Legal Guide for Consultants

Last updated: 4 September 2021

Legal Guide for Consultants – This step-by-step guide outlines everything you need to know, from an Australian legal standpoint, about being a consultant and running a consulting business. We cover:

  • Consulting licenses and qualifications
  • Agreements you should get your consulting clients to sign
  • Legal notices you should post on your website, and
  • Setting up your consulting business

Years ago consultants were looked upon with some skepticism in Australia. But today, consultants have become a substantial and vital part of the Australian business environment. They operate in every field of the economy – from engineering, IT and technology to business strategy, PR and social media marketing.

If you’re a consultant this legal guide will help you. It explains some of your legal risks and suggests straightforward ways to reduce these risks and better manage your consulting business.

Legal issues covered in this guide

Click on any of the questions below to jump to that section of this legal guide.

If after reading this guide you still have a question, get in touch as we’d love to keep adding your questions to this comprehensive guide.

Risks of Being a Consultant

Am I liable for the consulting advice I give?

Yes. As a consultant you are vulnerable to claims where clients rely on your work or “advice”. Clients may claim that they relied on your advice and suffered financial loss or made detrimental business decisions and claim you are responsible. But a well drafted Consulting Agreement will mitigate this potential risk.

In the event I am sued, how can I limit my liability?

You need to have a signed Consulting Agreement with your client that includes a ‘Limitation of Liability’ clause. In the unfortunate event a claim is made against you, a well-written clause should limit your financial downside. This is particularly important where you are a Sole Trader. To limit your liability further and protect your personal assets, you should consider setting up and running your business under a ‘Pty Ltd’ company.

In addition, your website should have a Website Disclaimer. You cannot control how some website visitors may read and rely on your written content – and a Website Disclaimer will limit your liability in such circumstances.

How can I protect my IP and consulting materials from being copied?

The best way to do this is to ensure you have a clear and robust Consulting Agreement that clearly defines:

  • What IP is owned by you
  • What IP is owned by your client
  • What IP is retained by your client after you have delivered your service
  • What license terms apply to any IP you transfer to your client
  • What IP is to be kept confidential, and
  • What IP is to be returned or destroyed on project completion

In addition, implement a ‘need to know’ policy to help protect your IP and trade secrets. Not everyone within your client’s organisation needs to know how you carry out your work and what tools and techniques you use. Consider confining access to information to only those people who need to know and, where possible, have them sign a Confidentiality Agreement.

You should always keep your IP and confidential information in secure locations, in a secure manner. For example, use strong passwords on your computer and secure your wireless network with a password. And consider registering your IP with trademark names and/or logos.

Do consultants need a license, qualification or permit?

This depends on the industry or field of expertise. Some fields require a university degree and special licence or certification. For example, if you intend to work in the insurance, real estate, financial planning or accounting fields, you will need a special licence and/or qualification.

However, there is no specific certification or qualification to actually practice as a consultant. All you need is the specialist skills, a solid reputation and some good connections.

Bear in mind, if you are planning to operate your consulting business from home (and in particular have clients visit you at your home), you may require a special council permit, licence or even insurance. Contact your local council for information on the local requirements and any necessary permits.

What is the difference between a consultant and employee?

It is important to ensure that your legal relationship with your client is as a consultant and not an employee. If you are deemed to be an employee, your client could be liable to pay you Superannuation, holiday pay, health insurance, etc. When they contracted your services this was not likely part of the deal!

Your Consulting Agreement should clearly state, and require your client to acknowledge, that neither you, nor your employees if any, are or will be the client’s employee or agent.

However, this alone will not ensure that you are legally considered a consultant. There are other factors that will be considered in determining whether you are an employee or consultant.

You are more likely to be considered a consultant, rather than an employee for tax purposes, if:

  • You are allowed to delegate or sub-contract your work to a third party
  • You are paid based on a result achieved, rather than a salary or hourly rate
  • You supply your own equipment and at your cost
  • You have control over your work, subject to the terms of an Agreement
  • You work on projects or phases from time to time
  • You have the freedom to accept or refuse additional work
  • You carry on other jobs at the same time, and
  • You take commercial risks and are legally responsible for your work (eg. carry your own Professional Indemnity insurance)

More information on the ATO’s website here.

Consulting Agreements

Should I use a Consulting Agreement with my clients?

Yes. You need to have a signed Consulting Agreement (also called a Consulting Contract) with each of your clients – this is the most important document you should use as a consultant.

A Consulting Agreement lays out the terms of your engagement and describes the project and consulting services you will provide. Depending on the requirements of your client, the Agreement can be very specific regarding the services to be performed (with specific outputs, phases, start and end dates) or it can be more open ended and general.

