Starting a consulting firm is a great way to branch out and offer services under your own brand. However, you’ll need to consider four legal issues before starting your firm:
- Restraints in your employment contract
- Registering your trade mark
- Drafting a client agreement that ensures you get paid
- Deciding on a business structure
This article explains how to address each, so you can start your consulting firm on the right foot.
Restraints in Your Employment Contract
It’s important to ensure that you won’t breach restraint of trade obligations in your current or previous employment contracts. If you’re an employee or contractor of an existing firm, the contract will likely say that you:
- can’t approach existing clients; and
- can’t set up a competing business.
Restraints can apply for months or they can stretch on for years. Therefore, it’s crucial to find out what restrictions apply. It’s even a good idea to check previous employment contracts. Otherwise, you risk breaching your old contract. This might mean that your old firm can pursue you in court. The court may award damages against you, or order you to stop setting up the firm.
Registering your Trade Mark
Applying for a trade mark should be an early “to-do” list item. Registering a trade mark allows you to exclusively use the brand name you chose for your consulting firm.
Don’t get confused between registering a business name and registering a trade mark. Registering a business name just means that the Australian Business Register (ABR) now has your business name on a register. It doesn’t mean that you can stop other businesses from using the same or similar name.
Conversely, registering a trade mark means that you can prevent other businesses from using the same or similar trade mark or logo, which is crucial if you want to build a strong brand.
Drafting a Client Agreement that Ensures You Get Paid
Your next “to-do” list item is to obtain a well-drafted client agreement for your consulting firm which sets out:
- the consulting services you will provide;
- how and when your clients pay you; and
- what actions you may take if your clients fail to pay.
Aside from these obvious matters, the client agreement should also address:
- intellectual property;
- termination of the client relationship; and
- consumer guarantees.
If you create reports or other material for your clients, then your client agreement needs to address intellectual property (IP). Any material you use repeatedly, like a report template, should never be assigned to a client. The client agreement should state that you license the client to use any reports you provide, but that you don’t assign the IP in the base template.
Termination Clauses and Relationship Breakdowns
Consulting firms need great client relationships to provide the best services. You rely on your client to give you access to the information you need to be able to provide the services and in a timely manner. This should be drafted into the client agreement under a ‘warranties’ clause, where your client promises to provide you with information and comply with your reasonable requests in a timely manner.
The warranties clause then needs to be followed up by a tailored termination clause. Crucially, the termination clause should outline that if the relationship breaks down, then you have the right to terminate the agreement. For example, if the client hasn’t provided information in a timely fashion, leaving you unable to deliver what you promised. Usually this is a last resort scenario, but it’s important that you have the right to terminate when the client is at fault.
Even if you’re providing services to businesses, some clients may be entitled to rely on the consumer guarantees set out in the Australian Consumer Law (ACL). For your consulting firm, this means that you must provide your consulting services with due care and skill. You must also ensure that the services are fit for the purpose you advertise. If your services have a ‘minor’ or ‘major’ failure, then the client may be entitled to a refund. Alternatively, you may need to re-perform the services.
Deciding on a Business Structure
Finally, you should decide which business structure will suit your goals. It’s better to run the business as a company if you will be seeking external investment.
A company also limits your liability. Only company assets can be used to pay company debts. Debtors won’t be able to claim your personal assets. In contrast, being a sole trader means you are personally liable to pay the business’ debts.
Getting the legal considerations right at the start lets you grow your consulting firm with confidence. Otherwise, you may find your consultancy firm shut down by a previous employer, or enter disputes with clients that could have been avoided.
If you need advice on how to ensure your consulting fiorm starts out right, call LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.
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