What are the laws pertaining to immigrants starting a business in the U.S?
U.S. immigration law is federal, which means it is followed throughout the country. Federal immigration law does not prohibit an undocumented immigrant from owning a business. The law makes being in the U.S. without permission unlawful, of course; and this act is punishable by deportation and various obstacles on return to the U.S. after deportation or other kind of departure. However, there have been cases where an undocumented person was caught in the U.S. and business ownership was actually viewed as a point in their favor when defending against deportation.
The law also makes it illegal for someone to employ an undocumented worker. This comes from the Immigration Reform and Control Act, or IRCA (found at 8 U.S. Code § 1324a.) Businesses that hire undocumented workers may be sanctioned with fines, asset forfeitures, and in instances of repeated violations, criminal arrest.
Can you start a business as a non-resident?
Starting a business in the U.S. is no easy feat, especially if you’re an immigrant. From overcoming language barriers to obtaining the right to legally open and operate a business on American soil, immigrant entrepreneurs certainly face their share of hardship.
Despite these obstacles, immigrants still do very well in the U.S. as business owners. According to a report by Fiscal Policy, immigrant small business owners accounted for 30% of overall small business owner growth in America between 1990 and 2010.
Given the fact that immigrant business owners seem to thrive in the U.S., just how difficult is it for one to start and fund a business in America today?
How do I start a business in the U.S.?
Although the U.S. is notorious for its strict immigration policies, legally obtaining passage into the country and starting a new life as an entrepreneur is not impossible.
To help you figure out what you need to start a business in America as an immigrant, we’ve covered all the steps for you below.
Choosing a business idea
Choosing a company structure
The first step to starting your business as a foreign business owner is to choose a company structure. For immigrants, your choice boils down to two different models: a C-corporation or a limited liability company (LLC).
Both of these business structures are advantageous to foreign business owners because they can be run outside of the U.S. and do not require residency or citizenship at any point.
Benefits of a C corporation
C corporations are ideal for foreign business owners because of their tax and legal benefits. The major advantages include:
Separate legal identity: The corporation has its own rights and responsibilities under the eyes of the law.
Limited liability for shareholders: As a shareholder, you cannot be sued or held liable for your company’s debts or obligations.
Perpetual existence: If you pass away or declare bankruptcy, your corporation will live on.
One disadvantage of a C corporation is double taxation. As a shareholder, you must first pay a corporate level tax for owning a company that turns a profit. You must then pay income tax on your dividend earnings. There are ways to reduce or avoid double taxation, but you should consult a tax advisor to do so.
Benefits of an LLC
LLCs are a hybrid company structure, meaning they combine elements of both limited partnerships and corporations. Under an LLC, members of the company are not held personally liable for the company’s debts or liabilities, a key feature of corporations.
Advantages unique to an LLC include:
Pass-through taxation: As the business owner of a “flow-through entity,” profits go directly to you, and you pay your business’s taxes with your personal tax return.
More flexibility: As a partnership, you and any other co-owners determine how profits are split.
Less administrative hassle: LLCs involve less paperwork because they do not require a board of directors or shareholder meetings.
If you do plan to run a U.S.-based business in your home country, then you should check your native country’s tax laws to see which model would be most advantageous to you.
Choosing a state to register your company
Once you’ve figured out the type of business structure you want, you need to find the best place to locate your business. States like Delaware, Nevada, Montana, South Dakota, Wyoming and New York are famously known for their accessible and lenient policies towards foreign business owners, making them popular states for immigrant-owned businesses. However, if a specific state dominates your market, then you should consider locating there.
So, what should you look for in a location? Here are some considerations to keep in mind:
No state taxes: This includes sales tax, state corporate income tax on goods and services sold, personal property tax, value-added taxes (VATs), taxes on business transactions, or capital shares or stock transfer taxes.
Low franchise and LLC tax: Many states require an annual franchise and LLC tax based on your earned income, while other states (like Delaware) offer a low-cost, flat-rate fee.
Corporate privacy: This varies from state to state, but each state offers laws that protect the identities and personal information of corporate shareholders or LLC owners. Delaware specifically protects the names and addresses of LLC members and managers by not making them public.
Again, if you do not require a specific location to establish your business, it’s in your best interest to register your business in states like Delaware of Nevada, both of which are considered tax shelters for national- and immigrant-owned businesses alike.
