Business structures

The first decision for Turks who want to start a business in the U.S. is the business structure. This choice determines the taxes you will pay, your personal liability, the forms you will file, and your ability to raise capital. On this page, you will find sole proprietorships, partnerships, LLCs, corporations, and S corporations, special rules applicable to foreign owners, and official guides you can download. For how to establish a business, see 14.2 Steps to establish a business.

• A foreign person may own a business in the U.S. According to the IRS, most states do not restrict LLC ownership; members may also be foreign.
• Actually working for the business is a separate matter and requires an appropriate immigration status. Examples:
  • E-2 investor visa: see 2.5 Investors and traders (E-2 / E-1)
  • L-1 and other work visas: see 2.4 Work visas
  • EB-5 investor green card: see 3.5 Green card through investment
  • green card
• Business cannot be accepted and work cannot be performed in the U.S. with a B-1/B-2 visitor visa.
• Examples of activities permitted with a B-1 visa include meeting business partners, negotiating contracts, and attending a business conference. For details, see 2.1 Tourist and business travel (B-1/B-2).
• Every employer in the U.S. verifies the identity and work authorization of everyone it hires using Form I-9. The rule applies to everyone, including citizens. The rule does not change even if you will work for your own business.

• A business owned by one person that is not incorporated. If you conduct business without registering under another structure, you are automatically considered a sole proprietorship.
• There is no separate legal entity. You may be held personally liable for the business’s debts and obligations.
• You may use a trade name (DBA).
• According to the SBA, raising capital is difficult because shares cannot be sold; banks are reluctant to lend to sole proprietorships.
• Federal tax forms:
  • income: Form 1040 and Schedule C
  • self-employment tax: Schedule SE
  • estimated tax: Form 1040-ES
  • if there are employees: Forms 941 and 940, and W-2 and W-3
• According to the SBA, this may be a suitable starting point for low-risk businesses and people who want to test their idea.

• The simplest structure in which two or more people conduct business together. Each partner contributes money, property, labor, or skills and shares in the profits and losses.
• Limited partnership (LP): one general partner has unlimited liability. The other partners have limited liability and generally also have limited management rights.
• Limited liability partnership (LLP): every partner has limited liability. One partner is not held liable for the actions of the other partners.
• Tax:
  • The partnership does not pay income tax; it files an information return each year using Form 1065.
  • Profits and losses pass through to the partners. The partnership provides each partner with a Schedule K-1.
  • For a partnership using the calendar year, the due date for Form 1065 is March 15.
  • Partners are not considered employees; they do not receive W-2s.
• If there is a foreign partner: the partnership withholds tax on income earned from its U.S. business that is allocable to foreign partners (IRC section 1446).
  • The rate is 37% for foreign partners who are not corporations and 21% for corporate partners.
  • Forms used: Form 8813 (payment), Form 8804 (annual return), and Form 8805 (statement provided to each foreign partner).

• Formed under state law. Rules vary from state to state. Its owners are called “members.”
• Most states do not restrict ownership. Members may be individuals, corporations, other LLCs, or foreign persons. There is no maximum number of members.
• A single-member LLC may be formed.
• Some businesses, such as banks and insurance companies, generally cannot be LLCs.
• According to the SBA, an LLC generally protects your personal assets—such as your home, car, and savings—from the company’s debts and lawsuits.
• In some states, when a member joins or leaves, the LLC may need to be dissolved and re-formed. This may not be necessary if transfer rules are written into the operating agreement.
• According to the SBA, LLC members are considered self-employed and pay self-employment tax for Social Security and Medicare.
  • Exception for foreigners: nonresident aliens for tax purposes are not subject to self-employment tax. The only exception is when an international social security agreement connects the person to the U.S. system.
  • There is no such agreement between Türkiye and the U.S. See 17.4 Türkiye–U.S. social security relationship.
  • Resident aliens for tax purposes pay this tax under the same rules as citizens.

• If no election is made:
  • Single-member LLC: it is not treated as a taxpayer separate from its owner for income tax purposes (“disregarded entity”). Income is reported on the owner’s return.
  • However, for employment taxes and certain excise taxes, a single-member LLC is still treated as a separate entity.
  • LLC with at least two members: it is treated as a partnership and files Form 1065.
• Election using Form 8832: an LLC may elect to be taxed as a corporation.
  • The election may be effective retroactively up to 75 days before the form is filed or prospectively up to 12 months after the filing date.
  • Late-election relief is available in some circumstances.
• For the annual filing required from a wholly foreign-owned single-member LLC, see 14.4 Reporting obligations of foreign-owned businesses.

• A legal entity separate from its owners. It earns profits, pays its own taxes, and may be held legally liable.
• According to the SBA, it provides owners with the strongest protection from personal liability. Its formation costs and recordkeeping and reporting burdens are greater than those of other structures.
• It is easy to raise capital by selling shares. The company continues operating even if a shareholder leaves or sells their shares.
• Tax:
  • The federal corporate income tax rate is 21%.
  • Profits are taxed first at the company level and then at the shareholder level when distributed as dividends (double taxation). The company cannot deduct dividends it distributes.
  • The return is Form 1120. For a corporation using the calendar year, the due date is April 15 (the 15th day of the fourth month after the end of the tax year).
  • Corporations that file 10 or more returns in total during a calendar year must file Form 1120 electronically.

