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Key Topics
Requirement
Research two areas of law and prepare a memorandum addressing each area.
Solution
To: Supervisor
From: Employee
Re: Career Institute of America, Inc. (CIA)
Date: December 6, 2016
Summary of Applicable Facts:
The Career Institute of America Inc was formed as a non-profit corporation under the Delaware of the ‘Non-profit association Act.' It provides online and classroom training to students. The revenues are generated from the fees paid by the students. The company has also received a one-time grant from the U.S. Department of Labor that is made available to non-profit organizations. The liability is unlimited. There are several other things that require the status to be reconsidered.
The training courses at the CIA are currently conducted by independent contractors who are not under regular employment in the organization. A clear agreement has been signed but. It does not stand up to legal scrutiny, and this requires a solution to this problem. CIA now needs to communicate to its instructors that their status is that of the ‘independent contractors’ and not that of ‘employees.'
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Issues:
The key issues for the business currently are:
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What is the most appropriate form of business organization for the CIA?
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How can the contracts reflect the status of instructors as independent contractors and not that of an employee of the company?
Law
Business Law
The current laws relating to ‘The General Corporation Law’ is designed to provide the ease of carrying out of business, change the status of the existing business and also allow the change in the business structure. Business owners who want to incorporate their businesses in Delaware may do so by registering as Corporations, Limited Liability Companies, Non-profit associations or as Professional service corporations. Other than the above options, there is sole proprietorship or partnership. If all business owners want to protect their personal assets from being used to pay business debts, ‘Limited liability’ is key to protecting the interests of all business owners. If in a circumstance where the business lacks funds to pay off company debt, or creditors, a lawsuit, the owners cannot be held liable for the same.
Independent Contractor Law
What differentiates the status of an employee from that of an independent contractor’ is in relation to the extent to which the employer has control over the means and method and the process of completing the work. An independent contractor determines how the work has to be done whereas; an employee is guided by an employer in regard to performing the job. Employers are required to pay payroll taxes, provide unemployment insurance and workers compensation benefits for the employees. Independent contractors are governed by their own working hours, paying their own income tax, employment taxes and providing for their benefits. (NIFB 2015)
Analysis
Business Organization
CIA should utilize a different business format. The company earns its revenues on the fee basis which is not meeting the criteria of non-profit as the non-profit cannot make its earnings like this. CIA may, therefore, choose to organize its business as a Limited Liability Company or a Corporation under the Delaware corporation law (Fox Horan and Camerini LLP 2006). This is because of the reason that the CEO will benefit from its Limited Liability protection. He will not have to pay the debts from his personal assets, and only the company's assets can be used to pay out the debts and liabilities. The company can register by filing its Articles of Incorporation and have their owner’s draft bylaws (in the case of a corporation) and Articles of Organization along with an operating agreement (in the case of LLC). This details the duties, responsibilities, and powers of officers, owners, corporate shareholders, LLC members, managers, and the board members. This also involves a certain amount of documentation and filings as required by law.
However, considering the ease of business and flexibility in matters concerning taxes, the appointment of managers, etc., it is recommended that an LLC would be a better option for the CIA. In the case of a corporation, formalities such as holding annual and other scheduled meetings of the board of directors, shareholders or officers have to be complied with. Similarly, under IRS Tax Code, (IRS 2016) a corporation can be doubly taxed unless Sub S status is elected, as the corporation is taxed based on the profits it earns, and the owners, shareholders are taxed based on the profits they earn. In the case of an LLC, there are no obligations placed on the company to hold regular meetings, or on the shareholders. In the case of an LLC, the owners have the flexibility to manage business and taxes. Profits are taxed only at personal income tax level without selecting Sub S Status, (Toolkit Staff 2008) which involves restrictions on ownership and the need to complete annual K-1 filings.
Independent Contractor Contracts
The CIA contract must clearly stipulate the fact that it does not control the means by which the instructors complete their work for the organization. (Oregon Government 2015). However, the CIA can specify the choice and standard of material to be used for training, and thereby indicate that the independent contractor is given a free hand to determine how the job requirements are met. The contract agreement should also indicate that the instructors are free to pursue employment with others while working with the CIA, as long as they are fully able to meet their CIA job requirements (FLSA). The Fraud Act describes independent contractors like the one who is customarily engaged in an independently established trade, occupation or business. (Reibstein 2015). It is vital for the company to specify the following terms before employing trainers as independent contractors. This is required because the current agreement does not meet the legal scrutiny. For making the agreements legally enforceable, contractors are required to be appointed who will do the following:
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The contractor shall be solely responsible for all taxes, social security contributions etc.
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The contractor shall have sufficient expertise, training, and experience to accomplish the services
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The contractor shall carry out the work during the hours specified by him/her independently.
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That the relationship with the company shall be that of the independent contractor and shall not construe the company to be its partner, agent or principal.
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Place Your OrderReferences:
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Feig, ER 2009, Employee vs. Independent Contractor: Differences You Need to Know, viewed 3 November 2016, .
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Fox Horan and Camerini LLP 2006, Memorandum on Limited liability Companies, viewed 2 November 2016, .
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IRS 2016, Corporations, viewed 10 November 2016, .
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NIFB 2015, NFIB Guide to independent contractors, viewed 10 November 2016.
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Oregon Government 2015, IRS 20 Factor Test – Independent Contractor or Employee?, viewed 3 November 2016, .
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Reibstein, RJ 2015, The 2015 White paper on independent contractors, viewed 04 November 2016, .
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State of Delaware 2016, Chapter 18. Limited Liability Company Act, viewed 03 November 2016, .
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Toolkit Staff 2008, LLC Electing S Corp-Best of both worlds, viewed 10 November 2016, .
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