Registering a business
Once you’ve found an ideal state for your business, you need to register it. Here are the steps you need to follow:
Choose a name
If you do not use your own name for your business, then you must register it as a trade name, or a “doing business as” (DBA) name, with your state. When it comes to naming your business, the only thing to be aware of is trademark infringement. Do your research to see what’s available so you do not incur a lawsuit.
Obtain your individual taxpayer identification number
Each business requires a taxpayer number. As an immigrant, you must obtain an ITIN to satisfy this requirement. ITINs are issued by the I.R.S. to anyone that must pay U.S. taxes but does not have a Social Security number. To apply for one, you need to fill out a W-7 form.
Apply for your employer identification number
Once you’ve obtained your ITIN number, you can also apply for your EIN. An EIN is necessary to identify your business for tax purposes. You need an EIN to open a bank account, file tax returns and apply for business licenses. To obtain your EIN, you can simply apply online.
Register as a legal entity
When you register your business as a legal entity, you’ll need to file documents known as “articles of incorporation” with your state. To do this, you need to select a state registered agent to handle all legal documents for your company.
If your company has a physical U.S. address, it can substitute as the agent; otherwise, you need to elect someone registered in your state of choice to act on your behalf. There are services to find registered agents, but they are state-specific. If you do not have any connections in your desired location willing to act as your agent, then you should search for online services in your area.
Funding your business
Securing funding for your business can be tricky as a foreign business owner. You may not be able to secure funding at all if you cannot legally work within the U.S. If you are here on a working visa or are a green card holder, though, there are many options available.
SBA loans
Some of the most common loans for immigrants are Small Business Administration loans. The SBA is a government agency that supports small businesses by providing them with the resources, connections and assistance they need.
So, who can apply for funding? You qualify if you are a(n):
Naturalized citizen.
Lawful permanent resident.
Lawful non-permanent citizen.
Asylee or refugee.
SBA loan eligibility is complicated, so you may want to refer to the SBA’s eligibility requirements (start on page 110).
Term loans
Term business loans are lump sums of cash given to you by a lender. When you take out the loan, you agree to pay back the loan over a predetermined period of time. Approval for term loans is more difficult for immigrants for various reasons.
To improve your chances of securing a term loan, it’s better to apply through a funding specialist from an online marketplace rather than at a brick-and-mortar bank.
Short-term loans
Short-term loans are just like term loans, only they come with a much shorter payment period, usually around 18 months or less. The appeal behind a short-term loan is the credit threshold: You do not always need to have a strong credit score to get approved, so the likelihood of getting approved for a short-term loan is greater.
Obtaining an entrepreneurship visa in the U.S.
To clarify, you do not need to be a U.S. citizen or even a green card holder to start a business in the U.S. In fact, the only reason you need to obtain a visa is if you plan on working in the U.S. at some point in the future.
Obtaining an entrepreneurship Visa in the U.S.
If working and living in the U.S. is your goal, then there are many types of visas to choose from. The key is determining which visa best suits your needs. For the business-minded immigrant, we’ve listed several of the most common (and expedient) options below, and also included the standard requirements for each.
EB-1 entrepreneur visa
By far the most difficult visa to obtain, the EB-1 visa is reserved for individuals that exhibit “extraordinary ability” in their field. The EB-1 is so desirable because, unlike the other visas on this list, it grants you the ability to live and work indefinitely in the U.S. as a permanent resident.
The U.S. Citizenship and Immigration Services (USCIS) uses a point system to determine if an applicant measures up to their standards of extraordinary ability. To be accepted, applicants need to satisfy at least three of the following criteria:
Proof of internationally or nationally recognized prizes or awards of excellence.
Proof of membership in associations in your field that require outstanding achievement for members.
Proof of published material about you in major trade publications or other major media.
Proof that you have been selected to judge the work of others individually or as part of a panel.
Proof of your original scientific, artistic, scholarly, athletic, or business-related contributions of significance in your field.
Proof of scholarly authored material in major trade publications or other media.
Proof that your work has been displayed at major exhibitions or trade shows.
Proof of your distinguished performance within a critical leading role for a major organization.
Proof of a high salary in your field relative to others in your field.
Proof of commercial success in the performing arts.
With an EB-1 visa, you may:
Bypass labor certification when applying for work.
Live indefinitely in the U.S. with or without permanent employment.
Obtain a green card much faster than other visa holders.
Basic requirements and/or documentation include:
You must satisfy at least three of the criteria constituting extraordinary ability.
