Small Business Law 101

1. Introduction: Running a small business is one of the most rewarding and challenging career paths you can choose in this world. You set your own hours, you make your own money, and your success or your failure is in your hands. To be successful, you need to understand some of the fundamentals of small business law and tax law. And my name is Dan DiCicco I'm an attorney and an educator. And in this class, I'll provide you with that foundation of small business law and tax knowledge that you need to know to go out into the world, had run a small business successfully. This is a seven part class that teaches you the fundamentals of small business law will cover topics such as contracts, taxes, limited liability companies working with employees, contractors, and partners. And we'll also have a class on intellectual property, and finally, a class on professionalism. This class is aimed at someone who has no previous experience running a business, though it could still be helpful for those of you who have run a business, they'll look, this isn't legal advice, right? This is education. I want to equip you with the tools and the knowledge you need to go out into the world and run your small business and to engage with professionals like attorneys and accountants and be able to have an intelligent dialogue with them about the topics we'll cover in this class. So join me in class. This is a seven part series and it can start right now. 2. Limited Liability Companies: Hello and welcome to class one about limited liability companies or LLC. A limited liability company is the most common method. Small business owners used to protect their personal assets from the depths of their business. Now a person who doesn't do business with a limited liability company or some other legal entity, is called a sole proprietor. And there's nothing wrong with doing business as a sole proprietor until there is. Because things do go wrong and business, someone falls down the stairs leaving your business premises or you have an employee that is disgruntled and files a lawsuit, all of a sudden the things that you own personally are on the hook. Someone can come take your personal assets to satisfy the debts of your business. And so to avoid that, people use what are called limited liability companies or corporations or partnerships or other business entities to protect their assets. Now setting up a limited liability company isn't complicated in the simple use case. And the simple use case is the single member Limited Liability Company. That's a small business owner. If you're working solo, you can set up a single member limited liability company just by getting online, Going to your secretary of state website and filling out a form. It's not complicated. It usually costs a 100 to a $100 and you don't necessarily need an attorney to do it, although there were plenty of attorneys will take your money and are happy to set it up for you if you don't want to do it that way. But once you have a limited liability company now you have a license to go out into the world and start making contracts and doing deals and hiring employees. And you can do it without putting your personal assets at risk. And that is really important. As you become more successful, you have more money banked away and all that. And it doesn't overly complicate your tax situation either. There'll be a whole second class about taxes and how to do taxes as a small business owner and as an owner of an LLC. But for the most part, it's very similar to just filing taxes as as an individual. So you don't need to do anything crazy or hire an accountant just because you have an LLC. I have created an example to literally illustrate how limited liability companies work. Let's talk about Bob. Bob is a business owner and he is new. He doesn't really know the fundamentals of business law, and so he is not using an LLC. Bob has all of his assets. He's got a house, right? He's got a core. He's got some money. And that's all over here. And his personal assets. And Bob, as a client, and this client, he's evil. This client wants to sue Bob because the client is one of those guys who has just never happy. And the client is eyeing Bob's personal assets. He sees Bob's house in Bob's car and he wants it, he wants that money to pay him for his perceived wrongs. And if Bob gets sued, Well, he could lose it all. All of this could be transferred over to the evil client. But after taking this course and after deciding to set up an LLC, Bob now has a new bucket of assets. He's got his laptop computer, and he's got his briefcase, and he's got his business money. And all this lives in Bob's limited liability company LLC. And now the client, what he's looking at Bob's assets, he can't get them. The LLC shields Bob's personal assets from the client who's angry and wants to sue. And if Bob is doing business right, if I was out in the world doing business as Bob LLC instead of just Bob and angry client must go after these assets. All of Bob's personal assets are shielded. The LLC is the only thing at risk. Imagine if Bob's disgruntled customer actually had a real claim against Bob. He slipped on Bob steps going out of his business. Bob should have kept them clear of snow and debris and he's got a personal injury that's worth hundreds of thousands of dollars. Setting up that Limited Liability Company could've saved Bob's financial life. It was perhaps one of the smartest things he ever did. And here's the thing with risk management is you have to plan for the worst-case scenario. Nobody thinks when they're starting a business, even if you're just doing freelance work, you're designing your illustrating. Nobody thinks that they are going to get a lawsuit that is going to actually threaten their financial livelihood or their wealth. But it happens and it always comes at you sideways. You never really see it coming until it's there on your doorstep. And then of course, it seems obvious in retrospect, yeah. This guy, I should have expected him to sue me. But it's there and it's real. And all of a sudden things are at risk. You are going to be very thankful that you have a limited liability company set up to shield yourself. Now the one thing you need to know, this is really important is that once you set up an LLC, say you're no longer doing business as Bob Smith. You're doing business as Bob LLC. You need to actually do business as Bob LLC. When you go out into the world, sign your contracts as Bob Smith for Bob LLC. When you're doing a contract, represent yourself in that contract. Bob LLC will do this. Bob LLC, we'll do that. In this way. Everyone knows that it's the LLC doing business. And by Enron, I mean, lawyers and judges who may have to look at these contracts later on to figure out if you're actually protected by this limited liability shield. And that's what it is. That is what this LLC protection is called. It's called your shield, your limited liability shield. And the only way bad guys can get at you as if you really screw up, you don't do business, has your LLC, you do something wrong, like you commit fraud or you steal than maybe the LLC is not going to protect you. The law will not turn up as a dagger and the honest man's back, if you're doing business, honestly, you're out there doing business in the world as Bob LOC and something legitimately just goes wrong and, you know, you weren't trying to screw someone, that the LLC will protect your personal assets. So it's really not that hard to put an LLC together. But you should know that every state is going to have slightly different requirements at a slightly different website. If you google around for your specific state, you can see if there's anything weird or special about what you have going on there. But generally speaking, you should feel confident to go to the Secretary of State website, fill out the form, and get yourself an LLC. There's no real risk or downside to doing it. Another thing you should be aware of is that there is a business license requirement in many cities for so for example, I live in Portland, and Portland has a business license requirement. It's very easy. You just get online, you fill out a form, and you get a business license that lets you go do business in Portland. The City of Portland uses that business license to know who to send the tax bill to. So once you get a business license, you should expect to pay taxes to the city. Once you have your LLC setup, you may want to get what's called an EIN or an employer identification number from the IRS. Again, this is very simple to do. You just go to a website, you put in your LLCs information, and then the IRS will send you what's called the EIN. An EIN is useful for when you need to set up a bank account for your LLC. Most major banks won't let you set up a bank account and your LLCs name without having an EIN. So this is just a simple step. Again, go online, fill out the form, get the PIN, and you can have your own bank account. And I strongly recommend setting up your own bank account for your LLC because it helps you keep your finances segregated and simplified. You know exactly where the money is coming in and where it's leaving at all times. It's going to be very helpful when you get to tax season. That brings us to the end of this lesson about the basics of limited liability companies. And the next lesson we'll talk about taxation and how your taxes are affected by having a business. And of course, how you can save money by having a business and paying your taxes. 