6 Legal Things Creatives Should Do Before Signing the First Client
Updated: 4 days ago
Thank you to Allie at Creatives Learn Law for contributing this post.
Disclaimer: The following blog post is for informational and educational purposes. It is not legal advice specific to your business’s needs and is not intended to be a substitute for working one-on-one with a lawyer in your state.
When you start a creative small business, it’s easy to get overwhelmed by business law questions, throw up your arms, and just decide to wing it. But I’m here to tell you that your business’s legal obligations are manageable! You can do it! And here’s a quick list to get you started.
While the list is aimed at new business owners, if you’ve been operating for a while it may help you provide a quick audit of your existing practices and identify some things to take care of as you move forward.
1) Understand your tax obligations
If you have found yourself here on the Pinnacle Flow blog, you’re probably aware that you are responsible for paying various types of tax related to your business activities. Everybody is responsible for income tax related to their business’s profits, whether they have an “official” business entity or just decide one morning to run a lemonade stand that afternoon.
Because the IRS taxes ALL INCOME FROM WHATEVER SOURCE DERIVED.
Now, is your lemonade stand going to get audited? Probably not. But if your brand new business is bringing in any kind of money, you should be aware of your obligations to report and pay tax on the income.
You may also have an obligation to collect sales tax. In Colorado, where I practice, and in many other states you do not have to collect sales tax on services. But you must collect sales tax on the sale of any goods, including digital goods (this means you if you charge your clients for digital images, vector drawings, ebooks, or other products?).
Not sure where to start? Money spent on a bookkeeping/accounting team who can help you with managing your tax obligations is one of the wisest investments you can make as a new business owner.
And if thinking about taxes makes you sweat, we have a few words of encouragement for you on the Creatives Learn Law blog.
2) Check out business license requirements
Check with your state and local government to see if there are any licenses you need to run your business. Some professions require licenses (estheticians, restaurants, hair stylists, etc.), and some state or local governments require a general license to operate a business.
It’s possible there are no business license requirements that apply to you, but take a few minutes to check at both the state and local level.
Calling your city government, or connecting with a local Small Business Development Center can be helpful if you aren’t sure where to start here.
3) Form an LLC
An LLC isn’t required, but it’s a great tool to protect yourself from certain kinds of liability.
An LLC separates your business assets from your personal assets and means that if someone is trying to collect on an obligation your business made, they can’t get your personal assets. They are generally easy to start and affordable to take care of, so I recommend them to just about all of my new business clients.
4) Buy Insurance
While LLCs are usually worth the effort, they aren’t a magic wand that protects you from all business liability. Most of the LLC’s benefits are limited to contractual liability (for example, if you sign a lease only on behalf of your business and breach the lease, the liability will be limited to your business).
You still have other risks related to the services you perform, products you sell, and business operations. These risks include personal injury or tort liability (the expensive stuff). For example, if you’re a photographer and someone is injured on a photo shoot, that person can still sue you for your individual actions.
We protect against risks like this with insurance!
I recommend business owners work with a commercial insurance broker and ask about general commercial liability and professional errors and omissions insurance, as well as asking the broker if there are any other policies the broker recommends.
5) Put a contract in place
Setting clear policies to govern your client relationships and protect yourself from liability related to the services you provide your clients is key. You may not be ready to work with a lawyer to have a client agreement custom-drafted, but look for an industry-specific template you can use as a starting point and remember that your client contract should grow as your business grows.
Need a little guidance as you think about what belongs in your client contract? Check out our Contract Audit blog post on Creatives Learn Law.
6) Make a plan to accept payment the legal way
Not all payment practices are created equal!
There is a lot I could say about best practices for processing business payments, but here’s a quick list to get you started.
Set up payments directly to your business’s bank account.
Set your prices to take into account the cost of payment processing.
Collect sales tax on any transactions subject to sales tax in your state.
Use a personal Venmo account to take business payments.
Charge a credit card surcharge to your clients (prohibited in Colorado and many other states).
If you’ve taken care of the six items above, you’re in pretty good shape. And don’t be afraid to ask for help!
Most small businesses have a team of outside experts that includes support for bookkeeping and finance, legal issues, and insurance.
If you need a lawyer for your Colorado creative business, we are happy to hear from you at Creatives Learn Law!