Unfortunately, due to much misleading advertising and “advice” given by people who are not business lawyers, it is commonly believed that creating a company in the United States is an easy process. The truth is that, when done properly, creating a company requires multiple conversations, analysis, and planning.

For example, every company should have internal documents (generally bylaws or an operating agreement), which determine how the company should be managed internally, as well as the owners’ duties and rights. These documents should also include procedures for the company to be able to continue moving forward in case the owners disagree at some point in the future. They also should determine how to handle situations in which the company requires more capital (for example, giving the owners the right of first refusal on additional shares), or if an owner wishes to sell his or her shares. Additionally, the right type of company should be selected. The most common types are corporation, limited liability company, limited partnership, and limited liability limited partnership.

They each have their advantages and disadvantages, and they are each used in different situations. The place of formation of the company should be considered and determined as well. Lastly, the entity’s classification for tax purposes must be decided. Will the company be taxed as a disregarded entity, a partnership, a C-corporation, or an S-corporation? The relationship between this decision and the choice of entity described above is often misunderstood. Many people believe, for example, that an LLC is always taxed as a partnership. In reality, however, that is only the default tax classification for an LLC with multiple members. This is something that can be changed by filing an election with the IRS.

Businesses can be carried out through different legal entities, each of which have different ways of paying taxes. For example, an LLC may choose to pay taxes as a C corporation, as an S corporation, or as a partnership. Each one of those possibilities has very different tax consequences. There isn’t one option that works for all cases. As a business owner, you need to take into account the different possibilities, and plan and decide which structure is the best for your business.

For example, before choosing a type of entity, a person forming a business in the United States should consider:

• i) whether the business has multiple partners,
• ii) the expected return on investment,
• iii) the personal income of each partner,
• iv) the income the company may generate down the road,
• v) whether the gains will be reinvested, and
• vi) the nature of the business.

In the case of foreign investors, often, part of the immigration process may involve the creation of a business in the United States, which may be used when submitting an application for an L-1 visa or an E-2 visa. We have reviewed several cases where an immigration attorney recommended that a client’s company, which was originally located in his country of origin, create a branch in the United States so that the client could apply for a visa.

This business structure is routinely implemented by immigration lawyers across the country. However, in some cases, it is not the optimal business structure from a tax perspective. It is common for these structures to have an effective tax rate of 44.7%. It is possible to create different business structures that will enable the client to comply with the immigration law requirements and at the same time save a lot of money by having a substantially lower tax rate.

The documents necessary for the purchase and sale of a company are very important and delicate. They must be drafted or reviewed by an attorney who represents your best interests. The interests of the buyer and the seller are opposed by definition, and small changes in the wording on these documents can have drastically different results in terms of liability and the taxes the parties will have to pay.

If you have a partner (or co-owner) who dies, his or her heirs (usually his or her spouse and/or children), will inherit your partner’s share in the business. This means that you will now have your partner’s spouse or children as your new partners. In most cases, this is a disfavored outcome. To eliminate this issue, we draft a document in which the partners determine some method to value the company in the event of death of a partner, and the surviving partner(s) or the company will purchase the deceased partner’s portion from the deceased partner’s heirs. Often, this payment can be made over several years, or it can be funded with life insurance, so that the company has a way to pay for this.

When a person or a company lends money, regardless of whether the loan is motivated by a personal relationship or as a business decision, the loan must be properly documented. Otherwise, the lender runs the very real risk of not being able to collect on the loan.

This risk is increased immensely if the borrower passes away or becomes incapacitated, because in most cases the heirs do not know about the deceased/incapacitated person’s outstanding loans; without a document evidencing the loan, they will be unwilling to pay, and a court unlikely to enforce. Documenting loans is generally done through promissory notes. They can be secured, or unsecured, and recourse, or non-recourse. Promissory notes are also often used as tax planning tools, as ways to lower your business taxable income.