What are the dangers of having a partnership or sole proprietorship?

The primary worry of most business owners is that if the owner is sued he could face personal liability and place his own assets at risk.  Riskier alternatives to creating a form of business that provides protection include buying insurance, hiring independent contractors (so that they may distance the owner from liability), or to invest silently and have little involvement in day-to-day operations.  While these actions may limit liability to a certain extent, they are considered far weaker protection to an investor than utilizing a protective business form, such as a corporation.

What is a “sole proprietorship”?

A sole proprietorship is a business owned by a single individual.  A sole proprietorship will not protect the owner from liabilities.  Therefore, the owner is personally liable on all business obligations.  In addition, a sole proprietorship is taxed directly through the personal income taxes of the owner. This is the simplest form that a business can take.

What does it mean for shares to be “publicly held”?

When shares of a company are “publicly held” this means the shares are traded on the public securities markets subject to federal regulation.

What if I attempted to incorporate and failed to do so properly? Am I now personally liable for all of my company’s debts?

The situation that you have been placed in is a dangerous one, but not all hope is gone yet.  It really will depend on the types of liabilities that you may have incurred and what your state’s laws are.  Some states will recognize an attempt to incorporate, if you had carried on as if there was a corporation and the failure to incorporate was not in bad faith.  If you are in this situation, seeking the help of an attorney immediately is imperative since there can be a lot of gray area which only a professional can help you sort out.

Once a corporation is formed, what can the corporation do?

Once a business is incorporated, all business is conducted in the corporation’s name.  The corporation itself borrows money, contracts with other entities and individuals, sues, and can be sued.  It acts like a person.  The same applies for Limited Liability Companies (LLCs).

From The Publisher: Entrepreneurial Spirit Will Jump Start The Economy

This year, we’re already seeing entrepreneurs lay their best business plans despite questions about the economy. We can always count on entrepreneurs, and this recovery will be no exception – it’s no secret that 70% of all new jobs are created by small business. Read more

Can a Foreigner be a Shareholder of a S-Corporation?

 

The tax code provides that a S-Corporation must not have a nonresident alien as a shareholder (see, IRC Section 1361(b)(1)(C)).  Treasury Regulation Section 1.1361-1 states that “a corporation having a shareholder who is a ‘nonresident alien’ as defined in Section 7701(b)(1)(B) does not qualify as a small business corporation.”  Section 7701(b)(1)(B) provides — in typical IRC legalese — that a person is a nonresident alien if he isn’t a resident alien.  Having a particular visa has no impact on whether a non-resident alien can be a S-corporation shareholder.  Only a green card or meeting the IRS’ “substantial presence test” enables an alien to be eligible to be an S Corporation shareholder. 

 Section 7701(b) and the implementing Treasury Regulations (i.e., Section 301.7701(b)-1) provides that to be a resident alien (and thus an eligible S corporation shareholder) one either has to have a green card or meet the substantial presence test by being in the US for at least 183 days during a three year period that includes the current year.  This is the only area where having a certain visa may be relevant.  Section 7701(b)(3)(D)(i) provides that an individual shall not be treated as being present in the US on any day if such individual is an exempt individual.  Section 7701(b)(5) defines exempt individuals as those who are a foreign government-related individuals (including those temporarily present in the US on a visa which the IRS determines represents full-time diplomatic or consular status), teachers, trainees, students or professional athletes temporarily in the US to compete in a charitable sports event.  Thus, the visa classification of these types of individuals could, actually, hinder them meeting the substantial presence test.   

 

Why In the World Would Anyone With More Than One Shareholder Form a Corporation in Nevada?

That’s the question you may ask yourself after examining Nevada Statute 78.347, which allows any shareholder, regardless of their percentage of stock ownership, to petition the court for the appointment of a custodian of the corporation when the business of the corporation is suffering or is threatened with irreparable injury because the directors are so divided respecting the management of the affairs of the corporation that a required vote for action by the board of directors cannot be obtained and the stockholders are unable to terminate this division. Read more