Avoid disputes by having a clear Agreement that specifies the services to be performed and outputs to be delivered.

You need to make sure that your client has acknowledged and agreed to your terms. This is for your legal protection. They can acknowledge your terms with any of these methods:

  • Signing your Agreement using an eSignature service
  • Signing, then scanning/photographing your Agreement and returning by email
  • Acknowledging your Agreement by email, or
  • Acknowledging your terms by ticking a box during your online purchase process

Each of these methods offers a different level of protection. But if you have no proof of a contractual agreement, your terms may be invalid and not able to be relied upon to protect you.

What is the difference between a Consulting Agreement and Consulting Engagement Letter?

Typically a Consulting Engagement Letter is less formal and less comprehensive than a Consulting Agreement. It can be initiated by either the client or the consultant and be agreed by email. Is is normally a short letter for discussion before an agreement or terms are presented – and should include confidentiality provisions.

We always recommend you use a well drafted and comprehensive Consulting Agreement with all your clients – it will give you better legal protection and show you are a professional operator. This is the full terms of agreement for your consulting services, formalising your consulting proposal.

What is the difference between a Consulting Agreement and Consulting Proposal?

Typically a Consulting Proposal just lays out the scope of a potential consulting project with:

  • Description of the issue to be resolved
  • Proposed work and phases of work
  • Project deliverables
  • Timeline, and
  • Consulting Fees

Once a client has agreed a Consulting Proposal, these details can form part of a formal Consulting Agreement. If you just get client agreement to your Consulting Proposal – and don’t formalise a proper Consulting Agreement – you leave yourself open to potential disputes regarding termination, liability, IP ownership, payment schedule, etc.

What clauses should my Consulting Agreement include?

Your Consulting Agreement should include, at minimum, clauses that cover:

  • Detailed description of the consulting services you are providing
  • Deliverables, phases of work and any applicable timelines
  • Payment schedule and term or length of your engagement
  • Intellectual property protection for your own materials
  • Confidentiality
  • Termination, cancellation and refunds
  • Dispute resolution
  • Insurance requirements
  • Indemnity with Limitation of Liability, and
  • Governing law

Your Consulting Agreement should be tailored to each specific client, detailing the services you are providing to them. A well written Agreement will not only provide you with legal protection, it will also help manage your client’s expectations.

Website Legals

What Terms and Conditions should my website include?

The Terms and Conditions you publish on your website should include clauses that cover:

  • Your compliance with the Australian Competition and Consumer Act
  • How your handle returns and refunds
  • Intellectual property protection and Copyright
  • Indemnity with Limitation of Liability, and
  • Governing law

Again, make sure that your Terms and Conditions are easily found by linking to them in the footer of every page on your website.

Should my website include my consulting services Terms and Conditions?

Normally your website is for your visitors. So it should include a Privacy Policy and your general Terms and Conditions. Your specific Consulting Terms are usually provided to clients only. You can still publish them on your website, but hide the link and only provide it to clients when they engage your services. You should also have an Agreement available that you tailor to your specific services and provide to your clients.

You need to make sure that your Terms are easily found and not hidden from website visitors or potential clients. The norm on the Internet is for your website legal notices (Disclaimer, Privacy Policy, Terms & Conditions) to be linked to from the footer of your website – and available from every page on your website.

Selling Your Consulting Services

How do consulting success fees work?

Consulting success fees are usually based on achieving a desired outcome – for example, product launch, financing deal signed, acquisition or joint venture agreement, etc. The success fee is usually a one-time bonus payment, over and above normal (or reduced) consulting fees.

By contrast, consulting performance fees are usually recurring but also based on achieving a desired outcome – for example, dollar cost savings, revenue milestones, etc. In these cases, the performance fees could be based on sharing a percentage of the improved margins or revenue with the consultant.

Again, if you choose to pursue any of these options make sure you have a well written agreement that protects your interests and ensures you get paid.

How does consulting for equity work?

Startups are often short of cash funds and are willing to trade consulting services for a share of their equity. Some consultants are willing to take the “risk” of this form of payment – others stay well clear.

Sometimes a compromise is reached where a portion of the consulting services are paid for in cash and the remainder is paid for by equity participation. Alternatively, you could be offered a position on their Board of Directors, Advisory Board or come on as a Co-Founder (with founders shares) in exchange for your consulting services.

If you choose to pursue any of these options make sure you have a well written agreement that protects your interests. You should also talk to your accountant as there may be tax due on the value of the shares issued – in which case, options or warrants may be a more tax-effective way of being remunerated.