3. Tax Basics: Welcome to part 2 about taxes. Paying taxes as a self-employed person can feel pretty rough. There's a big difference between being self-employed and paying your own taxes versus being an employee and having your taxes taken out of your paychecks. That difference is of course, that you need to cut the checks. Writing a big fat check. It's not very fun thing to do. But there's a silver lining to this reality. And that's silver lining is that the government is actually pretty friendly towards businesses. There are a lot of ways for you to build your business without having to pay taxes for every dollar that you spend. And in this class, we'll be covering the basics of self-employment taxation. We're going to take a look at four main topics. First, we're going to talk about how small businesses are taxed generally and what the differences are between paying taxes as an individual and paying taxes as a business. Second, we're going to take a look at detects formula. How exactly is it that your taxes are calculated? When you know what goes into it, you'll know how to minimize your tax liability, maximize those advantages. And third, we'll take a look at some of the most common ways to minimize your tax bill, right? Deductions, tax credits, deferring your income, things like that. We'll cover those in a minute. Finally, I'll give you some tips on how to make this whole process easier. Some ways you can structure your business and your finances so that when it comes to tax season, you're ready. You don't have to do too much digging. Everything can go smoothly. Now, before we dive into all of this, I want to be clear that there is a very simple software package that can handle everything we're talking about. It's TurboTax. I don't work for TurboTax and not a show for TurboTax. But TurboTax self-employed is a great piece of software. It's Cloud-based. It keeps all of your tax information for all of your years that you file taxes. It really is the way to go for a single member or a limited liability company or a sole proprietor, you could spend thousands of dollars paying a tax preparer to do your work. But I think it's important for a small business owner to understand their financial situation, to understand their tax situation. And as long as you understand these basic texts while fundamentals, then you should feel comfortable using TurboTax to do your taxes in the future. How to small businesses pay their tax? Well, in the last class, we talked about business entities and how a business entity, like a corporation, is a separate legal fiction. It exists separate from you, the person, the individual. And in many cases, those business entities will file their own tax returns. Corporations, for example, will file their own separate tax returns. But limited liability companies, particularly single member limited liability companies like ours and our, our simple use case. These are what are known as disregarded entities. This means they don't have to file their own separate tax returns, and instead they get to file taxes on your personal return using something called a Schedule C. Now, I want to define a little bit of terminology. There are some basic forms that you should know about and understand when you're starting to do your own taxes and think about the fundamentals of tax law. One you may already be familiar with is called the W2. Now if you've been an employee of another company, you've been a salary man drawing a paycheck before. Then at the end of every year, you get a W2. It says what you earn this year. It says how much taxes were taken out of your paycheck and how many how much money was earmarked for your 401 k and all that. This form is given to you is given to the IRS and then everyone knows what you made. As a self-employed person, you'll never see another W2 again. Thank God, you don't want a W2. Now instead, what you're going to see is probably a new form to you, and it's called a 1099. A 1099 is also a report of your income. It goes to you from the people who hired you, also goes to the IRS so that the IRS knows how much you were paid. But there's no withholdings defined on a 1099. It's just a record of how much gross dollar you made from accompany. Generally speaking, a company is required to issue a 1099 if they paid you $500 or more in any tax here. Now this should give you these when you do work for them as a freelancer or as a contractor. But the reality is a lot of companies don't have their accounting together. They're not organized and they may not send you a 1099 at all. Now, that's not a problem. You can still file your taxes even if you don't have a 1099, you just need to keep track of how much money you make every year, report that income even if they don't. Now, the third form that we should talk about is the 1040. This is your basic personal income tax. All right. This is when you go into TurboTax, you filled out the basic stuff about what you made, you plug in your W2, that's your 1040, right? That's the basic form. It has a single-member LLC owner or a sole proprietor. You will be reporting your self-employment income on this form, along with what's called a Schedule C. Now, Schedule C is where the real magic happens for a self-employed person. Schedule C is at attachment to your tax return. It talks about. The gross income you made, the deductions you can take from that gross income, the credit you might get towards that gross income. And then it helps you calculate the final amount of texts do for profits or losses on your business. Now just knowing what these four forms are, the W2, that 1099, the 1040, and the Schedule C. That is really the extent of what you really need to understand to do your own taxes as a self-employed person. So with those basic forms, define, let's talk about how you calculate what goes into your schedule C, because like I said, that's where the magic happens and that's where you get to save money. Let's talk about Bob again and how Bob is going to structure his taxes now that he has a business. So it's the end of the tax here, and Bob's happy because he has now made money. And that money was reported to him by his clients on a 1099 form. The four might have a little dash after that says 1099 and E, C, none employee compensation. Let's say Bob got three or four of those forms and that's how he knows how much money he made. He also was paid for some smaller jobs. You've got some other cache. It wasn't reported on a 1099 at all. It's just money he made. And he knows that collectively, this is all the money he made this year from self-employment. This is what is known as Bob's gross income. All of the money he made from all of the sources, That's his gross income. But to make that money, Bob had to spend some money. Bomb needed to buy a laptop. He needed to pay for his Internet connection, it to drive his truck around, put some miles on it. He had to pay for phone service. All of these things above had to do. These expenses provided they are ordinary and necessary, can be deducted from Bob's gross income. Bob's gross income minus his deductions gives him his profit or loss. That's something to know about. Profit and loss, is that it's actually okay to have a loss on your business. You can actually put money in your pocket and still have a loss from your business if you've been deducting all of these things correctly. So let's say Bob made it $1000. He spent $900 on a laptop. Well, he's only got a profit of a 100 bucks, but he's also got a laptop, right? So he's only paying taxes on what's leftover. He's profit is the only thing he's paying taxes on. Now, at the end of the year when he's doing his taxes, all of Bob's business income and deductions go on to that schedule C that I talked about. And if Bob's using TurboTax, he just gets how these 1099 forms he types in into his income field. How much money there is, he adds in the money from the side jobs, That's his gross income. Then he goes through TurboTax seeking out the deductions, and that is how he calculates the profit or loss from his business and that goes onto his schedule. See, this profit is then carried over to his personal return. Remember the 1040, That's his personal return. And on the 1040, Bob gets to take other deductions. Everybody in the United States gets a personal deduction. So Bob can take his personal introduction. Maybe he's got kids, he can take some deductions based on those kids. He might have some depreciation expenses from investment properties or some health care expenses that he can deduct off whatever the case is to take these personal deductions next. So you take your gross income minus your business deductions to get your profit, then you take your profit minus your personal deductions, and that gets you to your adjusted gross income. And this is the number that Bob will pay taxes on. Let's say he's got a blended rate of 20 percent. That gets him to his total tax amount. The great thing about the total tax amount is that you can also take tax credits directly off of this amount. So many people know that if you bought an electric car, you get a $7,500 tax credit. So let's say that your total tax that you're going to pay this year was $10 thousand. If you pot a Tesla, you get 7500 dollars back. So you're only tax bill is 2500 dollars. These are called credits. And these are different from deductions because they come off your total texts. So this is how Bob will calculate what he owes his business, his profit and loss of his business, how that gets put onto his 1040 where it's reduced further buys personal deductions to be beyond his adjusted gross income. I'll pay tax on that adjusted gross income and then he can take credits back against what he would owe. Earlier I talked about TurboTax and it's self-employment product. And this really is a fantastic product for helping you find inductions. And again, I don't work for them. I've nothing to do with TurboTax. I just loved the product because it saved me so much money over the years. You know, when you get into the product, when you put in all of your gross income and then you start filling in your deductions. You'll see that there's all kinds of categories for deductions that you might not have even demand out of occurred to you, right? You spent money on office supplies, papers, and pins, right? Go ahead and deduct that. How about your marketing expenses, your website? We talked about vehicle expenses and health insurance. All of this stuff can be deducted off of your gross income. In the early days your business, you should be paying almost nothing in taxes until you really start making serious cash. Now, once you do, start making real money, and so you just, your profit exceeds your expenses by a significant margin. Then you're going to get into this world of paying quarterly estimated taxes. And this is important. So unlike the W2 income, right, where you're just getting a paycheck, your employers taking the taxes out every, every single paycheck. And the world of self-employment you have to pay. In our natural inclination is to just wanna pay once a year, April 15th, that's some taxes are due, but that's not how the government wants it. The government wants you to pay taxes quarterly. And what they want you to do is to pay your estimated taxes based on what you've learned so far. Again, that TurboTax product will help you estimate this for the next year. And if you don't pay quarterly taxes, there is a penalty, it's a small penalty. All things considered, you