Legal Stuff Service Providers Need To Know To Protect Their Business

29 Sep, 2021 By Bobby Klinck
Legal Stuff Service Providers Need To Know To Protect Their Business

Service providers offer expert assistance in the field they specialize in to individuals and organizations. They often play a critical role in the success of an online business.

If you’re a service provider or planning to be one, there are two things you need to focus on. First, you need to provide excellent service to your clients. Second, you need to take the proper steps to legally protect your business. Let’s talk about the legal stuff you need to know as a service provider.

You Need A Client Agreement

A general rule of thumb is that money should never change hands unless there’s a clear agreement that both parties have agreed to in place. Client agreements are extremely important if you’re a service provider given that your clients are your lifeblood.

Your client agreement exists to protect your relationship with your clients. It protects you as a service provider, your clients who seek your service, and your business relationships. As a service provider, it’s crucial to maintain relationships because existing clients can offer you referrals, which is your best source of business.

A client agreement also helps you avoid disputes because all the services you need to provide and how much you should be paid will be specified in the agreement. Having a detailed client agreement means you no longer have to rely on memory, which is unreliable in most cases. You forget stuff and you get things wrong sometimes. You don’t want to ruin a good business relationship just because you got something wrong.

Your agreement also applies to your clients. If you only had an oral agreement before you start doing the work, your client’s memory of the agreement tends to favor them more than you initially agreed to. Problems start to arise when you both have different accounts of your agreement.

Here are a few things to keep in mind when creating a client agreement:

Be As Specific As Possible

You need to be as specific as you can in your agreements. If your clients have questions regarding the services you’re providing, you can simply refer to your agreement for answers. When you put in the terms of your agreement, you need to make sure that your client understands and agrees to it before you start working.

Payment Terms

Your client agreement should also clearly define your payment terms. If you’re doing a project that’s flat-fee based, you must also clearly indicate what’s included and what’s not included in the work, whether it’s for a flat fee, flat weekly fee, or flat monthly fee. 

But if you’re being paid by the hour, you don’t have to lay out everything that you’ll do. You can just simply say what you’ll provide them with the time they’re paying you for. This will help define what your clients can expect from you for the money they’re paying.

Aside from this, you also need to indicate how and when they’re going to pay. You should also specify what will happen if they fail to pay, like the ownership of your work product won’t be transferred until the client has paid all of the fees.  

Ownership Of Work

Don’t forget to include a clause that clearly defines the ownership of the work. You create the work, and you transfer the copyright to your client once they pay for it in full. You should also clearly indicate that even if your client already owns the work, you still have the right to include it in your portfolio or refer to it later on.

Dispute Resolution 

You also need to have a dispute resolution clause that clearly states what should be done in case there’s a dispute. If you can’t resolve the problem amicably, you need to indicate what happens next. 

Will you go to court or choose arbitration, where you’ll pay a third-party group to decide on the dispute? Many people prefer arbitration instead of going to court because it’s faster, easier, and cheaper.

Think About Team Issues

You’ll probably do all the work if you’re just starting out. But if you scale your business, you’ll be hiring people to help you do the work. When you’re in that phase, you need to start thinking about team issues.

First, you need to understand the differences between independent contractors and employees and the common misunderstandings around these classifications.

If you have control over the person, what they need to do, and how and when they need to do it, then you need to classify them as an employee. They do the key or core work of your business. An independent contractor is someone you hire to do a project. But you have no control over them, including how they do the project. An independent contractor’s responsibility is to provide you with the results you need. So you need to be careful when classifying your workers.

Agreement With Your Contractors

Your contractor agreement must clearly indicate the work you expect them to do, the results they need to provide, what you’ll pay them, when and how you’ll pay them. It should also specify that they need to transfer the intellectual property to use their work to you so you can transfer it to your clients.

Agreements With Your Employees

You also need an agreement with your employees. In the US, employees often begin working for a company without any kind of contract. Instead of a contract, create an offer letter that indicates the terms of employment. This letter should state how much you will pay them and include a brief job description. You should also have your employees sign an intellectual property transfer agreement. These documents will help prevent disputes and controversies.

You also need to have a confidentiality agreement that says they will only use the confidential information they learned during their employment to benefit your business. This prohibits them from using your proprietary information for other purposes. They can’t take your confidential information to a competitor, and they can’t use it to start their own business that’s similar to yours.

What about a non-compete agreement? It basically says that employees can’t work for a competing business after leaving yours. The problem with a non-compete agreement is that it’s very tricky because laws about it vary between states. Some states honor non-competes but others, like California, don’t, which is why businesses prefer confidentiality agreements.

With confidential agreements, you’re telling your people that if they work for another company or put up a business that’s similar to yours, they can’t use the confidential information they learned while working for you. If you really want a non-compete agreement, you’ll have to talk to a lawyer in your state to make sure you’re in compliance.

Other Legal Issues to Consider

Privacy Policy, Terms of Use, And Disclaimer

You need a privacy policy if your website is collecting any kind of information from your website visitors or clients. You need to specify what data you collect, why you collect it, what you do with it, and who you share it with. 

The terms of use state how people can use your website while the disclaimer says the information that your website provides isn’t professional advice. The content you offer is for information and education and the user takes full responsibility for any results they get from that information.

Naming Your Business

Don’t forget to do a trademark search to make sure that no one else has the rights to the name of your business.  

All Agreements Must Be In Writing

Every agreement you have for your business should be in writing. If you have a course, then you need a course agreement, a digital product agreement for digital products, and so on. As a service provider, you need to have a client agreement in place and one for your employees as well.

How To Get Legal Protection

As a service provider, you must not only pay attention to the quality of service you give to your clients. You should also protect your business by having written agreements with clients, independent contractors, and employees. Don’t forget your privacy policy, disclaimer, and terms of use.

You can get templates for all these written agreements you need in your business from my template shop. If you’re just starting out, grab my Client Agreement template, and if you’re scaling your business, you can get the Service Provider Pack or an all-access pass to my Legal Template Library.

Join BADA$$ Online Marketing University (BOMU) to learn more about how to run your online business the right way. When you enroll, you’ll find an entire course about the legal stuff for entrepreneurs called Online Legal Foundations. And it’s absolutely FREE!  

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Bobby Klinck

Harvard Lawyer and Online Entrepreneur