Julian Drago
Stanford GSB · Business Scaling Program
Program University of Buenos Aires · Public Accounting
Date published:
November 1, 2025
Last updated:
August 17, 2026
For entrepreneurs and investors engaging with the United States market, grasping the legal concept of an individual human being is fundamental. This term defines a person with legal rights and responsibilities distinct from those of a corporate entity or other organizations. Recognizing these differences is crucial for making informed decisions about company formation, tax compliance, and asset protection.
An individual is recognized by law as having the capacity to hold rights and obligations. This status begins at birth and continues until death. Such persons can own property, enter contracts, sue or be sued, and bear personal liability for their actions. In contrast, corporate entities—such as corporations or limited liability companies (LLCs)—are created by law and have separate legal identities from their owners.
While both individuals and corporate entities can engage in commercial and legal activities, their responsibilities and protections differ significantly:
For instance, a sole proprietor operates as an individual, meaning personal assets like a home or savings could be used to satisfy business debts. Conversely, forming an LLC creates a corporate entity that shields personal resources from company liabilities, provided corporate formalities are maintained.
Non-resident individuals can establish and own U.S. companies without residency or work visas. As natural persons, they may have tax obligations on income earned directly or through their business entities. For example, a non-resident owning a U.S. LLC must file informational returns and may be subject to U.S. income tax on effectively connected income.
However, operating solely as an individual entails personal liability risks. Many foreign entrepreneurs choose to establish LLCs or corporations to protect their personal holdings and optimize tax treatment.
Individuals in the U.S. can:
Despite these rights, personal liability remains a critical consideration. For example, if a sole proprietor incurs business debts, creditors may pursue personal assets. This risk often motivates entrepreneurs to form corporate entities that provide a liability shield.
The Internal Revenue Service (IRS) treats individuals as taxpayers when they receive income sourced in the U.S., own sole proprietorships, or hold interests in U.S. companies. Tax obligations may include filing income tax returns, paying self-employment taxes, and reporting ownership interests under transparency rules such as the Beneficial Ownership Information (BOI) reporting requirements.
For example, a foreign individual (classified by the IRS as a Nonresident Alien) who receives fees for services physically performed in the United States has Effectively Connected Income (ECI). This individual must report this income and pay taxes, even if they operate without a formal business entity. In contrast, if they operate 100% from their home country without a physical presence or employees in the U.S. (they are not ETBUS), their tax obligations change significantly. Failing to comply with these classifications can result in severe penalties.
Any person, regardless of nationality, can:
This accessibility makes the U.S. an attractive destination for international entrepreneurs. However, choosing the right company structure is essential to balance flexibility, liability protection, and tax efficiency.
Deciding whether to conduct activities as a sole individual or through a corporate structure depends on your goals and risk tolerance:
For example, a freelancer starting with minimal risk might operate as a sole proprietor initially but transition to an LLC when expanding or hiring employees.
One practical example involves a freelance graphic designer who begins operations as an individual to minimize startup costs. After securing several clients and increasing revenue to $50,000 USD, the designer forms an LLC to protect personal holdings and gain tax benefits. This transition illustrates a common path for entrepreneurs balancing risk and growth.
Exceptions to these general rules exist. For instance, certain professional services may require specific licensing or entity types, limiting the ability to operate solely as an individual. Additionally, some states impose unique regulations affecting liability and tax treatment. For example, in California, certain professions such as law or medicine must form professional corporations or limited liability partnerships rather than LLCs.
When deciding on the appropriate structure, consider factors such as expected income, potential liabilities, and long-term business goals. Consulting with legal and tax professionals can provide tailored advice based on individual circumstances.
A case study involves a foreign investor who initially operated as an individual but faced personal liability after a contractual dispute. Upon forming a corporation, the investor successfully limited exposure to personal holdings, demonstrating the importance of entity selection in risk management.
Another important criterion is the nature of the business activity. High-risk industries or those with significant capital investment often benefit from corporate structures to mitigate exposure. Conversely, low-risk ventures with limited revenue might find individual operation more practical initially.
Moreover, tax considerations can vary depending on the state of formation and the specific business model. Some states offer favorable tax treatment for certain entity types, which can influence the decision-making process. For example, Delaware is popular for its business-friendly laws and tax advantages, making it a preferred state for incorporation. Understanding these nuances is essential for optimizing both liability protection and tax efficiency.
Understanding the difference between operating as a vulnerable individual and operating as a protected corporate entity is the first step toward making smart decisions when doing business in the United States.
At Openbiz, we act as your third-party business formation partner. If you want to operate legally, separate your personal assets from your business assets, and build a solid business, we can help you:
If you want to start doing business in the United States with the right structure from day one and with the support of business formation experts, contact Openbiz. We’ll guide you through every stage of the process.
Yes, non-U.S. citizens and non-residents can form LLCs or corporations in the United States without requiring a work visa or residency status. This allows international entrepreneurs to participate in the U.S. market with relative ease.
It depends on the individual’s tax residency and where the income is sourced. U.S. citizens and residents are generally taxed on their worldwide income. However, for nonresident aliens, the obligation to pay U.S. income tax generally arises when their income is “Effectively Connected Income” (ECI) with a trade or business in the country, which typically requires a physical presence, employees, or dependent agents in the U.S. (known as being ETBUS). It is essential to consult a CPA to determine your tax status.
Operating as an individual means personal holdings, such as savings or property, can be used to satisfy business debts or legal judgments. This increases financial exposure and risk, especially if the business faces lawsuits or creditor claims. Without the protection of a separate legal entity, owners bear full responsibility for liabilities, which can impact personal financial stability.
Yes, many international entrepreneurs successfully manage their U.S. companies from abroad by utilizing digital communication tools, remote banking services, and online payment platforms. However, they must ensure compliance with U.S. tax laws and maintain proper business records to avoid legal complications.
Yes, a single-member LLC can be owned entirely by one person, providing liability protection while maintaining operational simplicity. This structure is popular among solo entrepreneurs seeking to separate personal and company liabilities.
Reviewed by: Sebastián Mejía, Ops Manager
Review date: August 2026
Last updated: August 2026 (Information corresponding to tax year 2026.)
This content was prepared by a team specializing in tax and financial topics, with rigorous human review to ensure accuracy and policy compliance. Artificial intelligence assistance was used to optimize structure and clarity, always under expert supervision. This content is for informational purposes only and does not constitute professional advice; consult an accountant or attorney before making a decision.
Concierte una reunión virtual gratuita con nuestro equipo de expertos.
Programar una reunión
Compare precios y elija el plan ideal para su empresa.
Ver planos y precios