may end up paying a couple 100 bucks in a penalty, if anything at all. But if you're trying to save every single penny, if you really want to make sure you're doing it right. And what you'll do is get these little vouchers that TurboTax prints out, estimating how much you need to pay, and then you'll pay that next year every three months. The last thing I want to talk about are some tips, some tricks, some wisdom about taxes. As a small business owner, you may be inclined. In fact, you certainly are inclined to want to pay the minimum amount possible when you're paying your taxes. All right. This is real money that you have to write a check for. We've talked about how much that hurts. And by maximizing our deductions, we are producing that amount that we have to pay. But that can come back and bite you. And the most important way is when you're trying to get alone. As a self-employed person, it's a lot more difficult to get alone because you need to have two years of tax returns before a bank will consider you successfully self-employed. And even then, because your incentive is to lower the amount of gross profit that you're showing right? To lower the amount of taxable income. The bank is going to look at you and think, well, you don't make any money because you've been deducting so much stuff. So keep in mind that you do have an incentive to show income on your tax returns when it comes time to getting a loan. One of the things that I've found to be very helpful when it comes to tax season is to take my employer identification number. Remember we talked about that in less than one. How even when you have a single-member LLC, you can go to the IRS and get the EIN right to take that EIN over to a bank and set up an LLC specific I'm sorry, set up a bank account specifically for the LLC and then run all of your transactions, everything that you bring in, the door deposit in that LLC's bank account, and everything that goes out use an LLC debit card or an LLC credit card. And that makes it very easy at the end of the year to just log on to your bank's website and generate reports. You can generate income reports, you can even auto-generate expense reports because a lot of banks will automatically categorize your spending, right? You've spent so much on meals and so much on utilities, makes it very easy when it comes time to, to add up those deductions. There are a few deduction categories that really jumped out at me as important for, for self-employed person. Number one is meals. You can deduct in 2021, all of your business meals, 100% of the amount of the money that you spend at a restaurant provided you were there for a business purpose can be deducted. So if you are taking client onto business or maybe you're just going out to dinner to think about your business. You're going to talk to you or potential partners about your business, as long as it's a ordinary and necessary business expense, you can deduct it. So keep that in mind if you're the type of person who likes to eat out, keep your receipts or just use the bank accounting method like I was talking about. And every time you eat out, use your LLCs, debit or credit card. Keep track of those expenses. It can save you a ton of money on food if you incorporate a business purpose into your meals. Another great tip is to make sure that you're saving for retirement. Now, there are retirement experts out there who will give you the details. This is my sort of way lawyer take on the retirement savings scheme. You can and should set up a simplified employee pension or solo 401 k. Or if these are vehicles that you can set up just like your employer would have a 401 K for you. You can set up your own 401 k. And so every dollar that you earn, you can put up a percentage of that into a retirement savings account for your future. And every one of those dollars that you save is deductable off your gross income. So if you make $10 thousand, You want to say 2500 dollars into your retirement, then your profit is now reduced to $7,500 so far, right? So you're not paying taxes on that money this year. They'll pay taxes on it later in life when you may have less overall income. Another important tip is to save for taxes. I've seen people get in really big trouble by just failing to save money right there. So excited that they're making money throughout the year. You know, somebody made $200 thousand for the first time in their whole lives. It feels like a ton of money. They're buying cars, They bought a house that buying clothes are going on trips. And at the end of the tax here, they haven't paid anything to the IRS. And all of a sudden they have a 30, 40, 50, $1 thousand bill. And that can get you in real trouble. I know a guy who actually lost his house because of this because the IRS doesn't mess around. If you tell them that you made $200 thousand and you tell them that you owe them $50 thousand, the IRS will not forget. They will come after you. They will put a lien on your house. All right, so save money for taxes. A good rule of thumb is to save 30 percent. If you're saving 30% of all the money you earn, set it aside for taxes. Then you'll probably make out what some leftovers at the end of the year. All right. It's really important and I can't think of any reason why you wouldn't want to do that. Finally, just except that the only certain things in life are death and taxes. If you accept in your heart that you are going to have to pay taxes and you plan appropriately. And you keep in mind the fundamentals of business taxation, right? So you're balancing the needs of showing income for the future against the needs of hanging onto your cash as you earn it. All right, if you do some of the simple things we've talked about in this class, you're going to be relatively happy when it comes time to actually write those tax checks. Now, look, this class, we are just scratching the surface and I appreciate those of you who are still here after 15 minutes of this discussion, because taxes, they're very competent, very complicated. It's impossible to really even talk about them in any depth. At a 15-minute course, people spend hundreds of hours studying taxes and CPA classes and in law school, right. So so we've only just scratched the surface. And the one thing I really need to emphasize here is this is meant to be your intro to the fundamentals. When you actually sit down to do your taxes. If you have questions, if you're confused, go to a tax professional, go to a tax lawyer if you have something really wonky. But tax professionals, they, they know what they're doing, they can help you through again, it's fifteen hundred and twenty-five hundred dollars maybe get somebody does prepare your business tax return. And that is also a deductible expense. So this class is meant to orient you to some of the things you can do to reduce your overall liability. To highlight those things you need to do to stay on the right side of the law. And if you ever have any questions, like I said, consult a tax professional because this is education, it's not tax advice. All right, now, next class, we're going to be talking about contracts. I love contracts. Contracts are going to be a huge part of your business as it grows. And we're going to talk about some very important issues. I'm looking forward to seeing you in the next class. Bye bye. 4. Contracts Basics: Welcome to Class 3 about contracts. You'll notice that I've dressed down today, I'm no longer wearing a suit. We are getting to know each other. We're not in chord. I'm going to be casual from here on out. Maybe by the end of this course, I'll have a tank top on. Now let's talk about contracts. I love the topic of contracts. Contracts is a very fun court. In today's class, we'll talk about three main topics. First, contracts, fundamentals. What is a contract? How do you form a contracted, not form a contract? Second, we'll talk about promises and the differences between a promise in a contract and how even though a promise isn't enforceable in court, it's sometimes can be if you do it wrong. Finally, we'll talk about common contract's clauses, things that you'll see in leases and professional services agreement, and the clauses that you may want to include or exclude depending on which side of a contract you're on. Now a contract is a legally binding agreement. It defines your rights and your duties are the things that you can do, the things that you must do. Every contract is governed by the same fundamental rules, whether it's a lease agreement or professional services agreement, or even the clicker app agreements that we all blindly clicked through every time we use a piece of software. Forming a contract is done in the same way. Forming a contract requires three things. An offer, acceptance, and consideration. Now let's see how a contract is formed by Bob. Bob has a lawn mowing business and he wants to go mow lawns for money. So he offers to his customer to mow her lawn. It says, Hey, I'll mow your lawn. This is an offer. The customer can say. Okay, that is an acceptance. But what we haven't talked about here is what Bob is getting for knowing the client's long. The third part, the money part, is called consideration. Now that's literally all a contract is, an offer and acceptance of that offer. And there needs to be some value exchange, some consideration. Then you may be thinking to yourself, That can't be right. You need to have a writing. The contract needs to be put in writing. That's what the contract is. The piece of paper? No, that's not what the contract is. The contract is the deal, the offer, the acceptance into consideration in a contract, a written contract memorializes that deal. Now, there is an exception to this rule, as there are exemptions to many rules in the law. And that a contract where the consideration, the value exchanged is greater than a certain amount, contracts like those must be put in writing. This is called the statute of frauds. Also, many states have laws that some goods like cars or real estate, you know, houses, contracts for the exchange of those things have to be put in writing. This is famously gotten some people in trouble. The ease with which you can form a contract. There was a famous case that everyone studies in law school about too drunk idiots at a bar. And one of them writes out on a cocktail napkin, the hill cell has farmed or the other four way undervalue and they both write it up and they both sign it and they have a laugh about it. And then later on that month, the