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 California, a consulting agreement is a legally binding contract between a client and a consultant, who may operate as an individual, sole proprietor, single-member LLC, corporation, or multi-member LLC. The consultant provides services as an independent contractor, not as an employee, which is significant for tax purposes. Under federal law, specifically 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 California typically includes provisions that clarify the independent contractor status, define the scope of work, outline the duration and terms of the project or service, detail payment arrangements, and address other key issues such as representations and warranties, liability, indemnification, intellectual property rights, confidentiality, non-solicitation, dispute resolution, modification of the agreement, and non-waiver clauses. It is advisable for such agreements to be in writing to ensure clarity and enforceability of the terms.