When talking about your legal entity, you have to remember, that you have to think of your entity in TWO ways. The first one: PROTECTION! Think of sex, you have multiple ways to have sex; protecting your company is very similar. The second way to think about your business? Taxation! How the government will TAX you based on your entity. One is legal, one is tax, and sometimes, it is mixed, and sometimes it is only way way! Just like SEX!
We want you to issue your contractors (anyone you do business with) and have paid them more than $600, a W9 FIRST! When they get it, they complete it, then give it back to you. Then at year-end, you issue them 1099! Now you are compliant! Make sure to check out our "Forms" section for a W9 you can keep on file.
I get asked this a lot; I want to move my employees to contractors. In short, not once answer fits all, but as general a question this is, so too is the answer. In short, it boils down to Control! Think Domantrix Who controls who? The moment you control the independent contractor (hence the word independent), you lose. Also, it is based on all the facts.