The 1099-MISC is required only if the recipient is not otherwise exempt from having the compensation reported. Use Form W-9 if you're in doubt about the status of the recipient. It has an option for the recipient to use to notify you that they are exempt, i.e., they are an incorporated entity or an LLC that has elected corporate tax status. Otherwise, if you pay them $600 or more for services, you should report what you pay them on Form 1099-MISC. That fact that they withhold their management fee from amounts they pay you does not change the fact that they were paid by you for their services.
