1. Item 1: ease of billing: I do not see a significant difference in ease of billing whether you ar an LLC, S, or DBA. Remember, the issues I raised had to do with the benefits of incorporation verses remaining a DBA or contract employee paid on 1099.
I am getting confused to exactly what your relationship is with the red cross. You started out saying in the begining, a contract employee, and then wanted to know the benefit of forming a corporation as the best way of doing things. In some circumstances it is a mute point, because of the exact nature of the relationship with the Red Cross as employer.
Here is the IRS interpretation of the relational issues with regard to your employment status. http://www.irs.gov/businesses/small/article/0,,id=99921,00.html
You can be an independent contractor to the Red Cross, where the Red CRoss is paying you; or you can be authorized to teach the classes where you contract with your own customer base. There is a difference.
However it is done you can still bill.
2. Not sure I understand this statement. If the university limits number of hours they will pay, I would think it would not matter if they were paying hours worked by an independent contractor, sole proprietor or DBA, or number of hours based rates for contracted LLC or S corp. I do not get how this would matter. If any form of business, they can work as many hours as they like, but will that increase the hours for a contract for which she is paid. This does not make since to me. It would not matter if you were any of the busiess forms; if you are allowed to contract work indpendent of the red cross or the university, you can contract as many clients as you like. It only matter if you are an employee of the red cross or an employee of the univercity. If the university and the red cross control the number of hours work, unless as part of a signed contract, then by definition, you may actually be an employee, required to be paid on W-2. Check out the definition and discussion provied at the link above.
On the other hand....if a person is personally employed by the univiersty, then the university may have an issue with regard to moonlighting rules, that prohibit them from hiring her personally to do a job. But, the university could pay the red cross who could pay her; But if she gets a seperate tax ID number and operated as a DBA, they would be hiring the named business, not her to do the job. Unless there were something quirky about the University rules, that would require them to hire a business name that is a corporation of some kind. But I not sure that would be the case. If it is, then in this instance, I guess the corporation is forcing someone to incorporate; but my guess is, that unless someone in the business office is not clear about the regulations, the univerisy could hire a business name.
Special NOTE: regardless if it is a DBA, LLC, or S, if the university is concerned about conflicts of interest, then any business form, where she is a 50% or higher owner, would cause conflict of inteterest; where the equal or majority owner was also an employee of the university.
3: Z's S corp: Regardless of how you conduct business operations, you are able to write off all business expenses related to the work. The only thing that changes in this regard is the form used to do that. AS a DBA, or sole proprietor, or for income reported on 1099 for work performed as a photogropher, artist, or CPR instructor, you would be able to write off all related expenses including home office and vehicle use on schedule C: http://www.irs.gov/pub/irs-pdf/f1040sc.pdf
As I previously discusses, forming an S corporation as a single owner or even as not, does not gaurantee protection from personal liablity. Remember the discussion about piercing the corporate vail, and the issue that corporate officers can still be held responsible for the things they have direct control over. As a single person S or two person S or LLC, you would be held as the responsible officer for most transactions. About the only way to ensure those kinds of protections, to the greatest degree, your one or two person LLC or S would have to have a 3 member board of directors having true corporate governance. Remember, most people are surprised to find that the corporate vail can be so easily peirced.
See this case law involving a 3 member corporation, where the bankruptsy court pierced the corporate vail, based on officer responsibility: