Is it legal for a company that currently pays me as a 1099 contraactor to refuse to pay me as an LLC?
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Is it legal for a company that currently pays me as a 1099 contraactor to refuse to pay me as an LLC?
In the process of expanding my independent consulting business I have registered an LLC in order to give my business a brand and in order to protect my personal assets. When I approached the company to request that they start paying me in the name of the LLC, they flat out refused. Is this legal? What are my options?
Asked on May 29, 2012 under Employment Labor Law, California
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 11 years ago | Contributor
It is completely legal. Remember: there is no obligation or requirement that a company contract with or employ any given freelancer, independent contractor, or other business at all--they decide for themselves who to work with. They are completely free to decide whom to hire or contract with, and are equally free to put conditions on their employment of others--such as that they will only pay to a person, using his/her social security number, and not to an LLC, using its employer ID number.
By the way, there is at least one good reason for doing this: contracting with and paying you as a natural person (i.e. on a 1099 basis, but in your name, based on your SSN) means that in the event of some tortious act committed by you, a breach of contract by you, an overpayment to you which they want to recover, etc., they could proceed against your personally. However, if they contract with and pay your LLC, for many cases, their only recourse would be against the LLC itself, not you personally. Since if your LLC does not have significant assets, you could easly just walk away from it, dealing with the LLC, not you, reduces their recourse.
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