• An S corporation is a tax election under which income, losses, deductions, and credits pass through to shareholders. This prevents double taxation at the corporate level.
• Requirements:
  • be a domestic corporation formed in the U.S.
  • no more than 100 shareholders
  • one class of stock
  • shareholders may be individuals, certain trusts, and estates
  • shareholders may not be partnerships, corporations, or nonresident aliens
  • some financial institutions and insurance companies cannot make this election
• A Turkish citizen living in Türkiye who is not considered a U.S. resident for tax purposes cannot be an S corporation shareholder. For whether you are a resident, see 15.1 Tax residency.
• This requirement matters not only at formation but whenever the shareholder structure changes.
• How to elect: all shareholders sign and file Form 2553 with the IRS. The form must be filed no later than 2 months and 15 days after the beginning of the tax year for which the election will be effective.
• According to the SBA, some states do not recognize the S corporation election and tax the company like a C corporation.
• An S corporation must also comply with the recordkeeping and operating rules of a C corporation.

• Benefit corporation: operated for profit but also aims to provide a public benefit. It is taxed like a C corporation. Some states require an annual benefit report.
• Close corporation: a company with few shareholders that is managed with fewer formalities. Its shares generally are not publicly traded. Rules vary by state.
• Nonprofit corporation: organized for charitable, educational, religious, or scientific purposes. For tax exemption, an application is made to the IRS separately from state registration; the most common status is 501(c)(3). Profits may not be distributed to members.
• Cooperative: a business owned by those who use its services. Voting rights are not tied to the number of shares owned.
• According to the SBA, an LLC may also be taxed as a C corporation, S corporation, or nonprofit organization. These arrangements are less common and more difficult to establish.

• Sole proprietorship
  • Ownership: one person
  • Liability: unlimited personal liability
  • Tax: self-employment tax and personal income tax
• Partnership
  • Ownership: two or more people
  • Liability: unlimited unless formed as a limited partnership
  • Tax: self-employment tax (except limited partners) and personal income tax
• LLC
  • Ownership: one or more people
  • Liability: owners are not personally liable
  • Tax: self-employment tax; personal income tax or corporate income tax
• C corporation
  • Ownership: one or more people
  • Liability: owners are not personally liable
  • Tax: corporate income tax
• S corporation
  • Ownership: no more than 100 people; may not be a partnership, corporation, or nonresident alien
  • Liability: owners are not personally liable
  • Tax: personal income tax
• According to the SBA, this comparison is only a general guide. Ownership, liability, tax, and registration rules may vary by state.
• The structure can be changed later. However, the SBA states that the change may be restricted depending on your location and may create issues such as tax consequences and unintended dissolution.

• Assuming that forming a company in the U.S. means obtaining residence or work authorization.
• Trying to elect S corporation status while living in Türkiye.
• Thinking that a wholly foreign-owned single-member LLC “does not have to file anything.” Form 5472 and a pro forma Form 1120 may be required each year (see 14.4).
• Failing to register a company formed in another state in the state where it conducts business (foreign qualification) (see 14.2).
• Failing to check the self-employment tax rule based on your own tax residency.
• Forgetting that a new EIN may be required when changing the structure (see 14.3).

• I live in Türkiye; can I form an LLC in the U.S.? According to the IRS, most states do not restrict LLC ownership and members may be foreign. However, forming a company does not give you the right to work or live in the U.S.
• LLC or corporation? According to the SBA, an LLC combines liability protection with pass-through of profits to the owner. A corporation is suitable for businesses that want to raise capital by selling shares and potentially be sold in the future. The decision depends on your tax situation; consult a tax professional or a free SBA counselor (see 14.6).
• Can I have my LLC taxed like a corporation? Yes. You can elect to be taxed as a corporation using Form 8832.
• Do I need to register a sole proprietorship somewhere? According to the SBA, registration may not be required if you operate under your own legal name. If you use a different name, most states require DBA registration. Licenses and permits may also be required.
• Can I change the structure after forming it? It can be changed. However, there may be tax consequences, and a new EIN is generally required when ownership or the structure changes.
• I am a green card holder; can I be an S corporation shareholder? The prohibition applies only to nonresident aliens. Green card holders are considered residents for tax purposes (see 15.1). The other requirements must also be met.

• SBA – Business startup guide (English)
• IRS – Business structures
• Form 8832, Entity Classification Election – with instructions (PDF)
• Form 2553, S corporation election (PDF)
• Form 2553 instructions (PDF)
• Form 1065, partnership return (PDF)
• Form 1120, corporate income tax return (PDF)
• Publication 3402, Taxation of LLCs (PDF)
• Publication 583, Starting a business and keeping records (PDF)
• Publication 334, Tax guide for small businesses (PDF)
• Publication 541, Partnerships (PDF)
• Publication 542, Corporations (PDF)