A consulting agreement—also known as a service agreement, independent contractor agreement, 1099 agreement, or freelance contract—is a contract between a client willing to pay for the performance of consulting services by a consultant (person, sole-proprietor, or single-member LLC) who is willing to perform the services. Under the Internal Revenue Code (26 U.S.C. §3509), an independent contractor is not an employee, and the client hiring an independent contractor is not responsible for tax withholdings and payment of FICA taxes.
A consulting agreement should be in writing, and will usually address issues such as the (1) relationship of the parties (usually independent contractor and not employer/employee or joint venturers); (2) scope of the work (description of the services); (3) terms and length of the project or service; (4) payment details, including fee deposits, hourly rate, and billing procedure; (5) representations and warranties; (6) liability and indemnification; (7) intellectual property ownership and rights; (8) confidentiality; (9) non-solicitation; (10) dispute resolution; (11) rules for changing or modifying the agreement; and (12) non-waiver provision to preserve the right to enforce the agreement.
A consultant may also operate as a corporation or multi-member limited liability company, for example, and the consulting agreement with such an entity will be similar to an agreement with a consultant who is an independent contractor.
In Virginia, a consulting agreement is a legally binding contract between a client and a consultant, where the consultant agrees to provide services in exchange for payment. This type of agreement is important for establishing the consultant as an independent contractor rather than an employee, which has significant tax implications under the Internal Revenue Code (26 U.S.C. §3509). The client is not responsible for withholding taxes or paying FICA taxes for an independent contractor. A well-drafted consulting agreement in Virginia should be in writing and typically includes terms that define the relationship between the parties, the scope of work, duration of services, payment details, and other key provisions such as representations and warranties, liability, intellectual property rights, confidentiality, non-solicitation, dispute resolution, and terms for amending the agreement. These agreements are equally applicable to consultants operating as sole proprietors, single-member LLCs, corporations, or multi-member LLCs. It is advisable for parties entering into such agreements to consult with an attorney to ensure that the agreement complies with Virginia state laws and adequately protects their interests.