Operating a business is difficult territory for many business owners in this day and age. My guest today will help you navigate more treacherous territory: business law. My guest today is Robert Barrett, a lawyer and a professor of business law and cyber law for business students in the College of Business and Public Management. He is also a law professor at the University of La Verne College of Law. Professor Barrett will help you understand contracts, working with lawyers, along with all the pitfalls and perils of the modern legal environment of business.
I want to talk about the real fundamentals that businesses want to know when they first start out. I do that with undergrads, condense the full year of contracts into 2 class meetings at most. The first thing most people don't seem to understand is that laypeople and I’ll limit my discussion to America because are becoming the standard. When people think contract, “We are going to have a piece of paper”. The first thing I tell my undergrads is “No that is not a contract. That is a piece of paper! That is not a contract.”
A contract is much more abstract and much easier to create a contract than people think. You tell me you want to sell me a car for $5,000 and I say “ok”, we have a deal. You can take me to court on just that. You made the offer and I said “ok”. You gave me the number, we know what care we are talking about and we have a contract.
If I back out, you can take me to court. We people get to court, “what sort of evidence are we talking about? Where’s the contract (paper)?” No. You swear under oath that I made Barrett an offer to sell that car for 5 grand and he said “yes.” Your testimony is evidence and all you need to win this case if it’s a judge or jury who makes the decision. I’ll get my turn and what’s my testimony? No, I didn’t. That’s it that’s the evidence! It’s up to the trier of fact to determine who they believe. If they believe you: you get the money I get the car. If they believe me: I go home, you still have a car and no 5 grand.
The first thing students learn the time you open your mouth, you are negotiating a deal. Contracts are just agreements. Some of them have to be in writing, but very few. You can buy an oil company with no writing. There’s a famous case where Texaco and Getty oil got into a squabble and Texaco said “we never made that deal.” The executive from the other oil company (Getty) said “yes you did.” They went to court and won a $10.5 Billion judgment based on oral testimony. They did not need a piece of paper for the particular way that oil company was going to change hands.
Law students say “I need to think about who I’ve been talking to.” Business people get into trouble when they don't understand these fundamental concepts. A contract is an agreement and there are all sorts of ways it gets reduced to some tangible form so people don't have to remember and it’s not just oral. You send me a text and I send one back. It’s slightly better isn’t it? Because it’s tangible. Your text is a car emoji, $5K? I sent you back a thumbs up. Contract bro.
There are lots of sophisticated business courses and everything out there, but if you are a new businessman, I don't care how smart you are. I'm sure the two people who stared at Google: Sergey Brin and Larry Page, someone had to sit down and explain this to them. They were brilliant, PHD students who knew AI and all that stuff, but they didn’t about know this.
Always in the back of your mind, you need to think about how am I going to prove this in court if the other side tries to back out or screw me? Do you remember the Disney character jiminy cricket who sat on your shoulder who was your conscience and guided you? Have a little Barrett on your shoulder if you ever think about needing a lawyer. What should I be thinking about and what am I not seeing?
The second level is do I need to speak to a lawyer about this? We see the expression nowadays: DIY, Do it Yourself. I know what happens when I DIY my car. It costs me a lot of money when I get it to the mechanic and says “Now, not only do I need to fix what was wrong with it originally. I have to fix everything you did to make it harder and what you broke.”
The legal environment is becoming increasingly complex. I don’t like to go to the dentist every six months where they clean my teeth and tell me everything is ok. Well, why did I have to pay for this? I learned my lesson from when I was younger, then came the root canals and fillings. The dentist tells me “ I'm going to send my whole family back to the old country on your dime because you didn’t come for your 6 visits or whatever when I could have fixed these when they were small. And now they are big”
My second basic principle is to think about if you need to talk to a lawyer or somebody like that. What I mean is someone like you (SBDC) who can direct them to resources in their community. They are help groups and resources for people to talk to a lawyer who may not have a lot of money. Now that we have the internet, you can type in “Do I need a lawyer for (situation” and ask the question.
