• Ethical Contract Trading (detail) - Andrew Broomfield (Design Interactions 2008)

Contracts are how you manage your business relationships, making sure everyone has the same expectations and understands their rights and obligations. Much of what you do in your working life – selling work, buying materials, renting workspace, employing people and so on – not only creates business relationships, it also creates contracts.

Indeed, this is the first thing to remember: contracts are formed every day (as simply as buying something from Boots, for example). They do not need to be in legal language or even written down at all.

The danger is, if you don't write the contract down, people might 'conveniently' remember your agreement differently. Also, if you don't take contracts seriously you may not realise, regardless of what you agreed, what the law obliges you to do. Therefore, a considered, written agreement is best.

There are many sources of free or cheap information to get you started (see our links below). But it's a good idea to use professional advice, even if it costs money, to avoid blood and tears later. You can start out with a good accountant who knows creative businesses, although at some stage you'll need a lawyer to put contracts into the right form.

An obvious but important rule: make sure you understand everything in a contract before you sign it.

People you sell to or through
When you’re selling work, you can start with a ready-made template or get a solicitor to tailor standard terms to suit you. Then, for each new project, you can add specific terms and a schedule defining the work to be done. Be especially protective of your intellectual property! You may also wish to retain title to your product or artwork even after delivery to, say, a shop or gallery until it is paid for. You might want to retain copyright even after the sale is made. Both you and the client should sign the agreement and each keep a signed original for your records.

Big organisations tend to have their own contractual terms. You should understand these really well before you sign and check throughout the project whether you are on course to deliver the final results.

Special types of agreement are needed for some situations (for example, with a gallery, or if you’re sub-letting your studio space). When you’re selling work, you need to consider carefully any special statutory protections applying to, for example, individual consumers or online sales. 

People you buy from
Often, buying from people – suppliers, landlords, freelancers, etc – is straightforward, but if you’re sourcing prototypes in China or selling paintings in Russia, life can be a bit more demanding. In these situations, if you’re making a big commitment in money, scale or time, you’ll need advice from UK trade organisations and eventually from lawyers.

If you’re hiring freelancers, it’s your responsibility to make sure that you get their status right – are they really freelance providers or in fact more like employees, who should be on PAYE income tax and National Insurance? If you get it wrong it is you who the tax office will pursue for the tax. There is plenty of information online about this. It helps to clarify the position with your freelancer at the outset and make sure that a suitable contract is signed and invoices provided. Make sure it is agreed, in writing, that you will own any IP that they create.

People you work with
Before you go into business with other people, sit down and discuss what you plan to do and how you will organise it. Write down your intentions in plain English between yourselves. When you have something you can all sign, get a solicitor to put it into legal form (such as a shareholders’ agreement or partnership deed).

Some of the questions you should ask yourself: Who will do what? Will you work solely through the joint enterprise or are you allowed to do other work? Who will put in how much money and how will the profits or losses be shared out? In the case of a company, who are the shareholders and who are the directors? How will you collectively decide whether someone can join or leave the group? Who owns the intellectual property of the joint work? Legal advice is essential to make sure you’ve covered all the ground.

These practical matters can become complex, especially if later on there is a dispute about money, for example. If all this is just too formal, perhaps what you really have is not a business enterprise but a series of joint projects that you and your colleagues opt into or out of as they come along.