In order to retain their independent contractor status and avoid losing income, some workers are forming LLC’s and establishing themselves as a separate business entity. In fact, the California secretary of state’s office reports that LLC registrations increased 5.71% from 2018 to 2019. AB-5 could be a factor in this increase as more contractors attempt to qualify for the business-to-business exemption. In addition to being a possible way of sidestepping the effects of AB-5, registering as an LLC can also help gig workers protect themselves and their assets by limiting their personal liability.
That said, there’s a chance that creating an LLC alone is not enough to skirt AB-5’s restrictions. The biggest hurdle for these new LLC’s to pass is proving that they are performing work that is different from the hiring entity. For instance, a court can easily find that a freelance writer is doing the usual work of a media company by submitting similar content to what is being published.
Some media companies have taken more clear cut measures for AB-5 compliance, including not hiring any California-based independent contractors and/or converting contractors to employees.
Forming an LLC is an easy way to protect one’s assets and limit personal liability. An LLC (or Limited Liability Company) can also be a useful business structure to set up because they tend to have less corporate governance requirements compared to other entities. If you are thinking of forming an LLC as a way to bypass AB-5, it is recommended that you talk to a lawyer.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.