If a person can start out by getting legal help, lawyers are expensive. I have a feeling the SBA is one of these organizations that can talk to people and find out about the basics. Before anyone goes anywhere, is this the kind of thing where I’m not sure what's going on do I need to get help? A lot of times that means talking to a more experienced business person, maybe that is what the first step is before you really think about getting a lawyer: is to talk to other business people.
Before you start looking at contracts, making contracts, and thinking about whether you need a lawyer, I suppose this is step 0. A person needs to know what kind of business form they are going to operate and this is a foreign concept to most laypeople.
If you were alone by yourself, operating a business, that may be your best choice because it’s the simplest way to do business. You don’t have people you are responsible for or who are responsible to you. Your income is very easy to deal with for tax purposes because Uncle Sam and his little cousin the Franchise Tax Board and maybe even your town.
If they are going to be by themselves as a sole proprietor, they have to understand it’s simple and may work for a lot of people. If things go wrong and what you pay a lawyer for, is to anticipate IF things go wrong as a contract gets breached, you make a mistake, the other side doesn't pay, etc.
As a sole proprietor, all of your personal assets are exposed to judgments: your house, car, bank account, savings, etc. Everything you own is part of the business! A lot of times people go ‘whoah! I don't want to do that! I have a computer business and I only want the computer business exposed to my creditors.’ Well, then we need to talk.
Suppose you don't want your bank account or house or car exposed then even a sole proprietor, before they open up shop, can create an entity like an LLC or Corporation. All of a sudden, if they do it right it’s only the bank account of the computer repair shop that is exposed and not your personal account. Nowadays, we have a rocket lawyer and LegalZoom. DIY, I think it’s risky. People come to me saying ‘did it on rocket lawyer and now I have trouble.’ I tell them this is how I make my money. I help clean up messes, just like my dentist. Business people will need to find out what business form suits them best and often times that means talking to a lawyer.
And you are a business person and you want to talk to a lawyer now? The first thing out of their mouth, if they are a brand new baby junior lawyer in La Verne, $150 - 300 per hour. Who gets that kind of money? I’ve had to hire lawyers once or twice, it was devastating. I help people for free sometimes if it's a worthy cause, it’s called pro bono but in-between, the middle-class people, affording a lawyer is impossible.
What I’m talking about is a Lawyer Referral Information Service, LRIS. It’s a term for organizations that have been vetted by their local bar or state bar and try to connect people with lawyers. Usually, people do it when they have a specific situation and they are willing to invest at least $50. The form is sent to a panel of lawyers and some will contact that person who may give a free consultant and give them their rate and cost of getting a legal opinion.
The rest of this stuff is just a matter of being cautious, knowing what you want to accomplish, and making sure. Most contracts, even though it’s not required are reduced to some tangible form like writing and that’s kind of technical. If somebody else helped your counterpart on the other side of the deal with the contract? I don't look over my plumber’s shoulder when they are working on the pipes in my house, it's just not going to do me any good.
I tell entrepreneurs they are going to build and live in the mansions of capitalism. Lawyers are the plumbers. It’s an honorable profession and if you have every needed plumbing work done in your house you know you are going to pay because A) it’s hard, b) it’s dirty and c) it’s complex. Just like my job. I charge a lot of money for my work because if I do it wrong and those pipes break, my company is liable. If that house floods, guess who gets sued, me the plumber. If you have a contract and you don't know what you are looking at, you are a business person and it looks like it was written by a lawyer? You might have to bite the bullet and get someone who knows what they are doing to look at it.
I want to thank Professor Barrett for his insight into the legal environment for business. If you need help finding a lawyer you can check out the video above or use your local chamber of commerce as a resource. You can follow professor Barrett on Linkedin.
So tell me, what is a contract?
Let me start with a new business person who is not sophisticated and from the very basics and go from there. Contracts in law school is a full-year course…and business people don’t need to know what the lawyers know. After a full year of contracts as a law student, you still don’t really know anything. Of course like anything in school you need to get out there in the world and the first contract you look at is “We didn’t talk about any of this.”I want to talk about the real fundamentals that businesses want to know when they first start out. I do that with undergrads, condense the full year of contracts into 2 class meetings at most. The first thing most people don't seem to understand is that laypeople and I’ll limit my discussion to America because are becoming the standard. When people think contract, “We are going to have a piece of paper”. The first thing I tell my undergrads is “No that is not a contract. That is a piece of paper! That is not a contract.”
