Starting a freelance business is exciting. You get to choose your clients, set your schedule, and do the work you love. But before you send your first invoice or design your website, there’s a crucial step many new freelancers overlook — the legal side of freelancing.
Getting your legal foundation right from day one can save you from future headaches. It can protect your income, help you stay compliant with laws, and build trust with your clients. Whether you're a graphic designer, writer, web developer, or consultant, the legal steps are largely the same — and they matter.
Here’s a clear and straightforward guide to the legal steps you should take to launch your freelance business the right way.
1. Decide on Your Business Structure
One of the first legal decisions you’ll need to make is choosing your business structure. Most freelancers start as sole proprietors because it’s the simplest option. You don’t need to file any special paperwork to become one — in many places, you’re automatically considered a sole proprietor once you start working.
However, you might also consider forming a Limited Liability Company (LLC). An LLC separates your personal assets from your business liabilities. If something goes wrong — like a legal dispute or unpaid debt — your personal property is typically protected. It’s also a more professional way to present your business, which can help attract higher-end clients.
Take a moment to compare the options. Sole proprietorships are easy and low-cost, but LLCs offer protection and credibility. The best choice depends on your long-term goals and how much risk you’re willing to accept.
2. Register Your Business Name
If you’re not operating under your legal name, you’ll likely need to register a “Doing Business As” (DBA) name. For example, if your name is Jane Smith, but you want to call your business “Smith Creative Solutions,” you’ll need to register that name with your state or local government.
This step helps prevent other businesses from using the same name and gives you the legal right to operate under it. It also makes things easier when opening a business bank account or signing contracts with clients.
Check with your local government’s website to see what’s required in your area. Some states offer online filing, making it quick and simple.
3. Apply for an EIN (Even if You Don’t Have Employees)
If you’re a sole proprietor with no employees, you’re not required to get an EIN — you can use your Social Security number. But getting an EIN is free, easy, and smart. It protects your personal information and is often required to open a business bank account or file certain tax forms.
You can apply online through the IRS website, and it usually takes just a few minutes.
4. Obtain Any Required Licenses or Permits
Not all freelance businesses require a license, but some do — depending on your location and industry. For instance, if you’re offering financial services, legal consulting, or health-related advice, you may need a professional license.
You may also need a general business license, even if you’re working from home. Some cities and counties require all businesses to register, regardless of type or size.
Visit your city or state’s business portal to check what’s needed. Getting the proper licenses not only keeps you compliant but also shows clients that you’re serious and legitimate.
5. Set Up a Business Bank Account
Once your business is legally established, the next step is to separate your business finances from your personal ones. This starts with opening a business checking account.
Keeping your finances separate makes tax time easier and cleaner. It also helps if you’re ever audited or need to show business income for a loan or lease. Plus, it looks more professional when clients make payments to a business account.
To open an account, most banks will ask for your EIN, business name registration, and possibly your business license. Shop around for a bank that offers low fees and tools that suit freelancers.
6. Draft a Solid Client Contract
A strong freelance contract is one of the most important legal tools in your business. It outlines the terms of the project, including the scope of work, payment schedule, deadlines, revisions, and what happens if either party wants to cancel.
Even if you’re working with someone you trust, always put the agreement in writing. Verbal agreements can easily lead to misunderstandings or disputes. A contract protects both you and the client.
You don’t need a lawyer to draft your first contract, though it helps. You can find templates online and customize them to fit your needs. Just make sure it covers all key points and both parties sign before work begins.
7. Understand Your Tax Responsibilities
As a freelancer, you’re responsible for managing your own taxes. This includes income tax and self-employment tax. Unlike traditional employees, taxes aren’t automatically withheld from your payments.
It’s a good idea to set aside 25–30% of every payment you receive to cover taxes. You may also need to make quarterly estimated tax payments to the IRS if you expect to owe more than $1,000 in taxes for the year.
In addition to federal taxes, check whether your state or city has local tax requirements. Keeping good records and using accounting software can make tax season a lot less stressful.
8. Consider Business Insurance
Freelancers often skip insurance, assuming it’s only for larger companies. But having the right freelance business insurance can protect you in case of lawsuits, client disputes, or accidents.
The most common type is general liability insurance, which covers you if someone claims you caused them financial loss or damage. If you offer professional advice or creative services, you might also want professional liability insurance (also known as errors and omissions insurance).
In some industries, clients may require proof of insurance before hiring you. It’s worth getting a quote to see what protection you can afford.
9. Keep Good Records from Day One
Even if you’re just starting out, begin tracking your income, expenses, invoices, and receipts right away. This will help you monitor your cash flow, prepare for taxes, and make smarter business decisions.
You don’t need fancy tools to get started. A spreadsheet or simple accounting software can do the job. As your business grows, you might upgrade to more robust tools or hire a bookkeeper.
Good record-keeping also makes it easier to prove your income if you apply for a loan, mortgage, or apartment.
10. Know When to Ask for Help
You don’t have to navigate the legal side of freelancing alone. There are plenty of affordable resources — from online legal services to local small business associations — that can guide you through the process.
If you’re ever unsure, especially about taxes or contracts, consult a professional. Spending a little on legal or tax advice now can save you much more in the future.
Freelancing gives you freedom, but that freedom comes with responsibility. Taking the time to lay a strong legal foundation gives you peace of mind and the confidence to grow your business.
Final Thoughts
The legal steps to starting a freelance business aren’t as overwhelming as they might seem. Each task builds the structure that will support your work, reputation, and income for years to come.
So take it step by step. Register your business, set up your finances, draft your contracts, and stay compliant. The sooner you check these boxes, the sooner you can focus on what you do best — delivering great work and building a business you’re proud of.
