Slashdot Mirror
Shell Companies for Contractors?
dubl-u asks: "What do my fellow freelancers feel about the various shell companies out there? I've got a chunk of work coming up at a place with an especially persnickety contracts department, and I'll probably need to go through a third-party shell company. I used one a couple of years back and they were ok, but there are a lot of them out there, and I'd love to hear about real-world experiences before I sign up. For those unfamiliar with this part of the business, it goes like this: I find my own work; the shell company hires me as an 'employee' and handles my billing and tax withholding for me. Some also 'provide' things like health insurance and 401k plans, although I have to pay for it. You can think of it as outsourcing a lot of the paperwork of being a freelancer. Some outfits, large companies especially, demand this sort of thing."
If they could offer inclusion into one of those categories, it would be a pretty big advantage in bidding on some projects.
"It was a summer's tale: Just a boy, his Linux, and a head full of dreams..."
In most states it is easy to incorporate. Maybe $150 if you do the paperwork yourself.
Then they are doing business with a corporation and you might be saved the cost of dealing with the shell company.
Actually, many large companies (including mine) are even more restrictive-- not only do they require a contractor to work for a shell company, the shell company needs to be on a (usually short) list of approved vendors.
Forming your own shell doesn't solve this...
On a 1099, no more than 10%.
The ones I've looked closely at, ZeroChaos.com, MyBizOffice.com, and PACE all charge less than that. ZeroChaos is very vague about their fees, but they quoted me $300 per month per active client. MyBizOffice charges 4% for the first $125k in billings and 1.5% after that. And PACE charges 5%.
I don't think any of them will do a 1099; they all seem to do W2s, and of course all of the taxes come out of my share. At least one of them has an intriguing lease-back program, where I buy the equipment I want, lease it to the shell company, and then they deduct the leasing fees from my inccome. I believe this is a dodge to get the same tax benefits for capital goods as working on a 1099.
I did this w. Kelly Technical Services a few years back. I had the deal all worked out with the client company, and then contacted a number of shell companies to negotiate who I'd go through. Except for a brief period when they had an idiot working in the office (a problem which they quickly corrcted) they were quite reasonable.
A friend of mine used (IIRC) "T. H. Yoh" and liked them as well.
The market has changed a lot in the last five years, so YMMV.
-- MarkusQ
Some will also provide pensions/holiday pay, but I've been happy working with the concept that I get paid for what I work. It makes for some lean times (e.g. Christmas) and some gluts (I've done a 7 day week before) but effectively balances out.
It's a simple way of working, as you count as a normal employee in most ways which simplifies tax.
If you turn the tables and sell a "product" instead, you will avoid the contractor's ball of wax but arrive at a different set of problems instead. You won't get paid until the product is delivered (probably 30+ days after the product is delivered - purchasing departments sometimes specialize in pushing every term to its limit) and you will have a different set of purchasing hurdles to overcome. I happen to think that in many cases the "selling a product" road is superior - especially for a project you know can do in firm fixed price/firm fixed terms - but look closely at the disadvantages before jumping. Tim.
Why should an american company hire an american contractor. They can have the same kind of skills for far less money hiring a contractor in India...
There are a lot of reasons. Most of them boil down to the advantages of physical presence, which provides high-bandwidth, low-latency communication. Others are primarily social.
There are times when outsourcing can make sense. If you have a clear spec and people can implement it properly without asking any questions, then sending the work off can work. But this contract includes analysis, design, construction, and training in a short-cycle iterative process. Outsourcing that to another timezone is impossible.
Hint to those worried about their jobs: standard software practices don't take proper advantage of physical colocation. Adopt a process like Extreme Programming, which does, and you'll have a business advantage that can't be matched through outsourcing to Outer Slobovia.
A very good point. It's not clear from the original post if the opportunity requires going through 1) a 'shell company' (i.e a corporate entity) which provides a level of legal protection etc. to the client or 2) an 'approved vendor' (often referred to as a 'contract house' or 'body shop') and is the preferred, and sometimes only, way to provide services (for which you will be paid) to the client.
If the answer is 1, your options are many up to and including setting up your own company. If you are not interested in the hassle of paperwork and administration, there are companies out there ('shell companies') that will allow you to offload all of this for a fee, depending on what services and features you require.
If the answer is 2, your options are more limited as you are essentially limited to the client's list of approved vendors which can be anywhere from a few to dozens. In this scenario, short of forming a meaningful relationship with the company that you contract through, go for the best financial deal you can get since the engagement will last only as long as you are able to balance the interests of yourself, the company you bill through, and the client.
In either scenario, be cautious entering into a salaried vs. an hourly or fixed price agreement as you are providing everything (a customer in need of a solution and the solution) that matters in this transaction.