Consultancy is a good career option for people who possess extensive knowledge and experience in their area of work. Working as a self-employed professional can have some legal implications. In this article, we are discussing possible legal issues for consultants that can cause trouble for them. Let’s say a person working with one of the top tax consulting firms in India left her job to work as an independent advisor. She must know about how her earnings will be taxed and if she decides to start her own firm, how can she get it legally incorporated. There are other matters which have the potential to escalate into legal trouble if not addressed correctly. Let’s take a look at some of them.
1. Legal Status Of The Relationship With Employer
One of the most important issues that advisors must know about is their legal status of the relationship with the entity hiring them. The tax reporting formats for an independent contractor and an employee are completely different. Employers prefer to hire contractors as it reduces their tax burden. Get a properly-worded contract drafted to formalize your engagement with the client. The document must contain the terms of service agreed to by both parties and also the remuneration and the duration for which the services will be rendered. This document will be useful for tax purposes as well as in resolving any disputes in the future.
2. Tax On Earnings
Taxation is another vital aspect that needs careful consideration. The professional working for a top tax consultant in India who decided to work as an independent advisor did not have to worry about income tax until now. She only ensured that her returns were filed on time while it was her employer who deducted the tax and deposited it with the government. When she started working as a freelancer, she became completely responsible for all kinds of tax obligations associated with her earnings. Consultants must know about the applicable tax rates in addition to the documents they need to maintain and submit for tax purposes.
3. Sales/ Service Tax On The Fees
A sales tax or a service tax is levied on relevant transactions in most jurisdictions. These levies are charged whenever a product or service is supplied from one party to another. Freelancing professionals must get in touch with experts to know whether the service they are providing to clients falls under the ambit of such tax laws. In case, advisors are liable for collecting taxes and then depositing it with the relevant authorities and they are not doing so, it can cause serious legal trouble.
4. Ownership Of Intellectual Property Rights
Intellectual property rights can be the cause of one of the most serious legal issues for consultants. While discharging their services, professionals may create something which can be easily categorized as an intellectual property asset. They can be involved in composing an employee handbook for a company or any other similar document. Many advisors feel that they own the intellectual property rights to such creations. They must get rid of this misconception as soon as possible. The client who has paid for the services is the rightful owner of the asset. In order to avoid any dispute, this fact must be mentioned in the contract.
5. Licensing Of Intellectual Property Assets
Many professionals are involved in creating intellectual property assets which they market to their clients in order to earn revenue. This can also be a cause of possible legal problem. Even if the advisor is the rightful owner of an asset, a client can protest is the same asset is provided to him/her as well as another party. Professionals must know about the licensing procedures for such assets. When a product is supplied only to one client then it will fall under the category of exclusive license. On the other hand, when an advisor is providing the same asset to multiple parties, then a non-exclusive license must be used for such transactions.
6. Nature Of Insurance
Consultancy is a risky business. If an advisor’s suggestions cause losses to a client, then he/she can very well be sued by the client for damages. Advisors must know about the correct type of insurance that will protect them in such a scenario. The professional liability insurance will be helpful in the case mentioned here. Then there is the general liability insurance. As it name suggests, it provides protection from various general hazards like if a client suffers an injury in your premises or if you inadvertently hurt someone during the course of your work.
7. Legal Type For A Consultancy Firm
The natural progression for any freelancing professional is to start his/her own consultancy firm in the future. The professional who left her job with one of the top tax firms in India after working successfully as an independent advisor decided to start her own agency. It becomes essential now that she knows what will be the most suitable legal type for her new business. The agency needs to be incorporated according to the applicable laws in the jurisdiction where she will run her business. This will have an impact on the tax obligations of the new company as well as its owner. Freelancers, when starting their own agency must take professional help to choose the correct legal type for their organization.
These above-mentioned possible legal issues for consultants can cause grave financial losses and professionals must take sufficient expert advice before embarking on such a venture.