Is it possible to have a independent-contractor coop? We are looking to convert into a coop and have run into this legal grey area of contractor vs employee. It looks like coops are only for employees.
I think it depends on what you mean by coop. I will assume that you mean that all people doing work on behalf of the coop have an ownership stake and somehow share in decision making.
Assuming you're organized as an LLC, I think the key is whether you're taxed as a partnership or as a corporation. If you're taxed as a partnership I am certain that you have to pay any owner as a "guaranteed payment" or something like that, I couldn't pay myself on a W2 when I organized it that way. You have to send a form to each owner showing their share of the profits and losses, guaranteed payments (i.e. salary), and then instead of the LLC paying taxes at all, every owner pays a share individually.
If you're taxed as a corporation, I believe you can just pay yourself with W2's and the company has to pay taxes separately.
Of course, you can always democratize decision making and share profits as bonuses even if it's a sole proprietorship with regular employees. Either trust based or by contract or operating agreement.
I think the main logic people use when deciding how to be taxed is that if you share profits and losses directly on taxes, all the owners can theoretically write off losses and other things business related. But it then makes everyone's personal taxes harder, so it's kind of a choose-your-poison situation.
I've found the trickiest bit is basically deciding how to decide. Does everyone get an equal vote? Do people need to "buy in"? Work there a year before they get voting rights? Do people get more from a contract if they find the lead and are the project manager for that customer? How do they entice other contractors on the team to help?
