You are deciding to become (or currently are) an independent contractor. In part III we will cover forms you will need to be familiar with. Part IV will go through the basics of being in business. If you missed parts I & II, the covered the why of being in business and a business setup checklist.
First things first, I’m not a lawyer, CPA, nor a small business consultant. I’m just one guy on a team of business owners who has been out there for a little while and has walked the road ahead. So please check with a professional before making any serious decisions. This is just to help fill the gaps. Things change every day. This article was written in May of 2007, based upon our experience as business owners in Santa Cruz, California. Setting up a business may be different in your corner of the world.
Common Legal & Business Forms
Business & Legal Forms:
- 1099 & W-2
- A General Contract
- Copyright Assignment / IPR
All your clients should (and probably will) request that you submit a W-9. I recommend pre-filling one out with everything except the date, as it will have to get submit to each and every client. If you ever use subcontractors, make sure they fill out, sign and provide you with a W-9 as well. You can get a blank one from the IRS website.
1099 & W-2
The government likes your money and wants to make sure it gets its proper cut. So how does it really work? Every time someone gets paid, they are paid either as an employee (W-2) or as a contractor (1099). The amount of money is then recorded. Come tax time, the individual will need the proper form summarizing the total income received that year from a particular source.
I often find you need to keep track of what 1099s should be coming in from your clients and nag them. They are required to be sent out by Jan 31st, but just like your invoices, sometimes people need a little prodding.
Corporations do not need to receive 1099s. For everyone else, a 1099 is required for any sum over the annual total of $600 dollars. This means you need to make sure to fill one out for any service professionals such as your lawyer or CPA, as well as technical contractors and even your babysitter. For the past few years I have used a simple online service that handles sending your 1099’s for you at a very reasonable cost (filetaxes.com).
A General Contract
Billion-dollar corporations and government institutions have their own contracts that will pretty much define the playing field. They rarely leave us much room to negotiate terms due to our smaller size. On the other hand, most companies do not have a standard contract. I highly recommend you work with a lawyer to put together a contract which has your best interests in mind, or at least find a template that works for you and cutomize it. Contracts cover things like payment terms, early termination, use of branding, copyright, limiting liability and so forth. If it is not your contract, it’s probably not written with your safety in mind.
A few thoughts on the legal front: The more you get in writing, the better off you are. Keep records of everything. Carefully police your own words. In the end – integrity is the heart of your business – when it all comes to the line, your name is all you have.
A Standard Invoice
We all want to get paid. The most common reason for late payment is an incorrectly formatted invoice (missing key items, such as the purchase order # or a mailing address). Put together a standard invoice into which you fill in the blank. Using a proper invoice will help you get paid on time and will make the owner or accounts payable representative much more pleasant to deal with when you have to call and bug them (which I promise you will). If you don’t have one yet, read my post of creating a proper invoice.
An Independent Contractor Agreement
If you have people working for you (or if you work for us), you will want to get your hand on one of these. An ICA sets the groundwork for the client-contractor relationship. It defines the rights of the contractor and of the clients as they work together. This form is not used by everyone. Quite often, most of the key details that cover the working relationship with a client will be covered in the contract. ICAs are common for longer term relationships. You will run across it with most large companies.
A Copyright Assignment or Intellectual Property Rights Form
This form defines the proper owner of the body of work, ideas and goods that you produce when under contract. Basically, it means that whatever you do for this client belongs to them not you. You can’t go resell it. This may be a standalone form or is often part of an ICA.
A Non-Disclosure Agreement
You will often have to sign one of these when you work on a project that the client does not want shared with potential competitors (or anyone for that fact). These forms are very common throughout the industry. Read it, sign it and then mums-the-word.
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