FORMS OF DOING BUSINESS IN THE U.S.
The United States of America prides itself on providing a free and fair environment for establishing and running a business. During the entire history of the U.S., immigrants from all over the world have played a key role in establishing and running successful businesses which not only help them achieve the American dream but also played a key role in the economy by providing jobs to U.S. workers. The U.S. Congress has enacted certain immigration laws that permit the temporary and permanent stay of business people in the U.S. However, the business should be a legal entity and in compliance with local, state and federal laws.
There are many ways of running a business. First, one may operate a business as a sole proprietorship if there is only one owner. The owner is personally liable for all the debts, taxes and liabilities of the business, as well as claims made against employees acting within the scope of their employment. The owner reports and pays taxes on the profits of the business on his or her individual income tax return.
A CORPORATE OFFICER, DIRECTOR, OR SHAREHOLDER IS USUALLY NOT PERSONALLY LIABLE FOR THE DEBTS OF THE CORPORATION
Second, a partnership is a business owned by two or more people. The partners usually have a written agreement. However, an oral agreement is enough to create a partnership. If there is no specific agreement between the partners on business issues, then the law of the particular state it is located in controls. Each partner can individually hire employees, borrow money, and perform any act to run the business. Each partner includes his or her share of the profits on his or her individual income tax return. Each partner is individually liable for the debts and taxes of the partnership.
Third, a limited partner, with one or more general partners, may form a limited partnership. A limited partner can invest in the partnership without incurring personal liability for the debts of the business. If the business fails, the limited partner only loses his or her capital investment. However, the limited partner cannot participate in managing or controlling the business.
Fourth, one may do business as a corporation. A corporation is considered a legal entity separate from the people who own or manage it. The corporation is a legal person, able to enter into contracts, incur debts and pay taxes. The corporation is taxed separately from the individuals who own it. A corporate officer, director, or shareholder is usually not personally liable for the debts of the corporation. This means that if you invest in a corporation, and the business does not do well, you will only lose the amount of money or the value of the property you contributed as stock. Creditors of the corporation cannot usually seize the corporate investor’s home, or other personal assets.
CREDITORS OF THE CORPORATION CANNOT USUALLY SEIZE THE CORPORATE INVESTOR’S HOME, OR OTHER PERSONAL ASSETS
There are some exceptions to the rule of limited liability for corporate officers, directors, and shareholders. For example, if a bank loans money to a new, small corporation, it may require the owners to use some of their personal assets as security for the debt. Additionally, if the corporation has failed to pay income, payroll or other taxes, the IRS will try to recover the unpaid taxes from responsible employees if they are unable to collect the taxes from the corporation.
Under New York law, the 10 largest shareholders of privately-held corporations are liable for the payment of wages due to the corporation’s employees. Another example of personal liability is when the owners of the corporation use it as a means to defraud third parties, or if they do something on behalf of the corporation which they are unauthorized to do, they can be held individually liable for any harm done to others.