A contract is much more abstract and much easier to create a contract than people think. You tell me you want to sell me a car for $5,000 and I say “ok”, we have a deal. You can take me to court on just that. You made the offer and I said “ok”. You gave me the number, we know what care we are talking about and we have a contract.
If I back out, you can take me to court. We people get to court, “what sort of evidence are we talking about? Where’s the contract (paper)?” No. You swear under oath that I made Barrett an offer to sell that car for 5 grand and he said “yes.” Your testimony is evidence and all you need to win this case if it’s a judge or jury who makes the decision. I’ll get my turn and what’s my testimony? No, I didn’t. That’s it that’s the evidence! It’s up to the trier of fact to determine who they believe. If they believe you: you get the money I get the car. If they believe me: I go home, you still have a car and no 5 grand.
The first thing students learn the time you open your mouth, you are negotiating a deal. Contracts are just agreements. Some of them have to be in writing, but very few. You can buy an oil company with no writing. There’s a famous case where Texaco and Getty oil got into a squabble and Texaco said “we never made that deal.” The executive from the other oil company (Getty) said “yes you did.” They went to court and won a $10.5 Billion judgment based on oral testimony. They did not need a piece of paper for the particular way that oil company was going to change hands.
Law students say “I need to think about who I’ve been talking to.” Business people get into trouble when they don't understand these fundamental concepts. A contract is an agreement and there are all sorts of ways it gets reduced to some tangible form so people don't have to remember and it’s not just oral. You send me a text and I send one back. It’s slightly better isn’t it? Because it’s tangible. Your text is a car emoji, $5K? I sent you back a thumbs up. Contract bro.
There are lots of sophisticated business courses and everything out there, but if you are a new businessman, I don't care how smart you are. I'm sure the two people who stared at Google: Sergey Brin and Larry Page, someone had to sit down and explain this to them. They were brilliant, PHD students who knew AI and all that stuff, but they didn’t about know this.
What things should a small business owner know about contracts?
Before a business person does anything, if they have learned “whoah anytime I talk to someone, I could be in the process of forming a contract. That’s going to change their orientation to what they do.” People can find themselves saying, “I didn't mean to obligate our little business to somebody else.” Well, you did. You need to know how this works. You need to know the basic concepts of contract formation: Offer, acceptance, defined terms, and an agreement.Always in the back of your mind, you need to think about how am I going to prove this in court if the other side tries to back out or screw me? Do you remember the Disney character jiminy cricket who sat on your shoulder who was your conscience and guided you? Have a little Barrett on your shoulder if you ever think about needing a lawyer. What should I be thinking about and what am I not seeing?
The second level is do I need to speak to a lawyer about this? We see the expression nowadays: DIY, Do it Yourself. I know what happens when I DIY my car. It costs me a lot of money when I get it to the mechanic and says “Now, not only do I need to fix what was wrong with it originally. I have to fix everything you did to make it harder and what you broke.”
The legal environment is becoming increasingly complex. I don’t like to go to the dentist every six months where they clean my teeth and tell me everything is ok. Well, why did I have to pay for this? I learned my lesson from when I was younger, then came the root canals and fillings. The dentist tells me “ I'm going to send my whole family back to the old country on your dime because you didn’t come for your 6 visits or whatever when I could have fixed these when they were small. And now they are big”
My second basic principle is to think about if you need to talk to a lawyer or somebody like that. What I mean is someone like you (SBDC) who can direct them to resources in their community. They are help groups and resources for people to talk to a lawyer who may not have a lot of money. Now that we have the internet, you can type in “Do I need a lawyer for (situation” and ask the question.
If a person can start out by getting legal help, lawyers are expensive. I have a feeling the SBA is one of these organizations that can talk to people and find out about the basics. Before anyone goes anywhere, is this the kind of thing where I’m not sure what's going on do I need to get help? A lot of times that means talking to a more experienced business person, maybe that is what the first step is before you really think about getting a lawyer: is to talk to other business people.