guy who bought the farm for cheap brought that napkin to court and won. This means that you need to be careful when you're dealing with someone, particularly when you're bidding for services or goods over the Internet. You can have a discussion with a freelancer, with a potential customer or a potential employer, and talk about what you'll deliver and your rates and once you actually come to a clear agreement. But if it's clear in your email that hey, I'm going to do X work in exchange for y dollars. You've formed a contract. Occurs to me that we should also talk about damages, contract damages. Now this is the idea of, well, what happens when you break a contract or when someone breaks a contract with you? How do you figure out who owes who, what? And this is a relatively simple and common sense answer. And that is that when you have a contract broken, the other party is entitled to their expectation damages. So let's say you were promised a job. If you did the job, you would get a $100 and then they decide to fire you even though you'd have a contract, well, they still owe you a $100. You expected to earn a $100 in that. And if they break the contract, even if you don't have to do the work, you lose your expectation of money. You can get your expectation damages your money back. The concept of consequential damages asks, well, what were the consequences of someone breaching the contract? That's different from your expectation, right? If you thought you would make a $100 in profit off of a contract and you didn't get that profit. That's your expectation damages. But then what did you lose as a consequence of someone breaching the contract? Consider an example where so you need to buy a Walkman, you need to fill your photography equipment with it. Because you have a gig, you need to get it from a to B. It's very important. The guy you're buying the man farm, you've got a contract with them. He knows you need it for business. And then he ends up flaking and selling it to someone else the day before your photoshoot. Now in that case, which is contrived, you would have potentially some consequential damages. The breach to failure to deliver the van per the contract has caused you the ability to do this other job, right? You lost these consequential damages. Now this is a nuanced question, right? There's no hard and fast way to determine whether you're even entitled to consequential damages after a breach of a contract. But it's something to be thinking about when you're dealing with people, is how much money is the expectation of the contract worth? You know, how much money is the contract work on his face and then what would happen to me or to the other party if there was a breach and what other money might be lost. Because when you're talking about suing in a contract, you can get both of these types of damages, it and some other ones which are beyond the scope of this course. But keep in mind that generally speaking, when somebody breaches the contract, they can enforce the full value of that contract. So that's what damages for contracts were about. Promises are not enforceable in court. They aren't contracts. That's because a promise to do a service or to deliver a good without consideration for that promise. It's not a contract. To have that contract. You need that offer. You need an acceptance. And there needs to be that exchange of value and a promise just to do something without that exchange of value and without maybe even an acceptance of your offer to go do something, it's no contract. So consider our case of Bob. If Bob told his, his neighbor down the road, Hey, I'm going to come by and mow your lawn and then he doesn't come by. Well, Bob hasn't breached any agreement. He's just broken a promise. Now, that doesn't mean you can't get in trouble for making promises. And this is where this concept of quasi contracts or promissory estoppel comes into play. Now, promissory estoppel is the idea that if you make a promise to someone and that person relies on that promise to their detriment, they change their position because of promise, then they can actually take you to court on a sort of contract like theory, a quasi-contract theory called promissory estoppel. Imagine, for example, if your neighbor didn't like the look of your fence, he said to you, you take down your fans, you knock it down. I'll build a new one in its place. I'll pay forward is going to be nicer to look better for all of us. Go ahead and take take it down and we'll be fine. And you'd go ahead and do that. You'd think, okay, well, look, he said he's going to build me a new offense. Everyone's going to be happy about it. So let me go knock down my fence. And then he's gonna, he's gonna do what he said. But then he doesn't he doesn't build a new offense. He just wanted your friends God, he lied. Now you could, in this made-up scenario, sue your neighbor under a theory of promissory estoppel. He told you he was going to do a thing and then you went and relied on that promise to your detriment. You took down your fence, you destroyed something of value that you had, you changed your position materially because of his promise, and then you are hurt by it. And in that way, you can enforce his promise. You could force him to build you a new offense. Now, this type of thing comes up frequently in business. Sometimes you promised to do a thing and maybe you can't and you should have. So you need to be careful when making promises to people, you know, even if you know there's not a contract, even if, you know there's not an offer and acceptance and consideration, you don't talk about money exchange or whatever. If you start promising things to people in the business world and they don't make those promises are reality. And if you don't meet your promise, then you can get in trouble on a quasi-contract theory. So watch out for that. Small business contracts often have a number of fundamental clauses that, that need your attention. Number one is money, alright? When you have a contract for goods and services, there's always going to be a clause in there about, well, how do you get paid? It's very important to look not only at how much is being paid, but when exactly and how exactly put in your wire transfer details or your electronic payment details or the place where you want to get a check center. It's really important that it's clear so that if someone is reviewing it later, you know, they know exactly what you intended. Something you'll see in most contracts is a venue clause or jurisdiction clause. Now in this interconnected world, we're often doing business with people who are in different states or different counties or different countries. And if there's a dispute, this clause, this jurisdiction and venue clause controls where the dispute will be heard. And I'm doing business here in Oregon. If I'm doing business with somebody in New York and we have a fight. Jurisdiction clause is going to determine where I can go to get some relief. And obviously, you want to be able to go to your local court if there's a problem. And you may be tempted to just sign a contract without reviewing the jurisdiction, the venue clause. But that can really leave you up sheets creek if you get in a dispute because you've gotta go all the way to New York to file a lawsuit, right? That could be tons of money and lots of travel. So take a look at that jurisdiction clause had been you clause and either delete it entirely so you can sue in your home state or get it to say your home state is where any disputes will be heard. Most contracts also contain some form of alternative dispute resolution clause. That this means that when you get into a fight with someone that instead of going to court, you might be obliged to go to mediation or arbitration in potentially, you might even waive your right to go to court and have a jury trial. And this, in my opinion, it's actually not a bad idea, but many attorneys differ and disagree about whether these clauses are helpful or not. I always want to be able to go to court because that is where the work is done. That's where the rubber hits the road if there's a dispute. And so I don't like alternative dispute resolution clauses that force you into arbitration or force you to wave a jury trial. Let me know you need to weigh your own risk and figure out what you're comfortable with, but keep an eye out for those. And the sort of freelance and in content creation world, there will often be intellectual property clauses. Who owns the rights to whatever content was created? And the default rule is the author owns those rights. If you don't have an assignment of rights in a contract for the creation of content that whoever made the content owns it. Full stop. Full stop. If you're a business owner and you pay someone for a logo, that is the designers logo, unless the contract includes an assignment of rights. Now there'll be an intellectual property class in this series and we'll talk more about that. But it's very important if you think that you're going to be buying some awesome artwork or, or some video workers, something that all of the rights are assigned to you. Or if you're trying to be a responsible content creator, that you are assigning those rights to your customer. Many contracts contain damages, limitation clauses. So we talked earlier about expectation damages and consequential damages. And a savvy business operator will put a clause in a contract to limit the damages under a contract to a fixed number, and also to potentially eliminate entirely that consequential damages concept. So for example, you may have a contract where you expected to earn a $100, but there might be a limitation of liability clause in there and limitation on damages that says, well, in the event that there's a breach, your only owed $10. So you want to be very careful to look for these limitations on your damages and make sure that if there is a limitation, that it's a reasonable limitation so that you can get fully paid if someone blows you off it and doesn't perform their end of the bargain. Likewise, if you're making a contract where the failure of the other party to perform could cost you a lot of money and consequences that consequential damages can be I you want to make sure that you aren't giving away those consequential damages. It's very common to have a contract that says that there's no consequential damages. So look for those. Another common clause relates to warranties. And this is a sort of complicated topic, maybe even