Legal, Tax, and Intellectual Property Tips Freelancers Need to Know

Freelancers can encounter a number of tax, intellectual property, and other legal issues due to the nature of their work. Learn how to protect yourself in this podcast with special guest, Yev Muchnik – Web3 Lawyer. 

Setting Up a Separate Legal/Corporate Entity

While freelancers can act as sole proprietors, it’s generally better to set up a separate legal/corporate entity with legal liability protection — such as an LLC. This way, you won’t be personally liable for certain debts/judgments — unless it’s a matter of fraud or other bad actor situation, in which case the court is able to “pierce the corporate veil.” You will, however, have a different taxation status with the IRS.

Contracts/Documents Needed for Client Work

Legal documents — like Client Service Agreement — are important for freelancers because they clearly communicate roles, scope of work, and obligations with/from clients. Also known as a Professional Service Agreement or Master Services Agreement – it doesn’t have a prescribed length, but it contains terms protecting your liability — and other important information, such as how/when you get paid and who owns the intellectual property (IP). It can be a term sheet, Memorandum of Understanding, or even bullet points, but ideally, your lawyer will have prepared it. If you have a lot of interface with your website, you may want to have Terms of Use that contain the same protections, in lieu of an agreement.

Protecting Yourself Against Delinquent Clients

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. 

Without an agreement, your position may be hard to prove without documented evidence that you’d have to find and piece together before taking the matter to court. It is best to have a contract in place.

Protecting Intellectual Property

In the US, a freelancer who creates is generally protected under copyright as the sole owner of that work. The client can’t use it without infringing copyright. However, clients often want to own the material outright. You want a solid agreement in place delineating IP rights for deliverables and that allows you to own the IP while providing the client a license to use the work product. Trademarks and patents need registration. In terms of trade secrets and confidential information, ownership and rights need to be clearly set out in the agreement.

Taxes

It is important to obtain your 1099s and fill out your W9s for any contractor relationship you’re in so you have that information by the January cutoff date to submit to the IRS. Compliance is a big, “hot ticket” item, and they’ll be clamping down a bit in 2023, especially with the new Inflation Reduction Act.

Al Capone [was] responsible for killing tons of people, but the government really didn’t get him until he didn’t pay his taxes. So don’t be Al Capone.

— Joshua Lapis

To hear more on these topics and more, listen to the full episode at Opolis.co/podcast.