I recently learned that four out of five businesses in the United States have no employees. To me this was a staggering, and surprising statistic. One of the most common metrics of business is the size of their employee base. Clearly, this metric does not make sense for 80% of the businesses in this country.
Businesses without employees have unique challenges and opportunities. Businesses without employees may rely upon technology to a greater degree. As such, those businesses may have greater flexibility to respond to the market differently and with greater innovation.
Even with the rise of Artificial Intelligence and other technological solutions, most businesses still need staff. Those businesses without employees are required to leverage human capital in less traditional manners. The primary ways I see this is by increasing talent within the ownership of the business or through the use of independent contractors.
With respect to ownership inclusion, this can be a fantastic way to ensure the business is capturing all of the attention and enthusiasm of the individuals involved. There can be challenges with the direction and control of the business, however. In such circumstances, we recommend strong and clear documentation of rights and responsibilities. In the case of an LLC, this will be an Operating Agreement. In the case of a partnership, it will be a partnership agreement. In the case of a corporation, it will be bylaws and a shareholder agreement.
With respect to independent contractors, businesses should know that these are moving targets. The federal government has signaled a greater appreciation for independent contractors in some recent regulations. However, recently several states — primarily California — have essentially eliminated the ability for a business to have independent contractors. Under the so-called ABC Test, it is nearly impossible to satisfy the required criteria to classify a worker as an independent contractor instead of an employee. This is one more reason that businesses are (and should continue) leaving California for Nevada.
I have previously written extensively about independent contractors and the best manner to document that relationship. I would encourage you to review those articles.
Each business is unique and has a variety of tools to succeed. A business can have creative ownership structure; independent contractors; and employees. Many businesses use all of these tools. As always, Gordon Law is here to assist you with finding and using the right tools for your business.