Re: Incorporation

Subject: Re: Incorporation
From: Andrew Plato <intrepid_es -at- YAHOO -dot- COM>
Date: Thu, 18 Feb 1999 22:33:32 -0800

This is not uncommon at all. Many companies require any contractors
to be incorporated companies. There are numerous reasons why, below
are three big reasons:

There is less of a tax risk to the client. As an incorporated
company, the division between you and your client (the software
company) is absolute. Therefore, if you do not pay your taxes, there
is no way the client company could be responsible.

Most incorporated companies are required by state laws to have some
liability and workers comp insurance for their employees. Since you
will be the first employee of the company, you are covered by this
insurance. Once again, this isolates the financial risk for your

Lastly, incorporation is not always the easiest thing to do. Many
companies feel that independents who incorporate as a legal business
are more serious about what they are doing. The truth is, many
companies have been burned by amateur consultants who don't pay their
taxes and then blame their clients for their tax troubles.

Also, many companies saw what happened to Microsoft and Intel and are
not about ready to go through that. As you may know, MS and Intel
have been hammered by (in my opinion) greedy idiots who decided they
were employees. These idiots single-handedly ruined independent
consulting in many industries. Some high-tech companies will not
under any circumstances work with independents any more. You MUST use
one of their "approved" agencies.

So, I am afraid your stuck. Either incorporate or get an agency to
carry your contract. Some smaller consulting companies and agencies
will carry your contract for a nominal margin.

Call your state's corporation commission on Monday and ask them how to
incorporate. It is not as hard as you might think, but it depends on
your state. Some states are more difficult than others.

Oh, one warning. Do not set up a Limited Liability Corporation or LLC.
Go all the way and become an S corp. There are 1000 reasons NOT to be
an LLC, I won't go into all the details, but basically LLCs are
considered "suspicious" by the federal government. The pass-through
tax liability also makes basically nothing more than a sole-proprietor
with a fancier name. Larger companies will not accept an LLC any more
than an independent 1099 contractor.

Good luck.

Andrew Plato
President / Principal Consultant
Anitian Consulting, Inc.

---Keith Bennett <bennettk -at- EROLS -dot- COM> wrote:
> Hello Folks:
> I've got a great opportunity coming up to work with a software
> company to produce documentation, both print and online, for one of
> products. I spoke with the project manager of the company and things
> fine. One problem, however, was that he said I would have to be
> incorporated as the client for this project is the federal
government and
> suggested - no insisted - that I be incorporated to be paid as a
> subcontractor. I thought this very odd as I've never encountered this
> situation before in my contracting career. I've been reading Peter
> book on the subject and pretty much agree with him that there is no
> reason why I should become a corporation for this job.
> Is there? Is this the norm for federal government contracts? I would
> appreciate any and all thoughts on the subject.
> Thanks.
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