scott Mozarsky.

“The pandemic really accelerated a secular shift to online legal services, as people became more comfortable doing everything online,” Mozarsky told Insider.

As the pandemic winds down and the “offline” economy reopens, however, LegalZoom fears that the “tailwinds” created could slow down, according to its S-1 filing.

LegalZoom has faced a rash of lawsuits for illegal practice of law

The company also faces some legal risks.

In the US, only licensed lawyers can provide legal services. LegalZoom has been sued multiple times for alleged unauthorized practice of law.

A Missouri resident who used LegalZoom to prepare a will and two other individuals who used it to organize a remodeling business filed a class-action lawsuit in 2009, alleging the company illegally practices law. A 2010 class action accused LegalZoom of drafting a flawed estate plan. Both cases were ultimately settled in 2011, and LegalZoom has denied all wrongdoing.

In some jurisdictions, LegalZoom has already begun taking on the role of a licensed lawyer. In the UK, its subsidiary operates under an alternative business structure that allows non-lawyer entities to become licensed providers of certain legal activities.

Despite the lawsuits it’s faced, LegalZoom has said it may consider implementing similar alternative structures in the US. Utah and Arizona recently began allowing non-lawyers to provide legal services.

Another potential legal hurdle concerns the gig economy. While the gig economy accelerated small-business creation and expanded LegalZoom’s target market, recent legislation on companies’ treatment of independent contractors – like the attorneys and accountants on LegalZoom’s platform – could also expose it to employment liability.

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