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Can a person receiving a share of profits for services be labeled a contractor?

Los Angeles, CA |

I'm starting a new sole proprietorship in California. I have an IT specialist who's agreed to provide his services (website coding) in exchange for a share in profits. He does not hold decision making rights or rights to assets. He works with his equipment on his own time, in a different country (Japan). He does not receive any guaranteed wage or salary. Also, he is working full-time with a different IT company.

Having no guarantee of pay, can he legally be considered a contractor?

Also, does this type of agreement open me up to some liability risks since I'm running a sole proprietorship (as opposed to an LLC or Corp)?

Thank you!

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Attorney answers 2

Posted

Your IT specialist *can* be considered an independent contractor, but you need to have the appropriate agreement in place to establish the contractor relationship.

The reason such an agreement is essential: Once you agree to split profits with the IT specialist, he is presumed, under CA law, to be your partner! You need an independent contractor agreement to overcome this presumption.

This issue is discussed in the post at the link below.

This information does not constitute legal advice and does not establish an attorney-client relationship.

Asker

Posted

Got it. Very clear and concise article and EXCELLENT CAVEAT. Thank you sir!

Posted

Sure he can. He's not a employee but rather like a commission salesman except that his commission is based on profits, not sales. As to risks, you have all the risks as a sole proprietor. Can't much help or change that unless you change your form of busness.

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