U.S. Corporate & Business Law
Choosing the legal structure for your business is one of your important decisions when starting a business abroad. There are several legal structures and forms (business organizations) under which a business can operate.
GALG compares all forms of business organization to find the most favorable legal and tax approach for your business in the U.S.
I. Corporation (Aktiengesellschaft)
The most versatile business form in many ways
is the corporation. The corporation continues to stand apart from all other
business forms due to its built-in organizational structure and unique access
to investment sources and capital markets.
The formation of a corporation has many advantages especially for foreign businesses:
These are the main characteristics of a corporation:
A corporation is formed by filing the articles of incorporation with the state filing authority usually the secretary of state. Following this filing, a corporation usually adopts bylaws that provide detailed rules governing its internal operations.
State laws require that a corporation has a contact person (initial agent) in the state of incorporation. Our qualified attorneys can take this position for your US-corporation and handle the entire formation process.
US-companies who intend to establish a corporation or a branch in the U.S. but do not have the required US-address may contact us.
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.
The board of directors elected by the shareholders has general power to manage the business and affairs of the corporation. Directors need not be shareholders and most business decisions by directors are not subject to review and approval by the shareholders.
Officers of the corporation are elected by the board of directors and their functions are to execute and carry out the decisions of the board as well as conduct the business on a dayto-day basis. Traditional officers are a president, one or more vice presidents, a secretary, and a treasurer.
The corporation is a separate taxpayer, with its own income tax returns, different from the tax rates and tax returns of its owners. It can be recognized, for tax purposes, as either the standard C corporation, in which the corporation and its owners are treated as separate taxpaying entities, or as an S corporation, in which business income is passed through the corporate entity and taxed only to its owners on their individual tax returns.
The income of a standard C corporation is taxed twice: once at the corporate level and a second time when it paid out to shareholders in the form of dividends.
II. Unincorporated Businesses
A partnership is a logical extension of a proprietorship: it is simply an unincorporated business of which there are two or more owners. There are various kinds of partnerships:
1.1 General Partnership
A general partnership is established if two or more co-owners agree to share in the profits. Since no written partnership agreement or public filing of any document is necessary for formation, many very informal arrangements are partnerships. If the partners do not reach express agreement, their relationship will be governed by the default rules provided by the state partnership statute.
Each partner is liable to third persons for all business obligations of the partnership, just like the owner of a sole proprietorship.
1.2 Limited Partnership
Limited partnerships, unlike general partnerships, require the public filing of a Certificate of Limited Partnership document with a state officer, usually the secretary of state of the state of formation. The Certificate of Limited Partnership must be signed by all the general partners but need not be signed by any of the limited partners. The names and addresses of general partners have to appear in the Certificate of Limited Partnership as well as any admission of a new partner. Withdrawals of existing general partners must be recorded in the public records by an amendment to the Certificate.
A limited partnership differs from a general partnership in that there are two classes of partners:
(1) One or more general partners who are personally liable with the same rights, obligations, and duties as general partners in a general partnership, and
(2) One or more limited partners, who are investors in the partnership but who are not personally liable for the debts of the partnership and who are not expected to participate in the day-to-day affairs of the partnership
If the business fails, all that the limited partners can lose is their capital investment.
Beside an individual, the general partner can
also be a corporation or a limited liability company.
General partners are fully liable for the debts of the business to the same extent as partners in a general partnership without limited partners. Because of this basic difference in role, general partners are traditionally the managers of the business while limited partners are passive investors.
1.3 Registered Limited Liability Partnership (LLP)
The LLP is a new and potentially useful business form that is particularly attractive for professionals such as lawyers and accountants doing business in partnership form. To become an LLP, a general partnership must file a simple registration statement with the appropriate state official and adopt a name that includes a reference to being an LLP. In addition, in many states the partnership must also keep a specified amount of liquid assets on hand or maintain malpractice insurance in a specified amount, or both to assure possible claimants that the firm will be able to reasonably respond to claims covered by the statute.
A LLP is for most purposes a general partnership.
It differs from a general partnership only in that some or all partners are
by statute not personally responsible for liabilities created by errors, omissions,
negligence, incompetence, or malpractice committed by other partners or by
employees supervised by other partners. Innocent partners have no responsibility
for such liabilities, but the responsible partners and the partnership itself
continue to have full responsibility for those liabilities.
Except for the malpractice liabilities, all partners have unlimited personal liability for all partnership liabilities like office leases, salaries of employees, pension plan payments for employees, and so forth.
In other respects than the liability, all partners in a LLP have the same rights, duties, and responsibility for other types of liabilities as partners in a general partnership.
The management of an LLP must be on a partnership basis like in a general partnership.
2. Limited Liability Company (LLC)
An LLC is a separate legal entity that is formed by filing articles of organization with the secretary of state (or other designated state official). Therefore, superficially an LLC is more similar to a corporation than to a partnership. It may be formed for any lawful purpose, subject to exceptions for certain kinds of business such as banking and insurance. Unlike the required articles of organization, the preparation of an LLC operating agreement is not legally required. Many states permit LLC operating agreements to be oral. If a written LLC operating agreement is not legally required and if it is not prepared, the default state statutes will apply to the operation of the LLC.
The LLC gives the owners the legal protection of personal limited liability for business debts and judgments as if they had formed a corporation. They are not personally liable for its debts and other liabilities.
The LLC statutes of most states provide extreme flexibility with respect to all aspects of internal organization of an LLC. LLCs are allowed to elect between management by the owners and management by managers who are not owners. An LLC is free to develop its own organizational and management structure. LLCs are usually managed by all the owners but If management by managers is authorized, the members have only limited rights to participate in management.