Companies do it for consultants because the costs to them are far less.

I tripled my rates if they wanted a source license (instead of $125/hr it was $375/hr), and added many hours for a clean implementation of everything if they also wanted to buy the copyright.

When faced with a bill that would be more than 10x what it could be for something a company did not see as their primary business, most decided they did not need source code or copyright after all.

My experience as a consultant was similar.

Occasionally I had someone who wanted to own everything because they were paying for it, but once I factored in the extra time to write a clean implementation of everything required, and my increased rate for time I would not derive any other benefit from they usually reconsidered their position and took my original proposal.

The ones I had problems with were always one of my salesmen agreeing to something extra without talking to me first. I penalized them heavily in other ways on the few occasions where that happened, but still needed to technically fulfill the contract (to the detriment of everyone involved.)

Looking a little bit more, it is not even 7 - 10 years. There are cases where the IRS did it after 30 and seized everything a retiree had (including garnishing social security.)

Wait... are you a sole proprietor trying to pay yourself with capital gains distributions?

If so, may I advise you to seek out a tax attorney in order to consider a settlement with the IRS where you go to them, and stop doing that right now before the IRS comes after you (you may get lucky, but they have 7 - 10 years to come after you, and they tend to do it towards the end.) I tried to do that for a while, and it cost me far more than I saved in taxes.

It is not legal, even with a couple of people in the business. You still need to pay the self employment tax and pay yourself as an employee.

Another piece of free advice is that CPAs are more frequently shady than not, but it is your ass on the line and not theirs.

While you are correct on the W-2 (easier to understand for most than the employer side they may not remember) you do not need the contract as an independent contractor (1099).

Not only does it default to copyright remaining with the contractor, even a line in your contract will not transfer copyright. You must specifically assign copyright in a separate contract with consideration for that contract in order for copyright to transfer. A contractor does not present a conflict of interest as you are effectively another corporation under law, and must be treated as such.

Some employers misclassify employees in order to save on costs, but should that go to court it will cause them major problems. Even if they win that opens the door for the employee to contest their filing status with the IRS and recover quite a bit of money that way (the self employment tax is not minor, there are penalties for the employer, and all other contracts the business has will suddenly be under IRS scrutiny for the same thing.) The threat of taking it to the IRS is serious to say the least.

What you say is true on a W-4, but you are incorrect on the W-9.

It was a movie, not a real case (a comedy named Liar or something like that if I recall correctly.)

That sounds more like slavery than employment, why would you put up with that?

I mean what could they possibly do... does he know where the bodies are buried or something?

It is not even possible transfer copyright by a clause in your consulting contract.

I was willing to sell the copyright in some cases, but would charge a far greater amount if you wanted to buy the copyright from me. Even buying a license for source code would increase that bill by at least 3x.

Usually it would be cheaper to hire someone if you need the copyright. It would be a little bit strange (and terrifically expensive) to use consultants for that.

I made a pretty good living for about a decade doing almost exactly that (although mostly those were not web sites.)

I would get paid to write all of the software to run their business, then go around to their competitors and sell it to as many of them as I could. I determined pricing partially by how many people I thought I could sell it to.

For an example that is not programming, look at the articles that get reprinted on Wired, Ars, and a bunch of other sites. This happens because the author owns the work. While Wired may pay someone to write it, the author is absolutely within their rights to then go shop it around to other sites.

If somebody pays you to as an independent contractor to write a book or produce a painting you own it. The person paying only gets a copy of the work, not the copyright.

If you are one of those cheap shops who illegally classifies employees as contractors to save a few bucks, externalize costs, and avoid employee protections you may want to reconsider that.

It is not zero risk for the contractor.

If they get hurt there is no workers comp, if you fail to pay there is no wages commission (they need to sue you on their own dime), they do not get sick days or vacation, limitations on hours worked, overtime, they pay the self employment tax, provide their own equipment, and generally do not get any of the benefits an employee would get.

The other side of that is that they own their work, and you must generally negotiate with them as if they are another corporation. The fact that most contractors are not aware of this may save you, or it may be that you just have not irritated them yet, and they will come back later to own your product and collect damages for your violation of their copyright.

The author is the copyright holder unless it was an employee (which in the vast majority of cases comes down to if they are paid on a W-2 or not.) Under very limited circumstances which are explicitly enumerated in law, rarely apply to programmers, and which require written acknowledgement, it can sometimes apply to contractors.

Usually even if there is a contract stating that the commissioner owns it they do not, and the contractor is still the copyright holder. You must specifically transfer the copyright in question to change ownership (a line in a general contract will not do this.)

You do not need to take my word for it though, I linked you a clear and concise explanation by the copyright office (http://copyright.gov/circs/circ09.pdf)

There is also the actual law: https://www.law.cornell.edu/uscode/text/17/101

And a supreme court decision from 1989: http://en.wikipedia.org/wiki/Community_for_Creative_Non-Violence_v._Reid

You can stare at that in disbelief all you want, but it does not change the facts.

You generally need to do something pretty heinous for a court to pierce the veil.

What the hell do you do that is is common in your life?

Also, I would not bother with a contract for a small amount, especially if I had already worked with the client.

If it went over 5k I would most definitely require one before I continued. No way would I let it get up to 1mil, that would be stupid.

What a strange point of view you have. Incorporating does a few things for you:

1) It prevents you from being personally liable if you get sued (although there are some additional limitations on this if you are a sole proprietor which do not affect corporations with multiple owners, and if you do something illegal they may be able to pierce the veil and go after your personal assets anyway.)

2) If someone tries to claim work for hire, the judge will dismiss the case immediately (it never applies between two corporations.)

3) Formerly, it meant clients did not need to send you a 1099 (although I believe this has changed.)

4) It cuts down on those asking you to sign an employment contract as part of your consulting work, as it is obviously inappropriate (needing to tell clients no less frequently is good.)

5) It allows you obtain an EIN and hire others.

6) A bunch of other minor things I am not going to bother listing.

You can claim the law is BS all you want, but it would be inadvisable to take that position in court.

If it is an employee paid on a W2 who shows up at the office every day and has their tasks and schedule set by the employer, the employer owns the copyright.

If it is a contractor paid on a 1099 who uses their own equipment at their own location, the contractor owns the copyright (even if there is a clause in their contract stating otherwise.)

If it is somewhere in between a court would decide if they are an employee or an independent contractor.

http://copyright.gov/circs/circ09.pdf