Legal essentials while freelancing: Tip #1, Get the contract right!
The essence of working as a freelance professional is to leverage one’s expertise to deliver impact and value to clients while retaining more control. To be able to do this well and in a liberated manner, one must, however, get the basics in place, starting with framing the right contract. In this short piece, we highlight the basic legal requirements of framing a contract as an independent professional, whether you are a consultant, part-time faculty, content writer, or any kind of freelancer.
# The first priority is to decide whether you want to grant an unconditional right to your client to modify your work or do you want to have a copyright/ limited license on any work which you will be sharing with your client. Most corporate clients would prefer unconditional rights and do think through upfront whether you are comfortable giving the client intellectual property rights over your work.
# In case you are giving them unconditional rights, you can restrict the transfer rights till you receive the payment in order to protect your monetary interests. This term is referred to as the full assignment term. That is post full payment, the ownership of your work is assigned to the client.
# Specific aspects can also be relevant depending on the nature of your work. In case you are a writer, one should clearly mention that your work shall be free from plagiarism and be original output. In case you are working as a part-time faculty or doing any part-time financial work then make sure that the contract is not such which establishes an employer-employee relationship. In case of overseas clients, the applicability of RBI provisions, FEMA Act also should be considered if applicable.
# One needs to have clarity on the applicability of indirect taxes on professional consultancy. In case the gross receipts from the consultancy services to an Indian company exceeds Rupees ten Lakh in any financial year (e.g., 1 April’13 to 31 March’14 then there be a requirement for applying for a service tax number and the same is applicable @12.36%. The service tax so collected has to be deposited in the government treasury every quarter. This also implies that if 10 Lakh gross receipts mark is not crossed, then this clause shall not be applicable.
# The implication of service tax also is that you will need to include the same in your invoice to clients and agree on this upfront. Failure to do so may imply the tax component needing to be netted out from your fees.
# The payment terms, the time frame for delivery should be mentioned in the contract with utmost clarity. Also, in case of any dispute between the two parties, the jurisdiction should be mentioned. In case of clients from different countries, the professional should keep the jurisdiction in the Indian city in which he/she is located.
# Lastly, the contract should have concise terms regarding the period of the contract, lock-in period if any and termination terms in case anyone party is dissatisfied with the other. If it is a onetime contract, it should be mentioned that contract can be terminated by a written notice to the other party but both the parties will complete what was agreed to be done. The terms should be precise and accurate and all the information about both the parties should be correct. In case of a new client, one can request an advance payment as well.
We hope the tips outlined above will help establish clear professional terms with clients and also protect your interests as an independent professional. Clarifying the legalities upfront can help reduce ambiguity and distrust and establish the basis for a productive relationship with clients.
