We think anyone that’s getting somewhat serious about their biz should have a ‘legal guy’ just like ours. He’s our go-to for all things Law and Order, solves problems like it ain’t no thang and is often seen some pretty damn dapper get-up. Meet, Demetrio Zema, Director of Law Squared and all round good guy who really knows what’s up when it comes to reading the fine print. We constantly bug him with all sorts of legal questions, so we thought we would push the friendship a little further and ask him to write a guest article (with all of his spare time!) to which he kindly obliged. Read on as Demetrio gives us all the lowdown on business legalities, as written by the man himself.
Most freelancers or self-employed professionals that I meet generally go about their day-to-day without thinking too much about the legal aspects of their business, not that I can’t blame them! With only 24 hours in a day and about 10-12 actual working hours, freelancers and self-employed entrepreneurs focus their time and energy on clients, marketing and doing pretty much everything else, rather than the boring stuff (not to me!), like reviewing the management and operations of their business.
The fact is, every person in business faces some form of risk, be it personal risk, financial risk or other risks. So to help manage these risks and talk you through some of the legal mumbo-jumbo, here’s my top five frequently asked questions, and advice on what to do when it comes to ABNs, contracts and other business legalities:
ARE YOU REGISTERED AS A SOLE TRADER (ABN) OR AS A COMPANY (ACN)?
I do not pose this question in any philosophical way, rather to highlight the important legal distinction between whether you are a business owner or a freelancer operating under your own personal name. Is there any separation between personal and business bank accounts?
Do you hold an ABN? Are you registered for taxation/GST purposes? Do you issue invoices and/or quotations to your clients? Are these compliant dependent on your structure?
The difference comes down to what business structure you operate in. If you are a sole trader with no distinction between personal and business, then you are the business and all your liabilities both financial and personal rest with you. Not having a distinction between yourself and the business provides significant exposure, particularly to your savings and other assets in the event you are sued.
Further, you will not be able to apply for a business loan, protect your IP and assets, or obtain a line of credit.
DO YOU HAVE A SOLID CONTRACT IN PLACE?
Whether you are a freelancer or self-employed, you ought to have some form of signed document to establish the basic scope of work which will be undertaken and on what terms such work is being provided on. A good contract or services agreement can protect you in the event a dispute arises and ensures that all parties are “on the same page” in terms of project scope, expectations, payment, and timeline. You should have a standard agreement which you work through with each client and modify accordingly to be reflective of the parties intentions. On top of all of this, having a contract sets you up as a professional in your client’s’ eyes – looking legit from the get go certainly has its perks.
DO YOU ACT AS A CONTRACTOR OR AN EMPLOYEE?
With more and more businesses of different sizes and shapes using contractors and freelancers these days, it’s important to understand the legal distinction between being a contractor and a full-time employee. This is true whether you are the one being hired or doing the hiring. The legal classification boils down to having independence and control and this is critical from both an insurance and taxation perspective. Contractors often have the freedom to determine how a certain job should be done, and when it should be done. Ask the following questions: who decides when and where to do the work? Who chooses the tools/equipment to use? Who defines how the work should be done or the sequence of the steps?
In addressing the above, any contract should clearly state the relationship between the parties to ensure there are no ambiguities and no later consequences from a superannuation or taxation perspective.
HOW DO YOU MANAGE AND TRACK INCOME AND EXPENSES?
Regardless of your industry or line of work, any business ultimately boils down to nailing the fine art of getting more money coming in your doors than that going out. There are countless reasons to have a firm grip on your company’s financials, including reporting requirements for taxes, as well as determining how much you owe or should charge a service provider. Keeping a log of your hours and expenses for each project, and keep/scan all relevant receipts and correspondence. That way, if there’s ever a client dispute overcharges, you’ll have all the documentation needed to back up your side of the story. Bonza.
HOW DO YOU HANDLE DISPUTES?
Being a freelancer and business owner often involves some risks and responsibilities that employees typically don’t assume. For example, an independent contractor is accountable for satisfying certain performance expectations and deliverables and is responsible for the issuing of invoices and following up of same. Whilst most deals will come and go without a hitch, there’ll always be those pesky clients that get under your skin in some way or another. It’s important that you have a set procedure in place in the event any issues arise.
Your client onboarding system (including your contract or services agreement) should set the expectations for the work to be performed (including the number of allowable revisions, if applicable). Keep a paper/email trail that documents your client correspondences—particularly documenting any delays on the client side that will impact the overall schedule and any variations which may have been agreed.
The hardest part of being a freelancer or entrepreneur is making every final decision and being accountable for every single g-damn thing that happens underneath your brand umbrella. Being an entrepreneur is exhilarating and often motivated by drive and passion, however, be sure to not lose sight of the bigger picture to protect you and your business as much as possible. The last thing you want is for some legal stitch-up to rain on your parade!
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