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I am aware that some companies are reluctant to directly hire unincorporated independent contractors for shorter-term software engineering projects.

What happens is that instead they engage the services of the staffing agencies, where they pay 100–200$/hour to the staffing agency, which in turns pays the people it finds more like 50–100$/hour.

Do you have more corporate doors open once you incorporate? E.g., once you are the President, Owner and Lead Software Engineer at XYZ LLC, will you magically be able to get extra reqs from top companies that aren't posted on their web-site, and submit the services of your company for consideration in fulfilment of such requisitions?

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I find this question really difficult to answer because it's really a 'yes' and a 'no'. Yes, you can get work with larger companies because often large companies and agencies will only work with companies and simply won't hire individual freelancers anymore. This is purely for tax/legal reasons as others have explained. And 'no', because the fact that you have a company won't automatically lead to more work with larger organisations. You will still need to do the footwork, create contacts, sell your services. The question whether you have a company often only comes up right at the end, after they've decided whether to hire you.

To compound the situation, if you want to work for really large companies, they'll often want to see your turnover for the last few years and how big your team is, so those kind of contracts won't be within reach at this stage.

Having said all that - are you worried about creating a company? It's generally very easy and the costs involved are low. Perhaps if you look at it as a legal vehicle to run your freelance work rather than owning a 'company' it will remove some of the obstacles. Good luck!

3

You have the ability to get into more opportunities when your business is registered as a corp or LLC, because it removes a threat of liability (for paying statutory employees under-the-table) for the customer.

However, nobody's going to beat a path to your door other than the recruiters. If your credentials are solid and in a "hot" field, your phone will ring off the hook with potential opportunities (but they're taking a cut!). Whether new potential opportunities come in through the recruiters or you find them through marketing yourself, you've still got to prove yourself in either scenario. And both approaches cost money, there's no getting around that.

  • 1
    While I agree that incorporating/LLC helps separate the business liabilities from the personal liabilities, there isn't any correlation that said liabilities would deter a potential client from hiring you, or your subs, or employees solely because your personal assets are potentially protected. The only people who truly give a hoot whether you're incorporated and/or LLC is the bank, and the IRS. – Kris Jul 22 '16 at 23:33
  • And every state in the US trying to get their taxes at the end of the year. I've been consulting for 20 years and my experience is that if there's any serious coin changing hands, a company should know better than to take the risk of having to pay taxes for an un-incorporated contractor who doesnt pay his/her tax bill. – Xavier J Jul 23 '16 at 4:36
  • Well, it's not always crystal clear. The IRS even states there is no one standard answer for defining between employees, statutory employees, and sub contractors. At any rate, I'm beginning to think the OP's question is too broad. "Success" is a very interesting word to define. – Kris Jul 23 '16 at 12:28
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Yes, it should.

If you are not incorporated, then the company that is hiring you as an independent contractor can subsequently end up being sued for misclassifying their employees as independent contractors, resulting in all sorts of legal uncertainty if it were to happen on a sufficiently large scale, plus might end up having to cover your self-employment tax for you (to your benefit, but to their loss).

Additionally, they will also no longer have to worry about issuing 1099 forms for you, which are only required when a business is paying an individual, but not for business-to-business transactions.

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No, there are no additional doors opened by owning and/or working under an LLC or corp. There is no benefit to the client if you are an LLC or corp because you are still a person and you are performing the work personally.

For instance, marketing yourself as the owner, CEO, or whatever of your single-member LLC or sole proprietor corp is quite silly unless your clients are looking for a bookkeeper. They are hiring you because of your trade skills.

wrt: recruiters, in my field (software developer) there are a non-zero fraction of reqs that specify 1099 / W-2 only. This may be the same for you. Owning an LLC/corp will not benefit you in these contracts as you will have to work as an employee or sub of the recruiter.

0

An LLC is not a corporation, but that's beside the point. An LLC and INC are both registered with the State and Federal databases. From there your business entity is public for all to view. Sadly, this opens the doors for mass solicitations that target naive business owners. So, in short yes it does open doors but for all the wrong reasons.

  • It should be noted that being registered with government bodies also lends credibility to the business venture. It shouldn't be seen as a "reference" or anything remotely of that nature, but it does provide legitimacy. – Scott Jul 21 '16 at 21:45
  • @Scott, the main issue of being registered is that it most likely removes the likelihood that the government will sue the employer for misclassifying W2 employees as 1099 independent contractors. – cnst Jul 21 '16 at 21:52
  • None of the above. The whole point if registering is so the gov can follow up on your taxes – Kris Jul 21 '16 at 21:54
  • @Kris, quite the opposite, actually. Once you register, there's no more 1099 to wait in the mail for. – cnst Jul 21 '16 at 22:43
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    This doesn't answer the question. – Xavier J Jul 22 '16 at 16:57

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