How To Legally Start A Freelance Business Online

Are you thinking about starting a freelance business online? Great! Now, let me ask you: would you rather spend a little time now making sure your business is well-protected legally, or deal with a headache the size of Texas down the road? If your answer is the former, then this post is for you!

Thanks to the Internet, just about every door has been kicked wide open for freelancers. It doesn’t matter whether you are a writer, a programmer, a graphic designer, an artist, or a marketer; there is a piece of that digital pie for you. The beauty of it is that you can work from home, work at any time of the day or night, and answer only to yourself.

But here’s the thing: you need to make sure some basics are lined up before diving into this sea of opportunity. I’m referring to online business legal requirements that come with either full-time or part-time freelance work.

Why is this necessary? Well, let me paint you a picture. Imagine pouring your heart and soul into a project, only to have a client dispute your work and refuse to pay. Or picture establishing an amazing brand, only to wake up one morning to find that somebody has stolen your business name or your intellectual property has been pirated on social media. Not acceptable, right? Exactly!

So, today, I’m going to walk you through how to legally start a freelancing business online.

How To Legally Start A Freelance Business Online

Shielding your online business from the wolves and avoiding any legal troubles begins with taking the following actions:

Step 1: Choose Your Business Structure

The choice of business entities can be compared to deciding what to wear to a first date; it sets the tone for everything that follows. The most common options for freelancers are sole proprietorship, limited liability company (LLC), or corporation. However, each has its pros and cons:

• Sole Proprietorship: This is the easiest structure for startups. It comes with the fewest paperwork requirements. But it doesn’t offer personal liability protection.
• LLC: This business structure will protect your personal assets and even offer tax flexibility. It’s a popular choice for freelancers who want some protection without too much complexity. However, forming and maintaining an LLC is more expensive than a sole proprietorship.
• Corporation: This third structure is the most complex and expensive to establish. However, it offers the highest protection for the freelancer’s personal properties. Actually, this might be overkill for most self-employed professionals unless you have expansion in mind.

It’s recommended you speak to a tax advisor or a lawyer to find out which organizational structure best suits your needs and future goals.

Step 2: Register Your Business Name 

Do you remember the saying, “First impression matters?” Well, your business name is your brand’s first impression. Let your business name provide a clear mental picture of what you offer. But it should not just be generic; make it hearty and memorable.

Here’s what you need to do:

• Select a name that should be special and correspond to your brand and services. Avoid any name that’s too similar to any existing one in your field. This will help prevent confusion and potential legal issues down the road.
• Visit your state’s business registry and trademark database to see if your desired name is available.
• If available, proceed to register your business name with the Secretary of State.
• You may also want to consider trademarking your name for additional protection.

Step 3: Obtain Necessary Licenses and Permits

Just as you need a license to drive, you’re required to obtain certain licenses or permits to practice freelance business. This step is very important; skipping it is like driving a car without a license, which can land you in serious trouble. Operating without proper licenses can lead to fines or even having your business shut down.

Here’s what to do to be safe:

• Contact your local city or county clerk to find out if you need a business license or not.
• Research for any specialty or professional licenses or permits that your particular industry may demand (e.g., real estate, finance).
• If you do business under a name other than your real name, then you may need to register a DBA name.

You can also check out how to get a copy of your business license online here.

Step 4: Set Up a Professional Business Bank Account

This is another important step. It’s just wrong to operate business and personal finances in the same account. So, open a business bank account for the sole purpose of housing your business finances or for transactions. You can even go a step further by getting a business credit card.

Doing the above will make tracking your business expenditures much easier. But that’s not all! Calculating your taxes becomes streamlined, and you’ll also appear professional to your potential clients.

Step 5: Set Up Your Tax Structure

Paying taxes, though not the most entertaining aspect of having a freelance business, is important. It cannot be overstated how important it is to get your tax structure right from the get-go.

Here’s what you need to do: 

• Start by seeking professional advice, especially in the first year of filing for business taxes. They can help you figure out industry-specific deductions and ensure you’re complying with all tax laws.
• Apply for the Employer Identification Number (EIN) from the IRS. It won’t cost you a dime, and you can even get everything done from the comfort of your home.
• Decide on your tax year, i.e., the calendar year or the fiscal year.
• Then decide on the accounting method you’ll be employing, be it cash or accrual.
• Set up a system for tracking your income and expenses. This could be as basic as an Excel file or as complex as accounting software.
• Prepare quarterly estimated tax payments. That’s because, unlike employees, taxes aren’t automatically deducted from your income as a freelancer.

