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Michigan - How do i prevent being considered a sole proprietor for my LLC? Michigan

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  • Michigan - How do i prevent being considered a sole proprietor for my LLC? Michigan

    i just formed an llc, and in the paper work it's manager managed, two people, one manager and one member. The client fears that my company will be considered a sole proprietor because i'm new and they are only hiring me. Is there a way to ensure my company is looked upon as an LLC to the state of michigan and NOT a sole proprietor? I have filed it has having two members, i would've thought that to be enough?

  • #2
    I'm not sure why your client cares? Do they think they will create an employment relationship when they want to pay you as a contractor?

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    • #3
      Are you also able to work for other clients doing the same and possibly competing work while under this contract? Are you actively marketing for other clients? You've obviously set up LLC paperwork. I would think you could then just provide them with a W-9 that had that information on it.

      I too suspect the client hiring you wants to make sure you legally fall under an independent contractor status vs an employee status and one of the major flags can be if you have ro have had other clients who are also paying you to do the same type of work.. If they are your first client, it's hard to prove especially if you are essentially working for them fulltime , plus some overtime each week.

      So it's not so much about the status of your company, but about their relationship with you. This seems to be one area where the DOL is cracking down on mistakes (intentional or unintentional) and this business looks to be protecting itself from a later claim that you were misclassified as an IC and should have been an employee.

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      • #4
        You are really mixing apples and oranges. If you properly formed the LLC under state law, it should be treated as a separate entity for state law purposes. Period. There is always a risk of piercing the corporate (LLC) veil for liability purposes if you don't respect the separate nature of the LLC such as by having its own bank account, etc. but that is fairly rare.

        A single member LLC, while respected as a separate entity for state law purposes, is generally treated as a sole proprietorship for Federal income tax purposes. That does not mean that the LLC is not legally an LLC, just that the IRS disregards it as a separate entity when determining the income tax treatment of the LLC.

        An LLC with two or more members is treated by the IRS as a partnership unless you elect to have it taxed as a corporation. Again, it does not affect the state law status of the LLC, only how the IRS treats it for income tax purposes.

        You say at one point there is a manager and ONE member, and at another point you say that there are TWO members. There is a big difference for tax purposes, even if the second member is the spouse of the other member. A manager is not necessarily a member, so saying that there is a member and a manager does not necessarily mean that there are two members.

        As both ferretrick and hr for me point out, it is possible and even likely that the real concern of the company you are working with is whether the relationship is characterized as an employment relationship or an independent contractor relationship. In that regard, there are many factors that the IRS (and DOL) consider, but whether you have an LLC bears essentially no weight. I wrote a short article summarizing the issue here: Independent Contractor or Employee?

        I hope this clears things up a little.
        David K. Staub (www.illinoisbusinessattorney.com)
        Forum posts are not legal advice, are for informational and educational purposes only, and are not a substitute for proper consultation with legal counsel.

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