Moving to a new country and starting a life there presents myriad challenges. Founding a business in the United States as a nonresident can be even more challenging. It requires navigating a convoluted immigration system, which specifically lacks a startup founders visa. That is on top of the extensive paperwork and filings required of all US business owners, both foreign and native-born. But with a lot of planning, a little luck, and the right legal guidance, a newcomer to the United States can join the more than 3 million immigrants who currently run businesses here.
Immigrant Contributions to the US Economy
For generations, immigrants have come to the United States seeking economic opportunities. Immigrant-owned businesses are a key contributor to the US economy. According to one analysis, immigrants make up around 1/4 to 1/3 of the nation’s small business owners. Research also shows that immigrants are twice as likely as native-born Americans to become entrepreneurs.
Immigrants play a significant role in founding small businesses and high-tech firms. More than half of startup companies in the United States that are worth $1 billion or more have at least one founder who is an immigrant. The United States had 3.2 million immigrant entrepreneurs in 2019, reports New American Economy. Immigrant-owned businesses employ approximately 8 million people and have sales exceeding $1 trillion. California, New Jersey, Florida, New York, and Texas have the largest share of immigrant entrepreneurs.
Owning a US Business versus Working in a US Business
If you are a foreigner who pays taxes in this country, you do not need to be a permanent resident to own a US business or be listed as a corporate officer or director who earns income from a US business. There are no specific provisions in US law that prevent a noncitizen from being a shareholder in a US company.
However, the Internal Revenue Service (IRS) prohibits a nonresident alien (a person without a Permanent Resident Card, also called a Green Card) from being a shareholder in an S corporation. Someone deemed a resident alien for tax purposes (that is somebody with a Permanent Resident Card or who has passed the IRS “substantial presence” test) may own an S corporation.
While permanent residency is not required to own or invest in a US business, here is the rub: to work in a US business, a foreigner will need permission from the US government, which means they must obtain a visa.
US Visas for Foreign Entrepreneurs
A Permanent Resident Card is one type of visa. It allows a person to live and work permanently in the United States. However, at this time, there is no visa specifically for foreign entrepreneurs who want to form a company in the United States In fact, New American Economy notes that many immigrant entrepreneurs sell a majority stake in their company and then apply for an H-1B visa as a highly-skilled worker. If a foreign entrepreneur already owns a US company, that company could sponsor the entrepreneur’s H-1B visa. If they already have an H1-B visa, they can invest in a business, start a US-based company (except for an S corporation), and receive income from a business they invest in—but they cannot work for that business unless it sponsors the H1-B visa.
H1-B visas are difficult to obtain due to annual caps, and they may not be the best option. A foreign entrepreneur may want to look instead to an E-2 visa or EB-5 visa to work in a business they have invested in.
- E-2 visas enable a person to stay in the United States for up to two years, with extensions available in additional two-year increments, when they invest a “substantial amount” of capital in a US business. They can work for the business on an E-2 visa, but they can only perform the work they were approved for when their visa was issued. Citizens of countries that do not maintain a treaty of commerce and navigation with the US government (including China) are not eligible for E-2 visas.
- EB-5 visas are available to foreign entrepreneurs who invest at least $1.8 million (or $900,000 if the business is in a targeted employment area) of capital in a commercial enterprise that creates a minimum of ten full-time jobs. Capital can include cash, equipment, inventory and other tangible property, cash equivalents, and debts secured by immigrant investor-owned assets. An EB-5 visa allows two-year conditional permanent residency that can be converted to nonconditional permanent residency.
Other types of visas that a nonresident may consider include the following:
- B-1 (restricted to unpaid, early-stage research)
- L-1 (if you are a foreign executive with an established business overseas and want to temporarily work in your business’s US division)
- O-1 (for those with extraordinary ability, which can include entrepreneurial skills)
- OPT (short for optional practical training, this visa allows you to stay and work in the United States if you have already been here on an F-1 student visa)
Next Steps for Starting a US Business as a Nonresident
Once you have obtained a visa to work in the United States, you can undertake the following usual steps required to start a small business:
- Choose a business structure: There may be restrictions on your ability to own an S corporation if you are not a US resident alien. But if you are a resident alien, you are free to choose any business structure you want—S corporation, C corporation, limited liability company (LLC), partnership, or sole proprietorship. According to Investopedia, most foreign nationals opt for a C corporation or a limited partnership. However, before choosing an entity type, you should speak with an attorney about the tax and liability implications of each.
- Select a state for business registration: As somebody moving to the United States, you can shop for the state that offers the best protections and tax rates. California, New Jersey, and Vermont are among the most expensive states for business owners, while Texas, Oklahoma, and Nevada are among the cheapest. Some states, like Delaware and Nevada, offer greater flexibility for incorporation. Of course, if you have existing US customers, you may want to choose a location that is close to them, but your business does not necessarily have to be located there. For example, you can register a corporation in Delaware even if the business operations are not concentrated in that state. You can also start an LLC in any state, regardless of where you are based.
- File the required paperwork: For a corporation, you must file articles of incorporation; for an LLC, you must file articles of organization. You will file these documents in the state where the business is located. Depending on the type of business entity, you may also need to file a shareholder’s agreement (corporation), operating agreement (LLC), or partnership agreement (partnership). LLCs and C corporations additionally require the appointment of a registered agent (somebody to receive official documents) in the state where the formation documents are filed. Each state has different rules regarding the documentation they require.
- Obtain a tax identification number: Per IRS rules, all corporations and LLCs must have an Employee Identification Number (EIN). This is necessary for hiring workers, opening a business bank account, and paying taxes. If you have another business structure, you must have a Taxpayer Identification Number (TIN). For sole proprietors, your TIN is usually the same as your Social Security number. Of course, if you are a foreign national, you do not have a Social Security number (to get one, you must be a US citizen). To obtain an EIN online, you must first have a TIN. Otherwise, your EIN application must be submitted by mail or fax. Nonresident and resident aliens are eligible to apply for an Individual Taxpayer Identification Number (ITIN).
Helping Foreign Nationals Achieve the American Dream
The issues outlined above are the main legal hurdles to clear before you can legally operate a US business as a foreign national. Other tasks to put on your list are setting up a business bank account in the United States, obtaining the licenses and permits required to run your business, making state and federal tax payments, submitting annual business reports to the state, and holding shareholder meetings.
Every idea for a new business starts with inspiration. From there, the path from ideation to creation can be long and arduous. This applies doubly if you are a non–US resident trying to start a business in the United States. But immigrants are more likely to become entrepreneurs, perhaps because they are willing to take risks and put in hard work.
Know that you do not have to face every challenge alone. From securing a business visa to choosing a business structure to meeting compliance obligations, we are here to help you on your entrepreneurial journey. Contact us and schedule an appointment.