Step 6: Protect Your Business with Contracts and Insurance

Think of contracts and insurance as the shields and helmets of the business world. They are meant to shield you from the slings and arrows of misunderstandings, disputes, and unexpected events. Not having good contracts or proper insurance means you may end up penniless if a project doesn’t go well or if you’re sued. So, don’t skimp on this step; it’s an investment towards ensuring your business’s longevity.

Here’s how to protect yourself:

• Prepare a standard contract template for your services. This contract should include the scope of the project, payment terms, deadlines, revision policies, and termination clauses. You can get comprehensive contract templates in my online template shop or in the Ultimate Bundle^®.
• Look into business insurance options like professional liability insurance (also called errors and omissions insurance), health insurance, and general liability insurance. Another insurance policy that might be relevant for remote workers is cyber liability insurance.

Step 7: Protect Your Intellectual Property

The next step is to safeguard your good ideas and innovation. Whether it’s your logo, your unique business plan or process, or the content you created, you need to ensure they remain yours alone.

To do this, look into laws and the exact steps to take to protect your work. That’s because there are different guidelines for trademarks, copyrights, and patents. A trademark is concerned with protecting brands or logos. Copyrights are for protecting a piece of work or art, while patents are meant to protect inventions.

What You Need To Legally Start A Freelance Business Online

We’ve walked through the steps to set up your freelance business legally. Now, let’s focus specifically on the different paperwork needed to successfully sort out the legal side of things.

Business Formation Documents

These documents are important to legally separate you and your business, which may come in handy when the business faces some legal troubles. They’re like the birth certificate of your business official proof that your freelance venture exists in the eyes of the law.

They include the following:

• Articles of Incorporation (for corporations)
• Articles of Organization (for LLCs)
• Partnership Agreement (for partnerships)
• DBA (Doing Business As) Registration (for sole proprietorships operating under a different name)

Business Licenses and Permits

It’s necessary to have these licenses and permits for multiple reasons. They are your golden pass to conduct your business operations. They also prove you’re running your business in compliance with all the local and state laws, saving you from hefty fines or even business closure.

The specific licenses and permits you need will depend on your location and industry, but may include:

• General Business License
• Work or Occupation Permit
• Home Occupation Permit if you are operating from home.
• Business license (if required by your locality or state)

Employer Identification Number (EIN)

Yes, it’s not mandatory to obtain an EIN if you are a business owner with no employees and/or if you are a sole proprietor. However, it’s still advisable to go get it. The EIN is like a Social Security number for your business. It gives your business an identity, serves as a shield for your personal data, and adds a professional look to your business.

You may also need it to:

• Open a business bank account.
• File taxes
• Hire employees (if you decide to expand in the future).

Client Contract Template

A well-drafted contract acts as a shield for both the service provider and the clients. It defines expectations, explains the consequences in case of failure, and can help avoid many legal problems in the future.

As stated earlier, a solid contract should include the following:

• Scope of work
• Payment terms and schedule
• Project timeline
• Revision policy
• Termination clause
• Intellectual property rights

Non-Disclosure Agreement (NDA)

In today’s digital world, where information flows freely, having an NDA is like a lock for your digital file cabinet. The essence of this document is how to safeguard your competitive advantage. It makes sure that your special way of doing things, client lists, or innovative ideas stay under wraps.

An NDA:

• Ensures clients or contractors can’t share your confidential information.
• Shields your business ideas and strategies
• It can also be mutual in that it protects both your information and your client’s.

Privacy Policy and Terms of Service

Some freelance work often involves having a website. Therefore, having these documents is crucial. The privacy policy describes how you collect, use, and protect user data. Terms of Service, on the other hand, define how customers can use your website and/or services.

These documents don’t just shield you from legal troubles. They also help establish trust with your clients. They show that you’re transparent about your practices and committed to protecting your clients’ information.

Financial Records

Keeping detailed financial records helps you track your business’s health. You’ll also be worry-free during tax season or periodic audits. Plus, good financial records can help you make informed decisions about your business’s future.

The financial documents in question include:

• Income statements
• Expense receipts
• Bank statements
• Tax returns

In the world of online freelancing, success favors those who are prepared.

Setting up an online freelance business is no mean feat. And trying to steer clear of all the legal pitfalls attached to it can also be quite daunting. Fortunately, there’s help for you out there.

Remember all those important documents we discussed? Well, say hello to the Ultimate Bundle®. It’s your all-in-one solution for anything and everything legal in the online business sphere. This powerhouse package is fully loaded with templates for business contracts and agreements, website policies, and even guidance on insurance coverage. 

Before you go! → There are 5 things your online business MUST have in place. Want me to lay them out for you in plain English? Click here to grab a seat at my free training.