Top 5 Legal Considerations as a Freelancer

It's a big step moving to freelance work or owning your own business, but it's one that an increasing number of Americans are making each day. McKinsey reports that almost 60 million Americans identify as independent workers and this number is growing. Here are a few considerations if you're thinking about becoming a freelancer or solopreneur.

Professionalize Your Business

While it’s easy to operate your freelancer business as a sole proprietor, aka Jane Doe, it’s generally better to set up a separate legal or corporate entity with legal liability protection — such as an LLC. With legal or corporate entities, you can protect your personal assets (think cash in the bank, house, retirement accounts) from judgments or debts issued against you. Of course, if it’s a matter of fraud or a ‘bad actor’ situation, the corporate veil (aka the corporate entity) can be pierced and open you up to personal liability.

Put Your Agreement on Paper

As freelancers, our main goal is to get the client’s business and because of this, it’s tempting to embark on a project with just a handshake and a smile. This leaves you open to role and scope creep, payment issues, and even disagreements around intellectual property. At a minimum, you should provide a Client Services Agreement or Master Services Agreement to your client, so there is clear alignment on project deliverables, payment terms, and even indemnification. You can create these on your own or for more complicated engagements, engage legal counsel to help prepare your agreements.

Getting Paid

If you have solid legal documents in place, you will have provisions outlining what happens with disputes —for example, whether you can seek mediation/arbitration, which jurisdiction’s laws will apply, and in which jurisdiction your dispute will be heard. The Services Agreement can also dictate what happens in the case of late payment, with pre-approved penalty clauses. If you don’t have an agreement, it’s tough. Demand letters and court visits are very expensive, so put your value on the front end and spend that money to put the contracts in place.

Tax Compliance

Make sure you fill out a W9 at the beginning of an engagement and collect your 1099s by the January cut-off date. With the passing of the Inflation Reduction Act, several changes in a wide range of tax laws are imminent in 2023, resulting in more severe penalties for tax non-compliance. Consider an Employer of Record like Opolis, that works directly with independent contractors, freelancers or solopreneurs to compliantly withhold taxes and provides a neat and tidy W2 at the end of the tax year for your convenience.

Do I need a lawyer to become a freelancer?

There are several online employment and legal resources to help you get started on your independent journey.  Setting up a single LLC can be easily done online (form an entity with Opolis) or if you want a more robust business package (including agreements, minutes, corporate reporting etc.) online resources like Legal Zoom can help. However, there are some more nuanced issues like intellectual property, terms and conditions, and privacy policies for which engaging a lawyer might be the preferred route.

Want more information on legal entity creation and other considerations for freelancers? Check out our podcast episode with our legal expert and Legal Steward, Yev Muchnik

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