CIA: LLC Formation and Independent Contractor Analysis Report

This report provides a comprehensive analysis of the Career Institute of America (CIA), focusing on its business structure and employment classification. The report addresses two key issues: the optimal business structure for CIA, considering its non-profit status and expansion plans, and the classification of its online trainers as either independent contractors or employees. Regarding the business structure, the report recommends forming a Limited Liability Company (LLC) due to its flexibility, limited liability, and tax advantages, referencing Delaware's LLC laws. The second part of the report examines the IRS 20-factor test to determine if the online trainers should be classified as independent contractors. The analysis suggests that the employment terms and conditions should clearly define the relationship with the contractors as independent, giving them control over their work hours, equipment, and work style to comply with IRS guidelines. The report references relevant legal sources and provides practical recommendations to align CIA's business practices with legal requirements.

To: Supervisor
From: Employee
Re: Career Institute of America, Inc. (CIA)
Date: December 6, 2016
Summary of Applicable Facts:
The CEO of CIA, is not happy with current business structure of being a
nonprofit corporation and is looking at a suitable business organization.
In consideration to the business objectives, we hereby advise them to
form a Limited Liability company (LLC).
Issues:
The key issues for the business currently relate to the formalities
pertaining to the organization, paperwork and high fee payable, making
it unviable. Since the company is planning to expand its operations, a
more flexible business organization is preferred.
Law:
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 change in the business structure. Section 18-101 of the
Limited Liability Company Act (State of Delaware 2016)provides for the
limited liability company interest as well as provides scope for
permissible indemnification from claims and demands whatsoever.
Analysis: Delaware has well-developed, flexible rules in relation to the
formation and operation of LLC as stated under the Delaware
corporation law (Fox Horan and Camerini LLP 2006) LLP provides its
members limited liability as well as flexible taxation, besides providing
contractual and management flexibility by making provision for the
appointment of managers and supervisors having rights and powers
therein.

MEMORANDUM-2
To: Supervisor
From: Employee
Re: Career Institute of America, Inc. (CIA)
Date: December 6, 2016
SUMMARY OF THE APPLICABLE FACTS: CIA specializes in training
students in auto industry where most part of their revenues come from
online training courses. The company is clear on hiring only
independent contractors on employment who do not want to be
construed as employees of the company
ISSUES
Whether the employees working at CIA fall under the category of IRS 20
Factor test, and whether they can be designated as independent
contractors instead of employees?
LAW
The IRS 20 test states (Oregon Government 2015) the extent of control
that the employer has on the work force determines the nature of
employment viz., independent contractors or employees. Further the
Voluntary Classification Settlement Program aims at proper
classification of employees. In order to classify the online trainers as
independent contractors it is vital that the agreement states, that
 The contractor shall be solely responsible for all taxes, social
security contributions and shall indemnify and shall not hold the
company liable for costs incurred
 The contractor shall have sufficient expertise, training and
experience to accomplish the services
 The contractor shall carry out the work during the hours specified
by him/her independently.
 That the relationship with the company shall be that of
independent contractor and shall not construe the company to be
its partner, agent or principal.
ANALYSIS
The employment terms and conditions should clearly specify the relation
between CIA and the contractors as the one that is independent where
the employer has minimal control over the day to day activities of the

trainers. Giving the worker control over- a) the hours of employment, b)
choice of buying equipment and materials and tools necessary to impart
training, c) giving the freedom to work at ease and will (Feig 2009) etc.,
will ensure that the agreement clearly establishes the relation of CIA
with its workers as that of independent contractors and not employees.
References:
Feig, ER 2009, Employee vs. Independent Contractor: Differences You Need to Know,
viewed 3 November 2016, <https://www.legalzoom.com/articles/employee-vs-
independent-contractor-differences-you-need-to-know>.
Fox Horan and Camerini LLP 2006, Memorandum on Limited liability Companies,
viewed 2 November 2016,
<
http://brazilcham.com/sites/default/files/documents/legacy/41328.39_@_brazilc
ham_memorandumonu.s.llc's_0.pdf>.
Oregon Government 2015, IRS 20 Factor Test – Independent Contractor or
Employee?, viewed 3 November 2016,
<
https://www.oregon.gov/ODA/shared/Documents/Publications/NaturalResources
/20FactorTestforIndependentContractors.pdf>.
State of Delaware 2016, Chapter 18. Limited Liability Company Act, viewed 03
November 2016, <http://delcode.delaware.gov/title6/c018/sc01/>.