In the world of consulting, you may face more challenges than just technical ones. There are legal issues too. Understanding the legal matters surrounding consulting is vital to protect your business.
Don’t let a legal mistake you weren’t aware of trip you up. Keep reading to learn more about the legal issues concerning your line of work.
Get an expert’s advice
In your consulting business, you may invent intellectual property for your customers. Your invention may enjoy copyright protection. Thus, you must be transparent with your customers from the beginning about who owns the intellectual property. In the United States, consultants who come up with creative work are the owners. However, if the work falls under work made for hire, the company will own the copyright.
In the consulting agreement, you can include a section that keeps your work from being work made for hire. If you have a patentable invention, consider filing a patent application. However, before applying, get in touch with a patent search service. These experts will search to see if there are other similar inventions. Doing so will save you from investing your time and money unnecessarily.
Be clear about your legal relationship with your client
Ensure you know where you stand in the legal relationship with your client. Are you deemed an employee or an independent contractor? Both you and your client may prefer the latter option.
Knowing where you fall is important because it determines how you handle taxes. If you’re an employee, the employer has to withhold income tax. Alternatively, you might be an independent contractor. If so, the responsibility of handling taxes falls to you.
Know whether sales tax applies to your fees
Not understanding the tax requirements is risky since you may run huge losses. So, check and see if the fees you charge are taxable. You may face legal trouble if you haven’t been remitting those taxes.
Consider getting liability insurance
When running a successful business, consider getting insurance. Professional liability insurance will protect you from any harmful results of your work. For example, if your work caused a business’s system to crash, the policy can safeguard you in case of a lawsuit.
Understand nonexclusive and exclusive licenses
You may have intellectual property that you can allow others to use through a license. Users would pay a fee for having the license. Giving an exclusive license means it goes to a single entity.
Granting the same license non-exclusively means issuing it to multiple entities. Copyright holders can charge more for an exclusive license.
Choose the proper business organization option
Organizing your consulting business will determine the level of legal protection you enjoy. If it’s a sole proprietorship, there’s a higher legal risk. If the business gets sued, your assets are at risk. However, if you structure your business as a limited liability company, there’s more legal protection. If you are sued, your assets won’t be at stake.
In a sole proprietorship, naming your business affects how you register with the state. If you call it something other than your name, you may have to report that it’s a fictitious name. Doing so protects the general public.
Parting shot
To run an effective consulting business, you must understand your work’s legal issues.
