AB-5 and LLCs: CDP Provides a Workaround for Independent Contractors

Jane Matthews built a successful business as a video and movie script writer while homeschooling her nine-year-old autistic daughter and shuttling her 15-year-old son to his accelerated science classes at the local college. Her husband’s sales job means that he travels frequently and is unavailable for day-to-day help with the family’s routine. The flexibility of Jane’s home-based business is what makes this all possible, and now she’s in the direct line of fire from AB-5.

Women may have the most to lose when it comes to AB-5

Women tend to be most in need of the flexible hours that draw them to independent contractor work. For those juggling caregiving and a heavy load of unpaid household work, running a business from home instead of commuting is often the only way they can get everything done. Job flexibility allows them to care for family while pursuing careers and generating an income.

The strategy behind AB-5 is that companies will hire their independent contractors

The new California labor law, AB-5, meant for companies to hire their independent contractors as full-time employees, is being met with heavy opposition. The bill’s sponsor, Assemblywoman Lorena Gonzalez (D-San Diego), tweeted that under the law “if you are a true independent proprietor, you can still operate as one.” Yet that’s not happening. California writers who bid on national projects are being blackballed.

What were they thinking?

While Governor Newsom was a proponent of the law for its efforts to address income inequality, and he signed it into law, we’re left wondering if they really thought this through. An estimated 37% of American workers are independent contractors. Newsom talked about creating collective bargaining and other ways to start raising worker wages. While wage inequity is bringing this country to its knees, putting people out of work cannot be the solution.

Many choose independent contractor status for the flexibility it affords

While many independent contractors would love to be hired as full-time employees to start accruing healthcare, retirement and vacation benefits, many others, like Jane Matthews, choose to be an independent contractor for the flexibility it affords. The list of professions that have traditionally and still are working independently is a long one. Some are familiar, others obscure. Many stand to lose their livelihoods. Think musicians, horse trainers, hair stylists, massage therapists, the people who give piano or ballet lessons to your kids. Churches and nonprofits. A wide range of consultants who are hired for a specific purpose, often for a specific time window. Many seniors who pick up part-time jobs to supplement their social security income will be hurt by this law.

One potential solution: Creating an LLC

CDP is assisting independent contractors in creating LLCs as a strategy to get around this bill. By forming a corporation, workers can retain their independent status—and potentially avoid losing work.

• LLCs have become popular because they have fewer formalitiesthan other corporate structures, yet they still provide liability protection.
• Forming an LLC is straightforward. In California,the filing fee to form an LLC is $75, which is included in our fee.
• An LLC includes an annual$800 franchise tax, and you also will need to get a business license.

Do you have questions about forming a corporation? Contact us today for more information or to schedule an appointment. 

Lawmakers promise changes to address worker concerns

California Assemblywoman Lorena Gonzalez continues to defend AB-5, insisting that its intention is to protect those workers who need it the most. Now just a few months into the new year, the law continues to be challenged. Freelance journalists, Uber, Lyft and truckers, among other groups, are involved in litigation.

California Document Preparers is a local Legal Document Assistant firm and we have assisted with organizing small businesses’ LLCs since 2004. We would be pleased to be of assistance.

We charge $599 for our LLC services, which includes:

• Articles of Organization filing
• Operating Agreement
• Statement of Information
• EIN Assistance
• Company Kit

We guide our clients through the Business Formation process and prepare the legal documents. We prepare and file the Articles of Incorporation with the Secretary of State. An LLC can be one or many members—making it ideal for independent contractors. We’re helpful, compassionate and affordable. Schedule an appointment today at one of our three Bay Area offices.

Facebook’s Charity Foregoes Traditional Nonprofit for an LLC

California Document Preparers is working with a lot of business owners these days who are upgrading their business entities. Their Sole Proprietorships served them well for the first few years, but as they’ve grown and hired a team, leasing office space in some cases, they’ve become very aware that they need a more robust business structure. Many are choosing LLCs—they offer the tax and liability

advantages of a corporation, but provide more flexibility and less paperwork.

Getting it right when you have $46B to give away

When Facebook’s Mark Zuckerberg and his wife, Priscilla Chan, decided to donate 99% of their fortune to charity, they didn’t create the usual foundation with its significant tax advantages; instead, they created an LLC. This is a highly unusual way to structure a charitable gift of an estimated $46B. Yet, as you read below, it becomes clear why they chose an LLC rather than a more traditional foundation—it would have been far too limiting!

1. No limits on lobbying. The Chan Zuckerberg Initiative will put money to work in politics. Zuckerberg wants to be involved in helping to create policy and shape debates—if they’d set the foundation up as a 501(c)(3), they would have been excluded from any kind of political activity.
2. The Chan Zuckerberg Initiative can actually turn a profit. While profitability doesn't appear to be the aim of the new LLC, if part of the Facebook fortune ends up invested in something that makes money, it won't run the risk of breaking IRS rules governing tax-exempt entities. Additionally, any money that is made will be used to further the mission—whatever that may be.
3. It will be easier to do joint ventures. Let’s face it—Zuckerberg is a pretty connected guy, and he’s in an excellent position to build businesses alliances with other organizations. Traditional charities can be difficult partners for the private sector because there are restrictions on how a private foundation can do a joint venture with a for-profit company. By becoming a corporation, they are removing any potential barriers to forming relationships that could be beneficial.
4. Avoiding the 5 percent rule. By using a corporate structure, Zuckerberg is avoiding a rule about having to give away 5% of a nonprofit foundation's value every year. The Chan Zuckerberg Initiative can spend at the pace that makes most sense for the problem they’re trying to solve or the strategy they’re pursuing at the time.

Are you considering upgrading your business entity to a corporation? Stop in at one of our Bay Area offices to get started. We’re here to assist you.