How do I collect overdue consulting fees from clients?

If you have not been paid by your client you can issue them with a Letter of Demand. This is a formal request to get an outstanding debt paid and the first step required as part of any court claim. In addition, make sure your invoice Terms include additional interest for late payment.

Here are the legal agreements and notices that we recommend you use in your consulting business:

  • Consulting Agreement: This clarifies the details of your consulting services and confirms the deliverables and progress payments. It is important that the Agreement includes clauses that cover intellectual property protection, confidentiality of client data and limitation of liability.
  • Privacy Policy: If you collect any personal information, such as email addresses, physical addresses and telephone numbers, you need to post a Privacy Policy statement on your website.
  • Website Disclaimer and Terms & Conditions: A Website Disclaimer can protect you from frivolous lawsuits from your website visitors. Posting Terms & Conditions is now a requirement of the latest Australian Consumer Law.

None of these legal forms are complicated – and using them will show you’re a professional operator. Plus, as we said at the beginning of this guide, doing things right will help avoid legal issues and protect you and your business from lawsuits.

Structuring Your Consulting Business

What business structure should I use for my consulting business?

In Australia, there are generally 4 options for structuring your business:

  • Sole trader
  • Pty Ltd Company
  • Partnership, and
  • Trust

The best business structure for you will depend on your personal circumstances – and getting this decision right is very important. So talk to your accountant about the pros and cons of each option. Here’s a quick summary of each option.

Being a Sole Trader is the simplest and least expensive option. Designed for business owners who are the sole proprietors of their companies, this structure doesn’t give you much protection if things go wrong. Your personal assets are unprotected from any claims arising from your business.

Incorporation (i.e. forming a Proprietary Limited Company) effectively makes your business a separate legal entity from you. This structure involves quite a bit of paperwork and can be more expensive to maintain but it offers your personal assets protection from liability. Only your company assets are at risk in the event of any legal actions and company debts.

Creating a Partnership allows you to go into business with multiple people and share income. Partnerships are easier and less expensive than Companies to set up. However, all partners together are personally responsible for business debts and actions against the Partnership. And each partner is individually liable for debts incurred by the other partners. This means you have unlimited liability, unlike a Company structure.

A Trust isn’t an organisation at all, but instead a legal structure to hold assets. For example, you might set up a Trust to hold your business assets, then appoint a Trustee to manage them. Commonly, the Trustee is a Company and the Trust provides asset protection and limits liability from operating the business. Trusts are very flexible for tax purposes. However, a Trust is a complex legal structure and establishing a Trust costs significantly more than a Sole Trader or Partnership.

For more detailed information on each of these business structures, see our feature article: How to Choose the Right Business Structure in Australia.

Do consultants need professional liability or business insurance?

It is a good idea to have Professional Indemnity/Liability Insurance to protect your business against claims that the professional advice or services you provided as a consultant were negligent and caused your client loss or damage. You have a duty of care when you hold yourself out to be a professional and people rely on your expertise.

For example, if an error or omission occurs in the course of your work and that error or omission causes a financial loss or injury to your client, then they can can sue you for damages. Professional Indemnity Insurance is intended to cover such claims.

However, insurance policies can be expensive and very difficult to claim on. If you do choose to buy insurance, make sure you read the Terms carefully. Your best protection comes from:

  • Using a well-drafted Consulting Agreement
  • Having robust Terms & Conditions on your website, and
  • Operating as a ‘Pty Ltd’ company.

A ‘Pty Ltd’ company limits your personal liability and any claims to the assets of the company. It may also be less expensive than maintaining Professional Indemnity/Liability Insurance.

Should I trademark my consulting business name?

Just because you set up a ‘Pty Ltd’ company or registered your business name with ASIC, this does not mean you ‘own’ your brand name. Any business could start using your brand name for another business activity!

This concept is one of the most misunderstood aspects of starting or running a business. And business owners frequently contact us because someone is using their brand name. The only way to protect your brand name and restrict its use, is to register it as a trademark with IP Australia.

Should I register my consulting business for GST?

If your consulting business has annual revenues of over $75,000 then you must register for GST. If you have annual revenues of less than $75,000 then talk to your accountant about your options.

We hope you found this legal guide for Consultants helpful.

About Vanessa Emilio

Vanessa Emilio (BA Hons, LLB, ACIS, AGIA) is the Founder and CEO of Legal123.com.au and Practice Director of Legal123 Pty Ltd. Vanessa is a qualified Australian lawyer with more than 20 years experience in corporate, banking and trust law. Follow this link to read the full bio of Vanessa Emilio.