Classification is the live risk
Consultancy & Professional Services Setup in the United States
A US consultancy needs no licence. Its biggest exposure is how it classifies the people who do the work.
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Getting classification wrong is expensive
Treating someone as an independent contractor when the law regards them as an employee creates liability for back taxes, unpaid benefits and penalties, and some states apply a test so strict that most contractors fail it. For a consultancy that engages associates or subcontractors, that is the central risk — more consequential than licensing, which for most consulting work does not apply at all.
- Classification tested against the rules in each relevant state
- Contractor documentation and reporting handled properly
- Professional licensing checked where the occupation is regulated
Mainland, free zone and offshore jurisdictions we file in — so the recommendation is based on your activity, not on which authority we happen to be registered with.
Companies successfully established.
Understand the risk
Worker classification in practice
The test varies, and some are strict.
| Question | Position |
|---|---|
| Who decides classification? | The law, on the facts — not the contract label. |
| Is there one test? | No. Federal and state tests differ. |
| Are some states stricter? | Yes, materially so. |
| What if we get it wrong? | Back taxes, benefits and penalties. |
| Does a signed agreement protect us? | Not by itself. |
| Is reporting required? | Yes, annual information returns for contractors. |
Classification tests differ between federal law and individual states and change, and some states apply a notably strict standard. Specific classification questions warrant US counsel. We handle US formation and compliance set-up and co-ordinate with US tax, regulatory or litigation counsel where advice is needed. We do not give US tax or legal advice.
How it works
Setting up the practice
Classification, then structure.
Assess how you will resource work
Whether the people delivering the work will be employees or contractors, and whether that holds up under the tests in the relevant states.
Set up the entity
Company formed, registrations completed and contractor or employment documentation prepared accordingly.
Operate
Bookkeeping set up for contractor reporting, payroll established where employees are engaged, and insurance arranged.
- What services you provide
- Whether the occupation is professionally licensed
- States where your people will work
- Whether associates will be contractors or employees
- How much control you exercise over how they work
- Whether they work for other clients
- Whether they provide their own tools
- Whether they bear financial risk
- Expected fee income
- Whether clients are US or overseas
- Professional liability insurance requirements
- Whether you will have US employees
Scope
What is included, and what is not
Stated plainly, so nothing is added once the engagement starts.
Included in the service fee
- Classification risk assessment by state
- Entity formation and registrations
- Contractor or employment documentation guidance
- Contractor information reporting set up
- Professional licensing requirements identified
- Payroll set up where employees are engaged
- Bookkeeping and tax calendar
- Referral to US counsel where classification is borderline
Not included, quoted separately
- State and federal fees, paid at cost
- US legal and tax advice
- Formal classification opinions
- Professional liability premiums
- Professional licensing credentials and examinations
- Contract drafting by counsel
- Marketing and business development
- Payroll processing unless quoted
Verify independently
Relevant US authorities
We file directly with these bodies on your behalf.
Questions
US consultancy setup — FAQs
Can I engage associates as contractors?
Sometimes, but it depends on the facts and the state, and some states apply a test that most arrangements fail. It should be assessed rather than assumed.
Does a contractor agreement settle it?
No. Classification turns on the substance of the relationship, not the label in the contract.
What happens if classification is wrong?
Liability for back employment taxes, unpaid benefits and penalties, potentially across several years. It is the main financial risk for a consultancy here.
Do I need a licence to consult?
For general business and management consulting, no. Regulated occupations are licensed by state boards, and we check whether yours is.
What reporting applies to contractors?
Annual information returns for reportable payments. Missing them is common among overseas-owned businesses and carries penalties.
Go deeper
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