worthy of its own section on contracts and another course, but warranties or where someone says look at word delivering a product to you, that it's going to be of a certain quality and, you know, it's going to be fit for a particular purpose. And you know, if you're buying something, particularly some, some high-end goods like computer equipment, camera equipment, or something like that. Generally, you want to make sure that you retain those warranties. So if you're looking, if you're buying some some high-end stuff, make sure that your contracts don't exclude our disclaim warranties. So another important clause is in attorney's fees clause. It's the clause that says if if someone breaches the contract, it needs to be sued, then the prevailing party can recover it, their attorney fees from the breaching party. Now, if you are an honest business person and you don't expect that you will be breaching the contract anytime soon. This is, in my opinion, always a good idea because especially for smaller contracts, sometimes they might not be worth it to hire a lawyer to go sue on a contract, say $10 thousand contract, you get screwed. Okay. That's a stinger. But hiring a lawyer to go file a lawsuit would be $10 thousand or more and probably more. And so by having this attorney's fees provision in there, you can assure that the other guy will be paying your fees for you to go collect. And yeah, you may have to go out of pocket or the attorney may want to work some deal out. But but generally speaking, it gives you a way to enforce the contract without going out of pocket yourself. So, so I'm a fan of these clauses because if you do business responsibly, you should never breached the contract. You're not going to have to worry about it yourself, but it gives you that byte to go after the other guy if they screw you. Finally, most contracts contain a term, time, term, a date where the contract starts, a date where the contract ends. And this is very important to keep an eye on those and also whether these terms auto renew, particularly in commercial leases, like if you are renting an office, there may be a term, a year term, or you're you're you're renting the office. And if you read the fine print, it says it'll auto renew if you don't do something about it and you may not want that. So be very attentive to win a contract starts and when the contract ends. Now look this, this is a deep topic. There's a lot more to say about contracts generally in a type of terms you might be looking for. But these cover some of the major bases that things that immediately jump out to me. The things that I go to immediately when I review contracts writer people. So look, I appreciate you. Hey, with me through class 3 and class 4, we're going to be looking at the concept of employees and independent contractors and how and your small business, you can bring these people on board and what affects those are going to have on your business, on your taxes, on your LLC and all that. So I'll see you next time. 5. Employees and Contractors: Hello and welcome to class for this fireside chat about employees and independent contractors. Now the main point of this class is to help you understand the distinction between an employee and an independent contractor so that you can classify the people who work for you correctly. And you should know that if you misclassify an employee as an independent contractor, it can cost you a ton of money. The biggest concern should be taxes, because the tax man, he is always going to try to get his money out of you. And the way that I've seen people get in trouble most frequently is by hiring people to work for them and they paid them as an independent contractor when they should be a W2 salaried employee. And when the tax department in your state or the IRS, when they get wind of this information, what they'll do is they'll go calculate all of the payroll taxes you should have been paying, and then they'll send you a bill. And if you have an unexpected bill for years of payroll taxes, that could be crippling to your business. Another way people get in trouble, like I said, was worker's compensation insurance. Now, workers compensation insurance is required in every state so that your employees, when they're injured, they can they can get health benefits. But if you don't have workers compensation insurance, because you think you've got independent contractors working for you. But it turns out when that worker is injured, that they are an employee under the classification system that we're going to discuss. If the workers compensation division in your state determines that that contractor should have been an employee, then they are going to stick you with all of those medical bills and penalties and worse. The test to determine whether someone is an employee of your business or an independent contractor if your business is a multi-factor test that has no clear right or wrong answer. There's a weighing that occurs, and this weighing will occur when you get in trouble by a court. Now the test can be described generally as being three prompts. One, there's an analysis of the behavioral control of the subject person to, there's a test about the financial control over the subject person. And three, There's a test of looking at the relationship that you have with a subject person. So let's break this down. Behavioral control is exactly what it sounds like. Who tells this person what to do? Is it you who tells them how to do their job and a day-to-day basis, is it you who tells them where they need to be and when they need to be there? Or did they make independent decisions about how to do their job? Do they make independent decisions about where they work? Do they have more employers than just you? So when we start weighing these things and we start putting them on a scale, the more that it weighs towards them actually having independence from you behaviourally, the more likely they'll be an independent contractor. The second aspect, this financial control test, I think is even more important. And that is, well, how are they paid? Are you paying them a regular salaried paycheck? Are you paying them when they invoice you for services rendered? Are you withholding any sort of taxes from their paycheck? Are you reimbursing them for out-of-pocket expenses or are they paying their expenses again and then envoys invoicing you for what you owe them. Is it regular or irregular? These types of financial control questions are often the deciding factors in my experience. And again, you'd also want to look at whether these people have other clients. So when you're looking at behavioral tests and financial test, if they're just working for you. If there are only sending you bills or you're only you're their only source of income. It much more likely that these are your employees. Finally, courts will look at the nature of the relationship. This third factor of this test is, is the relationship test. In oftentimes, you'll have a contract with people you're working with. And you should know that even if your contractor says to the subject person that you are an independent contractor, that doesn't control the issue. You cannot make an agreement with someone that they are your independent contractor. Now you can put it in writing so that everyone knows that you intended to be an independent contractor. But at the end of the day, the test controls the financial test, the behavior test, and then this relationship test that That's what controls. And the things you want to see in. Though, an independent contractor agreement, if you really want to make sure that someone is an independent contractor, not an employee, is to start addressing these issues, addressed these financial issues, and you are responsible contractor for handling your own taxes. You are responsible for bringing your own tools and equipment to the job. You are responsible for doing the job timely, but we won't control your day-to-day operations, right? So by building into these these types of clauses into your relationship with someone who you want to be a contractor. You, you're, you're safe guarding yourself against these future unpleasant surprises. Now bringing on employees is hard, right? It's actually, there's a lot that you have to do to do it, right? And when you make that leap from just being a solo to having someone who's working for you. There's a lot of things you need to consider. And you can see now the dangers of trying to bring someone on and doing it in correctly. So the first thing you really should do is decide upfront whether you're going to have, whether you intend to have and employee or an independent contractor. And whether you even can have an independent contractor. If you do decide and you think that, yes, this person is going to be working for me pretty much exclusively. I'm going to tell them what to do and when to do it. I'm going to give them the tools they need to do the job. Then you know that they're an employee. So you need to do a few things. You need to look at your state's payroll tax rules and figure out how to pay payroll tax. This is complicated and this is the point where you probably going to want to finally go get yourself, an accountant or a payroll specialist who can handle this. Alright, so they can start issuing paychecks with all the taxes withheld from your employee's paychecks. And that will make your life a lot easier when it comes to tax time and keep you out of trouble with the tax man. The other thing you need to do is look at workers compensation insurance, right? Everyone, like I said, neat to have workers compensation insurance. If you don't have it, you can get in big trouble at, and you might be surprised, even for, for office work, people get carpal tunnel from typing or are they fall out of their office chair or they stumble down the stairs. These types of injuries happen all the time. And if you're not insured, it could be a major problem for you because as you know, healthcare in the United States is very expensive. If instead you decide that you're going to have an independent contractor working for you, then you definitely want to have a contract with that independent contractor. And it should address some of these things we discussed earlier. It should address that they are going to be an independent contractor, that it's your intent for them to be an independent contractor. You should address that. They need to pay their taxes. You should address that they are going to be in control of their day-to-day work and that they're just doing this fixed scope of work for you, that they don't work for you exclusively, right? You can probably find some good form agreements online to work from, or you can maybe go to an attorney in your local area to help you just get a form that is fit for your state laws, but unquestionably when you're working with an independent contractor, get yourself a contract. As with all of the topics we've discussed, we're just scratching the surface of this independent contractor and employee world. But if there's one takeaway that you should take to heart for your small business. It's that misclassifying employees as independent contractors. It's a big mistake. And there's really a gut check, a smell test that you can just ask yourself to make sure you're doing it right. And it's does this independent contractor have their own business or are they working for you? And if the answer is that working for you there your employee. That concludes our class on independent contractors and employees. Join me next time as we talk about partnerships and all of the special rules you need to know about taxes and contracts and liabilities that come into play when you're doing business with another person. I look forward to seeing you in class. 