Keeping Side Projects Legally Separate When Working Remotely

You decided to take the plunge into the world of freelancing. Now, you are facing a new challenge: keeping your side projects separate from your main work.

You know that the easiest way to do this is by creating separate entities for each project. But it means spending time and resources on something not related to the work you love doing. Also, there is the risk of clashing colors and logos between projects.

But you do not want to go through the hassle of registering another company for your other gig.

What is the safest thing to do? Is there any way you can keep it all under one roof? Is there a legal move you need to make?

Worry no more. There are ways to keep your side projects separate without creating another company. The good thing is they are all legal.

Follow the tips below and you can get the job done.

1. Secure an NDA

A non-disclosure agreement (NDA) is a legally binding contract. It stipulates how involved parties can share or protect proprietary information. It is useful for confidential negotiations. All parties involved in a project must sign an NDA during their time of service.

An NDA is meant to prevent the sharing of confidential information with third parties. These include competitors and public releases.

The document ensures that both parties can continue doing business without any worries. They will not have to think about who will enjoy the fruits of their labor.

Also, it prevents any lawsuits or claims of breach of contract. These cases can be harmful to their respective projects.

Meaning to say, if you want to keep your side projects separate, it is crucial to have a signed NDA. This way, you can work with subcontractors without thinking about information theft.

The contract will stop them from sharing vital information without your knowledge. If they do otherwise, you can sue them for breach of contract.

Your NDA must contain a clause on the disclosure or misuse of confidential information. Furthermore, using this information for personal gain can also be grounds for a lawsuit.

The contract should also state the limits of sharing confidential information. Only the parties in the written documents can view or share them. This will avoid any paper-trail conflicts.

2. Make sure you sign an Intellectual Property (IP) assignment agreement

An Intellectual Property Assignment Agreement is a legal document assigning the copyrights and assets of an original work to another party. The contract includes clear terms on who will own certain proprietary rights.

It ensures that no one can own items or content created without permission. The contract will also make it easier to identify what’s available for use. This can be either within your organization or among your partners.

In your IP agreement, define what company owns what parts of a project. This can include design files and marketing materials created through the agreement.

3. Decide on a Wyoming or Delaware LLC

There might come a time when you will want to build a mobile app for another client. But, you may not want to create another company for this one-time gig. So, how are you going to keep it separate from your main work?

The best way to go about this is by forming a Limited Liability Company (LLC).

An LLC is the best way to keep your side projects separate for two main reasons. It is less expensive and simple to incorporate.

An LLC offers the limited liability protection known as “pass-through taxation”. This means that the owners’ personal income tax will get paid on profits made by the business. This will protect you from any taxes or losses that you may incur from working for many clients at once.

There are two states that many people recommend for incorporating LLCs. These are Wyoming and Delaware.

Wyoming has cheap state taxes that offer the most limited liability protection. Additionally, the state makes it easy to incorporate an LLC. It also does not need much paperwork, compared to other states like New York or California.

Meanwhile, Delaware also has a couple of distinct advantages. It is far less expensive than other states. There are no income taxes, franchise taxes, or state taxes for LLCs in general.

To help you decide better, check out this article. It is an in-depth guide on the difference between these two states. This can help you choose which state is the right fit for your needs.

Why Does It Matter to Form an LLC for Side Projects

You might now be looking at the costs of forming an LLC and wondering why it matters. So, let’s look at what happens if you don’t have an LLC for your side projects.

Let us say you have a side-project called “PodcastingForDummies.” It makes $80,000 in profits per year. You are taking all these profits for yourself, not sharing them with anyone else. Without an LLC to protect yourself, everything goes into your account.

What happens when you get sued or when you get audited by the IRS?

If someone does sue you, they will have to take everything into account. If you have $30,000 worth of savings or crypto-currency, that amount has no protection. Plus, that $80,000 might not be enough to pay the court fees and any other settlement.

But let’s say you kept all your “PodcastingForDummies” profits separate in an LLC. So now, all profits become part of the potential revenue for “PodcastingForDummies.”

Forming an LLC means you can use it to protect yourself from liabilities. For instance, somebody sues you for a million dollars.

If you have a million dollars in your LLC, the person suing you would have to split that amount with your LLC. You may have to take everything from your accounts and sell all your assets. This will pay for everything, including your lawyer’s fees.

Making sure your side projects stay separate from your main company is crucial. Follow the steps mentioned above and protect yourself. It will save you the trouble of fixing things when something bad does happen. It will also make sure that your side projects will have a healthier future.

Also Read: How To Use Remote Work Culture To Your Company’s Advantage?