What things should business owners understand before they speak to a lawyer about contracts for their business?
You are asking the right questions. 9/10 of the battle is asking the right questions. I was thinking of a person, like me who has an idea, and they have a product or service. They are thinking ‘you know people are willing to pay for this. I’ll be a dog walker, or a dog groomer, or a house sitter, or a personal shopper’ These are all things individuals do by themselves to start a business. This is my 3rd basic principle because folk tends to jump ahead.Before you start looking at contracts, making contracts, and thinking about whether you need a lawyer, I suppose this is step 0. A person needs to know what kind of business form they are going to operate and this is a foreign concept to most laypeople.
If you were alone by yourself, operating a business, that may be your best choice because it’s the simplest way to do business. You don’t have people you are responsible for or who are responsible to you. Your income is very easy to deal with for tax purposes because Uncle Sam and his little cousin the Franchise Tax Board and maybe even your town.
If they are going to be by themselves as a sole proprietor, they have to understand it’s simple and may work for a lot of people. If things go wrong and what you pay a lawyer for, is to anticipate IF things go wrong as a contract gets breached, you make a mistake, the other side doesn't pay, etc.
As a sole proprietor, all of your personal assets are exposed to judgments: your house, car, bank account, savings, etc. Everything you own is part of the business! A lot of times people go ‘whoah! I don't want to do that! I have a computer business and I only want the computer business exposed to my creditors.’ Well, then we need to talk.
Suppose you don't want your bank account or house or car exposed then even a sole proprietor, before they open up shop, can create an entity like an LLC or Corporation. All of a sudden, if they do it right it’s only the bank account of the computer repair shop that is exposed and not your personal account. Nowadays, we have a rocket lawyer and LegalZoom. DIY, I think it’s risky. People come to me saying ‘did it on rocket lawyer and now I have trouble.’ I tell them this is how I make my money. I help clean up messes, just like my dentist. Business people will need to find out what business form suits them best and often times that means talking to a lawyer.
How would a business owner find or vet a lawyer to work with if they need one?
The vast majority of people cannot find a lawyer. It’s a national scandal that the last 4 presidents have talked about: The unequal distribution of wealth due to the fact that capitalism doesn’t work like it used to. Google Jeff Bezos Jet, they make billions of dollars and the President makes $400,000 and rides around in a crappy old plane.And you are a business person and you want to talk to a lawyer now? The first thing out of their mouth, if they are a brand new baby junior lawyer in La Verne, $150 - 300 per hour. Who gets that kind of money? I’ve had to hire lawyers once or twice, it was devastating. I help people for free sometimes if it's a worthy cause, it’s called pro bono but in-between, the middle-class people, affording a lawyer is impossible.
What I’m talking about is a Lawyer Referral Information Service, LRIS. It’s a term for organizations that have been vetted by their local bar or state bar and try to connect people with lawyers. Usually, people do it when they have a specific situation and they are willing to invest at least $50. The form is sent to a panel of lawyers and some will contact that person who may give a free consultant and give them their rate and cost of getting a legal opinion.
The rest of this stuff is just a matter of being cautious, knowing what you want to accomplish, and making sure. Most contracts, even though it’s not required are reduced to some tangible form like writing and that’s kind of technical. If somebody else helped your counterpart on the other side of the deal with the contract? I don't look over my plumber’s shoulder when they are working on the pipes in my house, it's just not going to do me any good.
I tell entrepreneurs they are going to build and live in the mansions of capitalism. Lawyers are the plumbers. It’s an honorable profession and if you have every needed plumbing work done in your house you know you are going to pay because A) it’s hard, b) it’s dirty and c) it’s complex. Just like my job. I charge a lot of money for my work because if I do it wrong and those pipes break, my company is liable. If that house floods, guess who gets sued, me the plumber. If you have a contract and you don't know what you are looking at, you are a business person and it looks like it was written by a lawyer? You might have to bite the bullet and get someone who knows what they are doing to look at it.
I want to thank Professor Barrett for his insight into the legal environment for business. If you need help finding a lawyer you can check out the video above or use your local chamber of commerce as a resource. You can follow professor Barrett on Linkedin.
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