6. Working with Partners: Hello and welcome to class 5 about partnerships and working with other people as equals. Now remember in one of the earlier classes when we talked about one person working alone with no business entity, that person is called a sole proprietor. And there's risks associated with being a sole proprietor because you can go out in the world, you do business, you mess something up, he gets sued. Now your personal assets are all in a line. Now a partnership is just two people with no business entities working together. And now you have two points of failure. Because the thing about partnerships is that a partner can bind a partner. So if your partner goes out into the world and does something wrong, he could sued. And so do you and your assets are on the line for everything he did. So we want to avoid having what's called a general partnership, which is just two people with no business entity working together. And instead, what you want to do in most cases as a small business owner is to form a limited liability company, like we discussed. And the only difference between the single member Limited Liability Company and the one you want to form is that the rule be multiple members of this limited liability company. Now I should let you know at the top, this is not something you should really do at this point without professional help. When you are setting up a partnership, There's a lot that can go wrong. You want to make sure you get everything right up front to avoid heartache in the future. And I'm going to talk a little bit about what those things are so you can talk about them with your lawyer. Now, the difference between a single member at Limited Liability Company, in a multi-member limited liability company, it's that there are multiple members and that you need to have an agreement about how those members are going to get along. This is called an operating agreement, and this is a critical requirement for a multi-member limited liability company. And your partner, the person that you want to do business with, they're not told your partner, not technically. They're called your fellow member. And in the operating agreement, you want to look for a few basic clauses. You want to craft these clauses carefully. The first thing you should look for is the definition of what's called your capital contributions. Now when you join a partnership, when you assemble a partnership, people bring stuff to the business. They could bring equipment materials. So imagine you're setting up a form. One partner has the land, he contributes that to the partnership and other has seeds and attractor. Together they contribute this to the business and the business owns these things now they're all insulated from the outside world. And your limited liability company, you want to make sure you keep really good track of what everyone brings to the business. That's really important later on, if you need to divide things up. The second critical thing you need to define in your operating agreement is how you get paid. There's a difference when you're working for yourself, you can to take money out of the business, no one cares. But if you have a partner, someone really going to care if you're just taking money out of the business without some sort of agreement, without a regular schedule, without some definitions for how these things are going to be done. Right. So it's important in your operating agreement, The define those limited circumstances that you can get paid out of company assets. You'll also want to consult potentially with an accountant at this point to decide whether you want to have your partnership text as a pass-through entity, like just like before. Remember a pass-through entity is one where even though you're doing business out in the world as Bob LLC, now if you have Bob and John LLC, you can still be a pass-through entity, taxi that income comes to your LLC and then it passes through to bob and John separately and they just reported on their own tax returns. But with a partnership, you have some more options. You could be employees of your own, of your own limited liability company. You can take paychecks, things like that. You'll want to talk about all of this with your lawyer, with your accountant when you're deciding on how you want to get paid. The third thing you need to look for in your operating agreement, absolutely critical is what's going to happen when you get divorced, right? What happens when this business breaks up? I'm fit a trial lawyer and I've dealt with a ton of these disputes between former business owners in a partners and it's ugly. It's uglier than divorce cases as uglier than custody cases. There's so much money on the line there, so much heart that goes into these businesses that these, these business divorces can be very nasty. And the best ones, the ones that in simply there are ones that end with the least amount of hassle and money are the ones where the operating agreement there's a very clear winding down and structuring. How do you back out your assets for the business? How do you sell liabilities and that How do you split whatever's left? So it's important to think about that up front, even though it's not necessarily the thing you want to be talking about when you're first getting into your partnership, pay attention to it and it can save you a lot of heartache later. Another difference between the single member Limited Liability Company and the multi-member limited liability company or the partnership. As you oh, what are called fiduciary duties to your partners and to your fellow members. A fiduciary duty is a special duty imposed on you by law due to the relationship that you have, a special relationship of trust that you have to have with your partners. For example, you have a duty of loyalty to your partners, right? If you set up a business doing forming, right with, with your partners and then you set up a new business competing right next door with somebody else. You've breached a duty of loyalty to your business partner, right? You're not supposed to be trying to poach business from one business to the other. It's not loyal. You have a duty to keep your books accurate and to properly account for the finances of your company with your fellow partners. Or you have a duty of care towards these folks. So there's all kinds of these fiduciary duties and you should ask your lawyer about them. You should research these for fiduciary duties and just understand that you have these heightened burdens. He's heightened duties towards your fellow partners. And again, in these disputes, these nasty business divorces, you'll always see some allegation that one partner or another has breached a fiduciary duty. The simplest way to describe this stuff is just be honest and be open and be transparent when you're dealing with, with your partners. Don't take money out of the business without people knowing what you're doing and why you're doing it. And everybody having full transparency, full authority, full accountability, just let everybody know what you're doing with the money and make sure everyone's on board. You should be 95% of the way towards being fine. They'll look, there's some fundamental business advice I want to provide as well. Getting married. Getting married to Toto a spouse is the exact same thing as getting married to a business partner. You're signing up for the long term with these folks. And so you'd get better trust them. You want to be able to trust your partners with your money and want to be able to trust your partners with your potential liability. And you need to be selective. You don't just go marry the first person that you date. Alright, so be careful when selecting your partners. Make sure that it's something you really want to do. Because there's all kinds of ways to structure business relationships that aren't partnerships, that aren't multi-member limited liability companies. You can do joint ventures instead, right? You can have your limited liability company. They can have very limited liability company, and then you can have a joint venture agreement, right? So that it defines some of the things we talked about before, right? Like, how do you split up money and how do you contribute whatever to the joint venture. But and again, it's still not you're not married, right? It's easy to separate. So keep in mind that there are ways to do business with people that you want to do business with that you think you trust without necessarily getting into bed with him for the long-term. Now again, this is a complicated stuff, right? Partnerships or it's just a point where if you're going to be working with other people, you want to involve professionals early. It's worth the expense to just pay them to save you heartache down the road. Now, next time we'll be talking about intellectual property. I love intellectual property. For those of us in the creative fields, people doing engineering, people doing design, intellectual property is what you make. And so you wanna make sure that you protect it. So I'll tell you all about that. And the next class, I look forward to seeing you there. 