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4 essential tactics for your first tech consulting agreement

4 essential tactics for your first tech consulting agreement

Editor's note: We've partnered with technology company Atticus AI to provide insights on complex topics such as brand rights and contracts to benefit the Polywork community.

Consultants and freelancers are often intimidated by legal contracts, but understanding them is crucial for safeguarding and scaling your business.

In this article, we explore four simple tactics consultants can use to make the most of contracts to strengthen their business.

1. Use an LLC

There are many reasons to use an LLC as a consultant. Here are three of the most important ones:

  1. Limited Liability Protection: Operating as an LLC separates your personal assets from your business liabilities. This means, if your business faces a legal dispute, your personal property remains safe.
  2. Tax Flexibility: As your consulting income grows, an LLC offers tax benefits that sole proprietorships don't. Specifically, you can choose to file taxes as an S-Corp, enabling you to categorize a portion of your earnings as dividends.
    These dividends are taxed at a lower rate than regular income, potentially saving thousands annually.
  3. Enhanced Credibility: Establishing an LLC can lend additional professionalism and legitimacy to your consulting business, subtly assuring clients of your long-term commitment.

2. Protect your intellectual property

As a consultant, you'll create intellectual property (IP) for your clients and simultaneously build your own expertise, network, and skill set in your specialized area. This adds value to your services but can also create confusion over who owns the resulting IP. To avoid this ambiguity, clearly state in the contract what IP is owned by the client and what remains yours.

You can manage this by clearly specifying retained IP rights in the agreement. To prevent misunderstandings about previous work you may incorporate, consider adding a "Prior Works" clause.

A “Prior Works” clause could look like the following:

Consultant’s Prior Works. Notwithstanding the provisions of Section XX above, Consultant shall retain title to all know-how, methodology, techniques, processes and templates conceived, developed or reduced to practice by Consultant prior to his performance of the Consulting Services and the Company shall have no ownership interest therein.

3. Ensure you can market your work

Each consulting project you take on can be a valuable addition to your professional portfolio. However, it's crucial to have a clear understanding with your client about how and when you can use their name or brand for marketing or publicity purposes. Before finalizing any contract, make sure to discuss these aspects explicitly.

To address this, you might consider incorporating a specific clause in your consulting agreement that outlines the conditions under which you can publicize the work you've done for the client or use their name or brand in your marketing materials.

A sample clause addressing this issue could be as follows:

Use of Name and Publicity. The Consultant shall have the right to use the Client’s name, logo, and description of services provided in the Consultant’s portfolio, website, marketing materials, and other professional publications. This right is granted provided that:

1. The work does not disclose any confidential or proprietary information as defined in the Non-Disclosure Agreement section of this contract.

2. The Consultant notifies the Client in writing prior to the first time each specific work is made public, providing the Client the option to review and approve the way their name or brand is presented.

3. The Consultant clearly indicates that the work was performed on behalf of the Client and does not falsely represent the relationship between the Consultant and the Client.

4. Negotiate a retainer (if possible)

Consultants, particularly those just starting out, often face income instability due to inconsistent work volumes. A retainer model can help stabilize earnings by having clients pay a fixed fee based on agreed-upon terms.

The retainer fee can be structured either around a specific number of work hours or just to secure general availability, without requiring a minimum time commitment. Incorporating a retainer clause in your consulting contract can greatly improve the financial stability of your business.

A very simple retainer clause might look like this:

Monthly Retainer. The Client agrees to pay the Consultant a monthly retainer fee for the services as outlined in this agreement. The retainer fee is payable on the first day of each month and covers up to [Number of Hours] of work per month. Any hours exceeding this limit will be billed separately at the Consultant’s standard hourly rate.

The retainer ensures the Consultant's availability but does not guarantee a minimum number of work hours. Unused hours do not roll over to subsequent months.

Final takeaways

Contracts don't have to be intimidating for consultants and freelancers. Understanding and crafting your contracts with attention to key areas—such as forming an LLC, protecting your intellectual property, ensuring marketing freedom, and considering a retainer model—can make a significant difference in safeguarding and growing your business. So take the time to get to know these legal tools; they could be the foundation on which you build a thriving, resilient consulting practice.

Disclaimer: The information in this article is for general informational purposes only and is not legal advice. Consult with a qualified attorney for advice regarding your individual situation.