Common Legal Misconceptions About US Business

Scope & Method

This entry catalogs the legal misconceptions most frequently encountered among non-US entrepreneurs — particularly those based in Turkey — who are doing business in or with the United States. Each misconception is stated, followed by an explanation of the accurate legal position. The entry covers four areas: entity formation, tax obligations, contracts and documentation, and banking and payments.

This entry does not provide detailed treatment of any single topic — each misconception is addressed concisely with references to other EchoLegal entries where deeper analysis is available.

LLC and Entity Formation

LLC formation confers immigration benefits

LLC formation and immigration are governed by entirely separate bodies of law. Forming an LLC does not grant, support, or improve any visa application or immigration status. While certain visa categories (such as E-2 treaty investor visas) require the applicant to have a business in the United States, the business entity alone does not qualify the owner for any visa — the immigration application must independently satisfy its own statutory and regulatory requirements.

An LLC provides absolute personal liability protection

Limited liability protection is not absolute. Courts may "pierce the corporate veil" and hold members personally liable where the LLC was used to perpetrate fraud, where personal and business finances were commingled, where the entity was undercapitalized, or where corporate formalities were not observed. The standards for veil-piercing vary by state, but the underlying principle is consistent: the liability shield protects members who treat the entity as a genuinely separate legal person.

All US states have the same LLC laws

LLC statutes vary significantly by state. Formation requirements, annual reporting obligations, franchise taxes, Operating Agreement requirements, and member liability protections all differ. Delaware's LLC Act, for example, provides maximum contractual freedom through the Operating Agreement, while other states impose mandatory provisions that cannot be waived. The choice of formation state is a substantive decision with ongoing compliance and cost implications — not merely a formality.

A US LLC is required to work with US clients

A non-US entrepreneur can work with US clients as a foreign individual or through a foreign entity. Many US companies routinely engage contractors and service providers based outside the United States. The decision to form a US LLC should be evaluated based on specific business needs — banking access, payment processing requirements, client preferences, and tax implications — rather than assumed as a prerequisite.

Tax Obligations

A Delaware LLC eliminates all tax obligations

Delaware does not impose state income tax on income earned from out-of-state operations. However, this has no effect on federal tax obligations, which apply regardless of the formation state. A non-US LLC owner may owe federal income tax on US-source income, and remains subject to the tax laws of their country of residence on worldwide income. The interaction between US federal obligations, home-country obligations, and applicable tax treaties creates a multi-layered analysis that cannot be resolved by state selection alone.

Non-US residence eliminates US tax obligations

Owning a US LLC or receiving US-source income can create US tax filing obligations regardless of where the owner resides. These may include annual income tax returns, informational returns (such as Form 5472 for foreign-owned single-member LLCs), and — where the owner has signature authority over US financial accounts — FinCEN reporting requirements. The assumption that physical absence from the US eliminates tax exposure is a frequent and potentially costly error.

Payment method has no tax implications

Payment platforms such as PayPal, Stripe, and similar services file information returns (1099-K) with the IRS for US-based accounts that exceed reporting thresholds. Wire transfers, ACH payments, and other electronic transfers create documentary records accessible to tax authorities. The method of payment does not affect whether income is taxable — it affects only whether and how the payment is reported to the IRS by the platform or financial institution.

Contracts and Documentation

Online templates substitute for legal counsel

Contract templates provide a structural starting point and are useful for understanding standard commercial terms. However, they cannot account for the specific circumstances of a transaction, the applicable jurisdiction's requirements, or the parties' particular risk allocation needs. Contracts with material financial exposure — service agreements with significant liability provisions, equity arrangements, or cross-border transactions — should be reviewed by an attorney who understands the relevant law and the parties' commercial context.

Verbal agreements are equally enforceable

Under the Statute of Frauds — adopted in some form in all US states — certain categories of contracts must be in writing to be enforceable, including contracts for the sale of goods over $500 (UCC § 2-201), contracts that cannot be performed within one year, and real property transfers. Even for contract types where oral agreements are theoretically valid, proving the terms of an oral agreement in litigation is substantially more difficult than proving a written agreement. Written contracts also reduce ambiguity about the parties' obligations and provide a stable reference point for performance.

Banking and Payments

LLC ownership guarantees US bank account access

Many traditional US banks require in-person identity verification for account opening. Non-US residents who have formed a US LLC often discover that opening a corresponding bank account is the most practically challenging step in the process. While some banks and fintech providers offer remote onboarding for foreign-owned LLCs, the documentary requirements — EIN confirmation letter, Articles of Organization, Operating Agreement, and sometimes consular-authenticated identification — can be substantial. The available account types and features may also be more limited than those offered to domestic account holders.