7. Intellectual Property: Hello and welcome to class 6 about intellectual property, the property of your mind. Now there are four different types of intellectual property that are relevant to the small business owner. There's the copyright, trademark, the patent trade secret. And each of these specifies a different area of intellectual property, a different thing that can be protected. And as a small business owner, you need to understand what these four categories are. Particularly if you're in the creative or the engineering fields where this stuff comes up. Now the most common to the creative industry is going to be the copyright. Copyright is an original work of authorship. That is, anything you create, is your copyrighted work. If it's a work of authorship, right? If you draw something, if you, if you write a blog post, if you create computer code, all of these works of authorship are yours and they are protected immediately, undeniably, immediately by the copyright laws. You have a copyright and everything that you make. But the catch is that you can't sue somebody for stealing your copyright unless you register your copyright. And registering a copyright is a straightforward process. You can get on the Internet. There's a government office that accepts submissions. You tell them what you have made, you put the public on notice by doing so that you have created this original work of authorship. And by doing so, by getting a registered copyright, you now have a right to sue someone who steals your stuff. And you'll see this happen all the time. And the Internet, people repost artwork without permission and might even incorporate into their educational videos on Skillshare. They'll do things that push the limits on what is the appropriate fair use of someone else's work. And when they crossed the line they can be sued, but only if there's a registration. Now I mentioned something they are called fair use. And this is a topic that is central to small business owners, to creators, particularly. You are in fact allowed to use other people's copyrighted material if it's a fair use. Now, fair use is a sort of broad spectrum of uses. Consider, for example, a news reporter who was talking about violence in video games. And they show some images of Fortnite or Grand Theft Auto during their new segment. Now, that is a fair use because they are using it in the context of journalism, of reporting. Likewise, if someone is showing copyrighted material in an educational setting, then that qualifies as a fair use as well. And there's a list of permitted activities that qualify as fair use. And generally they revolve around these concepts of education, commentary, satire. These qualify as fair uses of someone else's material. Now a trademark is something different than a copyright. A trademark is a symbol or a phrase, or something that is used to describe into denote, accompany. You all know what trademarks are. You've seen them in the golden arches, you've seen them in the Starbucks sign and then the Burger King, right? These distinctive logos, these distinctive phrases like just do it. These are trademarks because they identify the company. They're so closely associated with the company that you just know automatically what these things are. And if you have a business and you want to protect your business name, then you should create a trademark and register it with the US Patent and Trademark Office. Because just like copyrights, trademarks get their teeth when they are registered. And when someone infringes upon your trademark, let's say you open Bob's garden center, where gardening as fun. Alright, and then someone next door opens John's gardening center word gardening as fun, you would love to sue him because he took your, your, your, your trademark, you took your, your slogan, right? And you can only do that if you've got a registered trademark in, in your slogan and your logo and your business name. And when you do so, you get access to all kinds of great remedies that you wouldn't otherwise have. You know, you can get your attorneys fees, you can stop them from using your business name and all that stuff. So keep in mind that you can have a common law trademark. You can just create your slogan and may be protected, but the real teeth comes from registering your trademark. And again, this is an easy process. You do it online. On a government website, you just submit your stuff. And for the most part it's, it's an autopilot situation. Now, patents are a completely different animal from copyrights and trademarks. Patents protect unique inventions, novel inventions, things that are created for the first time. And you have to go through and intense legal process to get a patent. But when you get one, you own that invention and nobody can go copy your invention or derived works from it without your permission. And the thing with patents, as strong as they are, they're very difficult to get. In fact, the USPTO fights you when you try to get a patent because they have an interest in ensuring that patents are only issued for truly unique and mentions. So what happens is if you want to file a patent on something you sit, send an application to the government, and then a government adjuster kinda looks at over and they search through the realm of scientific knowledge, looking for what they call prior art right there, looking for evidence that you did not in fact invent this thing, that it was an obvious invention or a combination of previous techniques. And what you've got is not anything special. They actually fight back with you on a patent as opposed to like the copyright and trademark. They don't really push back that hard. So to get a patent, you need to have a patent attorney, and you really do need to have this novel, unique invention. But when you get it, you've got this great protectable intellectual property. And it's salable, right? It's almost legible. You can, you can sell your patents and it's a great way to protect something if you really have something unique. Now there's a fourth classification of intellectual property. And unlike copyrights and trademarks and patents, where you put the world on notice that you have this intellectual property by it, by filing and registration, a trade secret is something that you keep close to the chest. Now people can know the trade secret exists, but if they know what the secret is, then it loses protection. Classic example is Coca-Cola. Coca-cola has a secret recipe that goes into their bottle of Coke. And no one knows outside of the organization what that recipe is. If someone didn't figure it out, then they could copy it. If they can be derived by a person with skill and art, then fine, you know, Coca-Cola can't sue someone for copying Coca-Cola if they figured it out themselves. That's different than a patent, right? If you have a patent and someone figures out your invention by themselves, you can actually sue them. But with a trade secret, the only value is in its secrecy. The value of the secret is derived from it not being known to the public. And the thing about trade secrets, right? Not only do you not have a registration requirement, you can't register a trade Sager. Because the number one thing about a trade secret is it has to be secret. If you tell the public what it is, you lose all protections. Protecting your intellectual property is a top priority for any small business, especially creatives, engineers, etc. And the number one way to protect your intellectual property is through contract clauses. And there's a few basic contracts set you want to have in your repertoire when you're dealing with other people who may have access to your intellectual property. Number one is the non-disclosure agreement. An NDA. Non-disclosure agreement is just an agreement between one or more parties that whatever intellectual property they are exposed to, whether it's trade secrets or copyrights or pens or whatever. If you were exposed to someone else's intellectual property, their IP, then you're not allowed to use it for some unlawful purpose. This often comes up when people, I'd like to software companies, for example, want to integrate their software products and they're going to be able to look under the hood at each other's source code or the way they do things, they'll sign an NDA that says, hey, you like whatever you learn, you can only use it for the integration and that's it. Or perhaps you may be pitching a customer. You want to do some art for them. And they have this secret new video game that they're creating. And they're going to tell you all about it. The NDA would say, well look, well, whatever you learn, you can't go post on Twitter or you have a duty to keep that information confidential. So a non-disclosure agreement is really critical whenever you gotta be dealing with third parties and just dealing with kinda secret information that you don't want to go public. There are a lot of great forms out there on the internet that the things you should look for is just making sure that it contains clauses that anything that you brought to the table, all of your intellectual property remains yours. All of their IPs, there's 10, you can't use it for any purpose except for the limited scope of whatever you're engaging these people on. The second important contract clause you want to look for is called an assignment. Now, often, in the freelance world, in the creative world, somebody is creating intellectual property for someone else. For example, I made a video game in 2015 and I hired a number of artists to create art for me. And when those people created, say, an image or spaceship or whatever, that is there an actual property, that's their copyright. But when I hired them, I had them sign a contract. And the contract said, whatever you create for me, your intellectual property is assigned to me. Alright, so I now own the intellectual property. I've paid you. I own it. Without that clause in the contract, they would still own the intellectual property. Then I couldn't create derivative works from it. I couldn't do anything with that intellectual property unless they said so. So when you're creating intellectual property and when you want to give it to your customers. So you have to decide whether you're going to give it to them entirely, which is called the assignment. And you could have a contract clause that basically says whatever IP we create ISI to you. Or you can do what's called a license. And a license to intellectual property is one where the author retains ownership of the intellectual property, but gives somebody a license to use the