our new aussie/ 16 weeks old

Question
we have adopted a puppy, full australian shepherd, with papers on the litter and parents. this pup is very affraid of everything. when my daughters and i first went to see the litter, he was timid . the owner said they just have never seen kids. at home now he doesnt want to go out of the house at all. we have to force him to walk to potty. he runs and fights to go back in the house. he will not play in the house , just sits in the corner, he acts as if he wants to be with us but wont. for a day or two he would sit in my lap and play some at night with noone else up but now he just runs to the corner and stays. i have 5 kids, ages 14,13,9,12,2, the baby is always with us with the dog . shes good to the dog . have you ever seen or heard of this? what to do! i am affraid of the kids getting bit if the puppies fear continues.

Answer
Unfortunately, you have been taken in by a backyard breeder who is not doing a proper job of socializing his/her dogs.  Reputable breeders usually have a waiting list for their pups, and they go to their new homes at approximately 8-9 weeks of age.  The critical socialization period for puppies is between 8-12 weeks of age, and at the outside, 16 weeks.  What that means is that anything you want the pup to accept well as an adult dog, he must experience during that time.  This is especially true of Aussies, because their genetics tell them to be reserved with strangers anyway.  Your pup may grow to trust you and your family, but in a household with kids' friends coming in and out, and guests, my guess is that this will be one stressed pup.  You should be afraid, as fear often does result in bites.  Better to re-home or give the pup back before he does that, since rescues/no kill shelters are not likely to accept a dog that has bitten, due to liability issues.  Forgive me for saying this, because you are not really to blame, being a newbie, but the breeder did you a disservice.  This is not the dog I would have placed with a family of five kids.  He is clearly terrified, and, frankly, with your busy life, I don't see you having the resources to put a lot of time into behaviorist visits, remedial training, etc.
You fell into the trap of taking the poor, timid little pup, when what the breeder should have given you was a confident, well socialized pup.  That breeder should have socialized the pups if he/she couldn't sell them right away, instead of shrugging it off - this was a complete idiot you dealt with, who should not be breeding dogs of any breed, much less Aussies.  This makes me so angry for you that I want to spit nails.  You were victimized, but I bet you'll do your homework next time.
Now, on to the problem...if you already love and are committed to this dog, and don't have the $$ for behaviorist, etc., at least do get him into a puppy class asap, and be sure it is a positive reinforcement type trainer (no choke chains or leash corrections, please).  Clicker training can work very well if he is food/toy motivated, but he will almost certainly be very frightened at first - persevere and keep going.  Here's one place you can find a trainer: www.clickerteachers.net.
There are some free lessons at www.clickerlessons.com to get you started at home, but don't waste a minute signing him up for class!!!
Use food to entice him, and resist any urge to punish him, even for housetraining mistakes.  (Aussies are quick to learn not to pee in front of the human, and that gets them in a worse jam.)  The good news is that Aussies are soooooo smart.  The bad news is that bad experiences can stick - and fast.  Here are some resources for you that can help with the shyness issues:
http://www.amazon.com/Help-Your-Shy-Dog-Terrified/dp/0876050364
http://www.dogwise.com/ItemDetails.cfm?ID=DTB825 (This one is for dog aggressive dogs, but the techniques for getting your dog's attention and rewarding "calm" are great for any dog.)
http://www.diamondsintheruff.com/DevelopmentalStages.html
http://www.clickertraining.com/basics
http://www.clickerlessons.com/housetraining.htm (Just a few housetraining hints.  Understand that if you are doing it right, your Aussie will do it right - they are really fast at learning their housetraining skills - my last pup learned in three days, and has never had an accident indoors since - she's two years old now.)
Good luck and let me know how you are making out.  I'm happy to answer any questions.