State and federal laws govern businesses, and outline various forms of business organizations. For the purposes of federal law, the most common types of business entities are: (1) the sole proprietorship; (2) the partnership; (3) the corporation; and (4) the limited liability company.
The majority of small businesses begin as sole proprietorships. As a result, this chapter is tailored to sole proprietorships. In a sole proprietorship the owner faces unlimited liability for all debts incurred by the business. On the upside, there is relatively little paperwork required in order to start and dissolve a sole proprietorship. Additionally, all income derived from the business flows directly to the owner and is reflected on the owner’s personal tax returns. As a result sole proprietors may need to file several tax forms including but not limited to:
- Form 1040 (an Individual Income Tax Return);
- Schedule SE (Self-employment Tax);
- Form 4562 (Depreciation and Amortization);
- Form 8829 (Expenses for Business Use of Home; and
- Employment tax forms.
When facing potential deportation, you should check with a tax attorney or specialist to make sure they have filed the correct forms. Filing the wrong forms can be seen as tax evasion or fraud which are deportable offenses and which could affect future re-entry.
In a partnership, two or more individuals run and operate a business, and normally each partner has unlimited liability for the debts and obligations of the partnership. There are three types of partnerships: The general partnership, limited partnership and limited liability partnership. In a limited liability partnership, each individual partnership has a reduced amount of liability. Instead the limited liability partnership as a whole maintains liability.
In contrast, a corporation is a business entity that has separate legal standing from its owners. The defining characteristic of a corporation is that it has limited liability for its owners – specifically, that its members are not personally liable for the debts and obligations of the corporation. This chapter does not focus on corporations because they are not common in the small business context, but it is still important to seek legal support when selling or dissolving a corporation.
A limited liability company (LLC) is a business structure whereby the members of the company cannot be held personally liable for the company’s debts or liabilities. LLCs are essentially hybrid entities that combine the liability protection of a corporation and the tax characteristics of a partnership or sole proprietorship.