So You Want to Start a Side Hustle - Part 1
It’s becoming increasingly popular to talk about side hustles. Making extra cash on the side, in addition to your regular job, can be great. However, there are many legal hurdles that your average side hustler may not consider, and are rarely discussed on finance blogs. I’ll discuss a few of those issues here.
Today, I want to talk about contracts. Contracts may sound boring, but they form the foundation of almost every side hustle out there. Whether you are flipping houses, writing books, creating new products, or driving for Uber, you’ll be making agreements with other people, and, hopefully, following those agreements.
What is a Handshake Worth?
The first question I’d like to consider is, what if you just have a conversation and a handshake? Is that a contract? In general, the answer is yes - many oral contracts are valid, enforceable contracts. Before I talk about the exceptions, I want to talk about why a conversation and a handshake may not be a good idea.
We’ve all talked to a buddy or a colleague and made an agreement. Maybe we agree that I’ll buy lunch and he’ll help me move into my new apartment. Sometimes it’s not a big deal to just talk about it, and never write anything down. If my friend doesn’t show up on moving day, I’ll be annoyed, but that’s about it. However, many people will make much more important agreements, and never write anything down. If my friend wants to rent my spare bedroom for three months, I may not be required by law to put the agreement in writing. But, if he is late on rent, or refuses to move out after three months, how will I prove what we agreed to? It will be his word against mine. And I may not win if we have to go to court. Putting agreements into writing protects everyone down the road, and should be strongly considered in any agreement that would hurt if it were broken.
When does it have to be in writing?
When is a written contract required? There is a very important law that has to be considered whenever you make an agreement with someone: The Statute Of Frauds. In the Texas Business and Commerce Code, Section 26.01 and 26.02, certain agreements must be in writing and signed by the person against whom you want to enforce the agreement, to be enforceable. These agreements include:
The sale of real estate
A lease of real estate for a term of one year or longer
Certain agreements by executors or administrators of estates
An agreement to answer for the debt of another person
Certain prenuptial agreements
An agreement that will take a year or more to perform
Oil, gas, and mineral leases
Some agreements related to medical care
Loans over $50,000
Several of these items may not apply to most side hustles. However, real estate contracts, leases, and contracts that will take more than one year to perform are very common in many side businesses. Whenever someone is considering any kind of agreement that fits into any of these categories, a written contract is not just a good idea, it’s the law.