For most creative professionals, running your own freelance business can be both fun and profitable, but make sure you don’t ignore the laws impacting your business! In this post, we’ll cover five of the most important legal issues Kansas City freelancers need to consider when running their own freelance business.
If you are planning to go full time, make sure you don’t have any agreements with your existing/prior employer that might restrict your ability to run your business. You may have non-compete agreements, non-solicitation agreements, and/or non-disclosure agreements.
If you are planning on running your freelance business part-time, you should make sure your employer doesn’t have any restrictions on you doing so. Many times, if your freelance work is within the scope of your employment, your employer might want a say in what you are doing (and they might have a right to have that say!).
While you can operate your freelance business as a sole-proprietor, it is often a good idea to form a single-owner LLC for your business. Most importantly, you can limit your personal liability exposure to some extent by using a LLC. And depending on your financial situation, you might be able to save money on taxes using a S-Corp tax election.
Further, LLCs provide a better business structure for your freelance business – you can add owners, get a business EIN, open a business bank account, better account for expense deductions, and more. And last, the LLC structure makes you look more credible to potential clients.
Freelancers are liable for their own tax obligations. This means federal, state, and local governments will look to you to pay your income taxes, social security taxes, medicare taxes, local taxes, and more.
A good rule of thumb is to set aside 30% of all net income so you can pay your taxes. You should pay quarterly taxes and, during tax season, you’ll likely have to pay a bit more unless you overpaid. The best way to manage all of this is to speak to an accountant to get you set up properly.
Using written contracts with your clients is the best way to protect your freelance business. Your client contract template should include the following:
Additionally, you need to use written contracts with your subcontractors. Your subcontractor agreements will look a lot like your client agreements, but they will definitely be drafted differently since you are the hiring party and not the contractor.
Your subcontractor agreement template should include the terms identified above but we want to especially draw your attention to the intellectual property provisions. Specifically, you should make sure your template language states that you own the work product the subcontractor is creating (and all associated IP). If you don’t, then odds are the subcontractor will own all of that work and you won’t be able to transfer ownership to your client.
(This article is general in nature and is not legal advice.)
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