intellectual property in various ways that you can define as the owner of the IP, you can basically control the terms of that license. You could say you have a license to use it 500 times total. You have a licensed to use it in North America, you have a license to use it only for one year. So there's all types of limitations that you can put on a license and still maintain ownership of that IP. It's a great way to protect your IP portfolio when you're, when you're doing business. My closing thoughts on this intellectual property topic is that look, this is a wildly complex topic. Wildly complex. It goes very deep. You know, there are downtown buildings full of lawyers whose only job is to do intellectual property related work. It's everywhere. And people are always trying to protect their intellectual property and other people are always trying to rip them off. The thing that you need to know as a small business owner is just the basics that we talked about. And just making sure that you maintain own ship or, or give ownership way or license your intellectual property properly, just be aware of these issues as a small business owner so that you can make some smart decisions and protect your interests going forward. We have one more class. The next class is about professionalism and business ethics. Now this is a bit of an amorphous concept. How to be a professional. I'll tell you about being a lawyer in the specific code of ethics and professionalism that we have to follow to be lawyers. But even if you're in one of these professions that, that doesn't have, I'm regulating body, like you're an engineer or a designer or whatever. There are still some fundamental rules and takeaways that you can do can learn from the professional trades that have these codes of conduct. And by following these basic professionalism concepts and an ethical concepts, you're going to stand out from the crowd. So I look forward to talking to you about the topics of professionalism and business ethics in our final class. See you there. 8. Professionalism: Hello and welcome to our final class on professionalism. Now we all sort of know what it means to be a professional. We can say that guy, yeah, he was really behaving professionally or that jerk which really behaving unprofessionally. And we sort of know that this means they weren't being businesslike. They weren't following social norms. But that term, professionalism, actually has a special meaning. And as a small business owner, when you understand that special meeting, you'll know that you can develop relationships of trust with people who are in the professions. And that those same levels of trust can't really necessarily be extended elsewhere. So we'll divide this class into two parts. First, I just want to talk a little bit about professionalism with quotes around it. And that professionalism, more of the colloquial sense. Now professionalism with quotes around it, I'm referring to Regulated Professions. As a lawyer, I'm a member of the bar, and the bar mandates that all lawyers follow the rules of professional conduct. This is true in every single state. By the way, every lawyer is bound essentially by the same ethical rules. It's like a statute book. There's a huge list of rules and things that we have to do or things that we can't do as lawyers. And if we mess up, if we don't do those things, then we can get in trouble. We can be disbarred and have are licensed to practice law stripped away. Now that's good. It protects the consumer. And as a small business owner, you will be a consumer of professional services. You're going to hire lawyers, you're going to hire accountants, maybe you'll hire doctors. But people are bound by these rules. Professional conduct can generally be trusted. And in many states, their conduct is ensured by their professional organizations. So for example, if you gave a lawyer money to do your case and then they they took off, they ran that the money to Costa Rica. It does happen. Then the bar usually has a fund to pay you back. All right, so these professional organizations that regulate their members conduct, they can help the consumer by making sure that people who were shitty are kicked out, their disbarred. And if someone is shitty that the client has made whole. So as a small business owner, you should feel comfortable doing business with attorneys and accountants and things like that, trusting them with your money. And because you know that their conduct is regulated and that there's a backstop if something really goes wrong. Let's set aside for a minute the concept of those regulated professions and talk about professionalism in a broader context. Now, my dad was like this old school Italian guy. And when we grew up, we had these rules of life that he wrote down and stuck on the fridge. And rule number one was don't trust anybody. And rule number two was double, don't trust anybody when it comes to money. Now, I don't necessarily follow my dad's teachings on the account. But I get what he was trying to say is that look, people in the business world are always trying to find an edge. They're always going to be trying to take your money. Essentially, if you are just writing checks to anyone who asked, it would be broken hot second, you know, when you're dealing with a lawyer or with one of these regulated professions and you write them a check. You know, you have that backstop like I discussed, that professionals and backstop the bar behind them, Rules of Professional Conduct. But that's not true when you're dealing with contractors and designers or anybody you're working with really outside of the regulated profession. And so the double don't trust anyone when it comes to money concept really is always at the four of my mind. And just be careful who you give money to. And on the other side of that is be someone other people can trust when they give money to you. And how do you do that? Well, number 1, transparency. When you're dealing with money, you should expect transparency from the other party about where your money is going, how it's been applied. And likewise, if you're performing a service or something like that where people are paying you, be fully transparent with your money. Now I don't mean to say that you need to show them your books and let them know exactly how much you're allocating towards profit and yada, yada, yada. But if someone's paid your money, make sure to keep accurate accounting records. Expect other people to keep accurate accounting records with your money. That I think is the foundation bottom level of being a professional. Number two, is be trustworthy. You know, my dad's rules of life. Number one was don't trust anybody because people were trying to lie to you. So if you want to be professional and don't lie, just be honest. And I actually find that being honest and business, just like not really trying to hide the ball about anything has gotten me so much further than trying to play something close to the chest or just keeping information that I don't think the other party is going to like in a deal. I don't like that at all. Instead, if you are just honest about you, your position and you expect honesty back, then, that's professional behavior and that's gonna get you ahead. And again, when you're looking at other people, if you get a sense that they're not being honest with you, they're not, they're not being honest with you. There's a lot of people around the world who want to screw you, so be careful. Now the third concept and professionalism is the concept of duty. And the regulated professions have these duties, these fiduciary duties that I mentioned in one of our previous classes. These these legally mandated duties to put your interests at the four to avoid conflicts of interests, right? But outside of the regulated professions, those don't exist. People will come to you with conflicts of interests all the time. One of the ones that I see frequently and it's crazy to me that this is even allowed under the law for real estate agents, for example, it can represent both the buyer and the seller of a house at the same time. There's a clear conflict of interest between the buyer and the seller. The seller wants maximum price, buyer wants the lowest price. So how can a real estate agent represent both parties at the same time without there being conflict of interest. The law allows it. It's, it's insane, but the law allows it. And the more you look into the world for, for conflicts of interests, for people who have conflicting duties, the more you'll see it. So to be a professional, you need to avoid conflicts of interest and you should be wary of other people's conflicts of interests when you're doing small business. Being a professional doesn't have necessarily immediate rewards, right? It can take some extra work to always do your duty and to make sure that you don't have conflicts of interest and to take good care of people's money, right? That takes some, some accounting and some management work. But the rewards of doing this in the long run are totally worth it because people will see your conduct and they'll see it as being different from other people they fought with because there's lots of people out there who are, who are working and just aren't professional. But if they know that you can be trusted, if they know they're always honest that your money's always good, all that. Then you are going to start building a network of people who just know that you're solid and to be successful in business, having that reputation of just being a solid person. I looked at that and get you 95% of the way there. Because when you have competition for your goods or your services, they can choose between the parts and they know is always reliable, is always honest versus the unknown factor, or someone who's maybe screwed up in the past, but they're always going to choose you even if it costs more. So the rewards or professionalism will pay out and higher fees and in more work over time. Now look, I've really enjoyed making this class for you. And in the future I'll be making other Skillshare classes about similar topics in law. Some will be more advanced. The next class I'll be producing is one on real estate law and how to get into investing in real estate, how to analyze real estate deals and the laws that you need to understand to get into that. So if you've enjoyed this class, please seek out my real estate class coming shortly. And thank you so much for attending. I hope you've enjoyed it. Too. Bye.