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Can an H1B Holder Start A Business?

H1B Business Startup

Because the H-1B visa is in such high demand due to its versatility and dual intent, the USCIS has placed strict rules concerning the nature of a visa applicant’s work. While it’s common knowledge that a foreign professional needs a job offer from a U.S. employer to apply, is it possible for an H-1B holder to start his or her own business? The answer: yes. Although the process is usually difficult and subject to increased scrutiny, it is possible. Here’s how.

H1B Overview

Giving a brief overview of the visa requirements can help better understand what regulations a potential entrepreneur must work with in order to remain in status throughout the process.

Under normal circumstances, the broad H1B requirements are:

  • A job offer for a specialty position (requiring a bachelor’s degree or higher) from a qualified U.S. employer.
  • A bachelor’s degree or higher that is relevant to the position.

The main focus of this article will be on the first requirement: a job offer. Part of the H-1B process is filing a Labor Condition Application for the employee, which means that a valid employer-employee relationship must exist.

This relationship is coined “the conventional master-servant relationship as understood by common-law agency doctrine”. In order to establish this relationship, the employer must prove their right to control the employee.

The right of control can be broken down into several conditions:

  • Does the petitioning employer supervise the employee’s work?
  • Can the employer control the daily tasks of the employee?
  • Does the employer give the employee the equipment needed to complete his or her tasks?
  • Does the employer have the power to hire, pay, and fire the employee?
  • Is the employee claimed for taxes?
  • Are there any benefits provided by the employer such as insurance or bonuses?
  • Can the employer control exactly how the work is done?

These conditions must also continue as long as the employee is under H-1B status for that particular employer. The USCIS has made it a point to say that no one factor will be decisive, but rather that each will be weighed for or against the decision.

What Does the USCIS Say?

From this, it is not certain whether or not an H-1B holder could start a business since there was no mandate for or against this action.

In fact, before 2010, the USCIS had not implemented any regulations that either prevented or allowed H1B holders to start businesses. Those that wished to usually just needed to make sure that they were not violating the terms of their H1B status.

Therefore, because the regulations stated that the H-1B holder must only work for petitioning employers (whether a single employer or multiple), most entrepreneurs understood that they could start a business, but they could not work for it.

However, in January of 2010, the USCIS released a memorandum that clarified the regulations surrounding entrepreneurship stating that an H1B holder can start a business and also work for it provided that:

  • A board of directors, CEO, or similar entity has the power to hire, pay, and fire the beneficiary. Therefore, the nonimmigrant will be treated like an employee despite having ownership.
  • The H1B holder is not the sole proprietor of the company
  • The position in question must be bona fide, meaning that the company cannot have been started for the purpose of securing an H-1B visa.
  • The position must still require a relevant bachelor’s degree or higher.
  • The company should have a business plan that includes the purpose of hiring qualified American workers. This is because the 2010 memorandum was created so that more U.S. workers could find employment.

Take a look at this section of the memorandum:

H1B Business Startup memorandum

The most important aspect is the fact that, in order to be a self-employed beneficiary, a separate entity must petition on your behalf. This rule does not have exceptions, so the only route for self-employed applicants to take is to have an outside entity such as a board of directors to control the applicant’s tasks, salary, and employment status.

It is important to note that many people try to take advantage of this in order to avoid using sponsors throughout the immigration process. Because of this, the USCIS heavily scrutinizes the case of each potential self-petitioning individual who owns a business to determine if the requisite criterion has been met.

It should also be noted that setting up an outside entity such as a board of directors is very difficult for startup companies. This is especially true if you are not yet inside the U.S. and need to use a domestic agent to set up this entity. As with all immigration law issues, it is best to consult your attorney to determine if this is the best or easiest route to take.

Here is an example of a situation that may be accepted by the USCIS:

David is a nonimmigrant who started a landscaping business in which he owns 65% of its shares. David’s company is set up to limit his power and discretion through the use of a separate board of directors that has the ability to fire him. If David wishes to work in the U.S., he could apply for an H-1B visa.

Here is an example of a situation that would encounter difficulty:

Sarah is a web designer that has started her own trademarked business. She is the only employee and is the sole proprietor of the company. Because of this, Sarah would have a hard time establishing an employer-employee relationship and proving that the company has control over her.

How To Start a Business on H-1B Status

Fortunately, the process for starting a business as an H-1B nonimmigrant is very similar to the process for U.S. citizens with the exception that you must set up an entity that has control over your duties and your salary.

The steps are as follows:

  • Develop a solid business plan that shows that your business can succeed.
  • Take some time to research the different business structures such as a corporation, LLC, corporate partnership, or sole proprietorship.
  • Invent and register a name for your business with both the county office and the state government.
  • Petition the IRS for a TIN (Tax Identification Number) and an EIN (Employer Identification Number). This latter number will serve as the social security number for your business as a separate legal entity. To get your EIN in as little as a few minutes, visit the IRS website.
  • Lease a business location whether it be a shopping bay, warehouse, or office space.
  • Make sure to have all of the licenses, permits, and certifications to perform your business legally.
  • Because each U.S. state has different requirements regarding worker’s compensation, benefits, insurance, health codes, and state taxes, it is important to research every aspect of your business to prevent future legal problems

No matter which route you choose to take, you need legal guidance. While starting a business on H-1B status is possible, these cases are heavily scrutinized by the USCIS and have a much lower success rate than cases where an established employer has petitioned for the beneficiary. Always be sure to consult a qualified immigration attorney every step of the way.

FAQs

Will this impact my green card status?

If you are working toward a green card or are currently a lawful permanent resident, starting your own business or beginning to work for a company that you own would most likely not jeopardize your status.

If you are under H-1B status and are in the process of obtaining a green card, be sure to adhere to the above rules or face serious consequences. If you are under another nonimmigrant status, take some time to research the regulations surrounding entrepreneurship.

What is the difference between an S or C corporation and an LLC?

This is one of the most important decisions you will make in the early stages of your business.

Corporations establish your company as a separate legal entity that is also taxed separately. This protects you from much of the liability that the company may incur. An S corporation does not need to pay separate income tax while a C corporation faces double taxation.

However, a C corporation has fewer restrictions for its shareholders and has provisions to protect them from taxation.

An LLC has many advantages, such as avoiding double taxation and allowing for sole proprietorship, but it also allows for a board of directors or advisors to be installed. This would allow you to maintain your H-1B status as you start your business.

Is a business plan required?

If you are attempting to enter the U.S. under H-1B status to work for a company that you already own, then a business plan, while not explicitly required, may help your case with the USCIS.

If you are already in the U.S. and you are starting your business, a business plan is not required but can easily be the difference between success and failure for your enterprise.

How do I know if my business idea is original?

Performing a simple search on the internet may bring you answers. But to be absolutely sure, check the Patent and Trademark Office to see if your product or service has already been claimed.

How can I learn more about starting my own business?

The Small Business Administration is a perfect place to start when it comes to building the foundation of the logistic and legal aspects of your business. There, you can develop a working business plan, see what others are doing, and have your business questions answered.

However, when it comes to navigating around H-1B regulations, the first step should be to consult with a qualified immigration attorney.

How Our Immigration Lawyers Can Help

Because the issue of whether or not an H-1B holder can start a business is fraught with strict regulations that could seriously impact your status or petition if broken, seeking the counsel of an immigration attorney is an invaluable alternative to the consequences of making a mistake in these situations.

Our lawyers specialize in providing foreign professionals and entrepreneurs with the guidance they need to secure and maintain H-1B status as well as many other nonimmigrant visa situations. To contact one of our attorneys and to see if you qualify for a free consultation, feel free to fill out this form.