Consultancy Agreement (for Limited Company Consultant)

*Updated for GDPR*

This agreement is used where a consultant is providing his or her services to a client, where those services are to be provided by the consultant through a limited company, usually owned by the consultant. Where the consultant is engaging with the client directly in his/her own name, you should use the Consultancy Agreement (Individual). The agreement can be used either by the consultant or by the person engaging the consultant's services. See our Step by Step walkthrough for full guidance notes to help you complete this document on your own.

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Step-by-step guide

Let’s walk you through how to go about drafting a Consultancy Agreement, something you need if you’re going to be providing services to a client or the consultant is providing services to you, and in each case the relationship is not one of employment. This consultancy agreement is to be used if the consultant is contracting with the client through a limited company, which will usually be owned by the consultant. If the consultant is providing their services directly, you should use the consultancy agreement for a consultant operating individually.

This agreement works no matter whether you are the client or the consultant. It is between the client and the limited company. The individual consultant is named as the person who will be providing services on behalf of the limited company.

1. The main difference between an employment agreement and a consulting agreement is that in an employment agreement the employee is under the control and supervision of the employer on a day to day basis, and often work only for the client, whether that is for five days a week or less. Consultants have the freedom to decide how to provide the services that they are engaged to provide. They can work for more than one client at a time and the client does not have to provide them with work at the end of a project. It can be a bit tricky to get the distinction right, and there are legal consequences if you get it wrong (e.g. you might have to pay a fine and national insurance for your consultant retrospectively if he is really an employee).

2. Once you know you have the right document, the first thing you’ll need to decide on is the term - how long will the agreement last – a month, a year, three years?…

3. Then it’s onto the consultant’s responsibilities - what is expected of the consultant during the term? The more clarity there is the less room for argument later…

4. It’s important to include something about payment. Here, include the necessary information about the consultant’s fees. Any money will be paid to the limited company. How much does it get paid? Is payment monthly? At the end of that month? Or in advance? Does the company get a fixed sum or is there some other benefit (for example, a share of revenue it creates)?…

5. What you will also need is a section for expenses; this outlines what the consultant can claim back, and how – for example, reasonable costs that are spent on the business which the client has previously approved…

6. Then, agree on what work the consultant can or cannot do elsewhere during the term. Normally, the consultant has some freedom but it may be that it is agreed that for example neither the consultant company nor individual consultant will work for a direct competitor during the Term.

7. You should also detail what information will be confidential; the agreement doesn’t make much sense if the consultant is allowed to share the client’s information with other businesses…

8. Intellectual property involves clarifying things like who owns the consultant’s ideas during the course of the term and who owns any copyrights created…

9. Outline how, and under what circumstances, the agreement can be terminated – for example if the consultant breaches the agreement or the either the client or the consultant company goes bust…

10. Then include a bit about the status of the relationship between the client and the consultant. Why? Because if the client does not employ the consultant, then the client is not responsible for the payment of the consultant’s taxes, and the consultant must do this itself…

11. You still need to say what would happen in the event of a dispute. Do you go to court or is there a process like mediation set up where a qualified mediator helps everyone to sort out any differences? This is normally a much cheaper and quicker route, and the good news is that you can do it all through LawBite!

12. And as if that was not enough good news, at the end you get the option to try out fantastic e-signing feature at no extra charge and close the agreement in minutes…

Remember, if you come unstuck at any point, our LawBriefs are here to help. Visit our legal advice page to submit an online enquiry or call us on 020 7148 1066.

Best of luck in your SME journey.

Document drafted by:

Louise Paull LawBrief

Louise Paull is an experienced employment lawyer providing clients with commercial, practical advice on a full range of employment-related matters.

She advises on contentious and non-contentious matters working with employers on the legal issues arising in relation to the recruitment, day-to-day employment and dismissal of staff, including drafting contracts of employment, staff handbooks and policies, cultural and family-friendly issues, equal opportunities, diversity and discrimination matters, sensitive issues around the termination of employment, including disciplinary, conduct and capability issues, negotiating severance packages and settlement agreements, collective and individual redundancies, unfair dismissal, breach of contract, business transfers and TUPE issues.

Louise qualified in 1999 with City firm King and Wood Mallesons SJ Berwin as an employment associate and most recently worked for Berwin Leighton Paisner in its employment team. She spent time on secondment with IMG, a major international sport and artist management business, as its sole in-house employment lawyer, and has worked for BT in its in-house legal team.