I recently started a clothing company. I have a couple of my friends promoting my label, and for each shirt they sale, they get a percentage. Basically, they're affiliates. I want to know if this is legal, or do I have to get a license to do this? Are they considered employees? Or independent contractors? What actions should I take to make sure I'm doing everything right?
If you are in the US, you need to report all of their earning of course. You can pay them as independent contractors, which would take all tax liability and responsibility off of you. All you need to do then is track their earnings for the year and if they earn over $600, you need to file a 1099 form with the government and send to them. They then will have to pay all federal, state and local taxes. And yes, it is legal. Basically, it is offline affiliate marketing.
Thanks so much! Also, I have one more question: I am 17 years old. Is there any way I am able to legally register the company in my name? Would I then be able to apply for an EIN, bank account, and file the 1099s? If not, would my parents be able to do all that until I'm 18? I'll still run the business.
It would need to be in your parents name for now since any contract that you would make would not be legally enforceable either way for you. Your parents would have to have the bank account in their name or the business name for now. A good way to go to start out is just running it as a sole proprietor. This way, the costs are basically 0 to start out since you don't really need to file anything actually. As a sole proprietor, you don't even need a DBA or fictious name filing if your last name is in the business name. Say your name is John Smith and you call it Smith's Clothes. You wouldn't need to file anything in order to be in business legally. All you have to do is report all income at the end of the year of course. And when you turn 18, the best thing to do is incorporate. That will lower tax liability and give you access to many tax breaks and deductions. Then, you will have everything in your name and your business will actually have its' own EIN # and everything. You can apply for corporate credit cards and loans all under your business name and if you have good assets when you start, it will be even easier. When you incorporate though, talk with an accountant, as everything business related needs to be separated from personal use. You have to be really careful with that. Wow, that was a lot to type but I sure hope it was helpful. Feel free to hit me up with any other questions. I have taken lots of Accounting classes in college and know a good bit from running my own corporation. Take care and good luck with your business.
Sure, not a problem. If you have any questions regarding legal issues, I am pretty knowledgeable in these areas just from all my experience. Plus, I am a pre-law student currently, so I love pretty much anything having to deal with the law.