E-2 treaty investor visa
The E-2 “investor visa” is available to immigrant investors that wish to live and work within the U.S. To be considered, you must place a substantial investment into a bona fide enterprise, startup, or business that you intend to work for. Essentially, this means you plan to either purchase or establish your own business within the U.S. The E2 visa lasts anywhere from three to five years and can only be granted to individuals that come from countries that fall under the Treaty of Trade and Commerce.
With an E2 visa, you may:
Work legally for the company functioning as the investment vehicle.
Travel in and out of the U.S.
Remain in the U.S. with unlimited two-year extensions so long as you maintain your E2 qualifications.
Bring along spouses or children under 21 years of age.
Basic requirements and/or documentation include:
You must be a national of a treaty country.
You must have invested (or be in the process of investing) a substantial amount of capital in a U.S. enterprise of some sort.
You must be seeking to enter the U.S. solely for the purpose of developing your investment. To prove this, you must demonstrate that you have at least 50% ownership of the investment.
E-1 treaty trader visa
The E-1 treaty trader visa allows nationals of a treaty country (reference the Treaty of Trade and Commerce above) to work in the U.S. for the purpose of engaging in international trade. According to USCIS, items of trade include (but are not limited to) the following:
Goods.
Services.
International banking.
Insurance.
Transportation.
Tourism.
Technology.
Journalism or “news-gathering activities.”
However, you can’t just work in one of these fields and expect to qualify for the E-1 visa. You first need to share the same nationality as that of your company, and at least 50% of your company’s trade must be with the U.S.
With an E-1 visa, you may:
Stay in the U.S. for up to two years at a time.
Work only for your approved activity or company.
Travel in and out of the U.S.
Bring along spouses or children under 21 years of age.
Basic requirements and/or documentation include:
You must share common nationality with your company.
Your company must actively be making substantial investments in the U.S.
Your company must be in a treaty country.
While this is not at all an exhaustive list of the types of entrepreneurial visas you can apply for to start a business in the U.S., it does give you an idea of what the process is like to live and work in the U.S. as an immigrant business owner.
Many people come to America to fulfill the dream of a better life, including access to education, employment, housing, and, at times, improved health care and a more developed infrastructure.
Often, immigrant entrepreneurs start businesses, work in professional services, retail, restaurants, real estate, technology, healthcare or construction. They sometimes own franchises and small businesses like grocery stores, gas stations and fast food restaurants.
Beyond helping themselves, many have added to our domestic economic growth as immigrant entrepreneurs. In 2016, the National Immigration Forum found that immigrant-owned businesses employ more than 19 million people and generate $4.8 trillion in revenue.
immigrant bus final
This is an increase from the 2013 report backed by Harvard, which noted that immigrants added $1.6 trillion to the total U.S. gross domestic product (GDP).
A statistical analysis based on the American Community Survey and the Survey of Small Business Owners concluded that immigrants account for approximately 28% of all U.S. small business owners.
Plus, they are two times more likely to become entrepreneurs than native-born people. Even more compelling is research from the National Foundation for American Policy which reported that 55% of the country’s $1 billion startup companies have at least one immigrant founder.
These enormous economic contributions come at a cost for immigrants who struggle to create these types of small business opportunities. Here’s why…
Possible, but with challenges
If you’re wondering if it’s possible for an immigrant (who is not a permanent resident) to start a business in the U.S., the answer is yes. The statistics above prove that many immigrants are accomplishing these business goals. But, it takes time and patience as immigrants do need to overcome considerable challenges.
First, unless you’re a permanent resident, there are no visa categories for immigrant entrepreneurs.
As an immigrant investor, though, it is possible to get an EB-5 visa. But you’ll need more than $1 million to invest with the ability to hire employees. Unfortunately, that only applies to a very small number of immigrants.
Despite many in government working on the Startup Act, the idea of a startup visa is still just that – an idea.
On the other hand, foreign nationals can get a visa as a family, student or visitor, and a work permit as a worker for a certain company or project.
What is the International Entrepreneur Rule?
Introduced by President Obama late in his second term, the International Entrepreneur Rule (IER) sought to make entrepreneurship accessible to more immigrant founders.
This rule would have given immigrant founders 2.5 years to scale their companies in the U.S. (and another 2.5 years if companies met growth requirements). The hope was that the IER would help stimulate business opportunity for entrepreneurs wanting to move to the U.S.
However, the Department of Homeland Security under President Trump fought usage of the IER and plans to rescind it.
Until further progress happens or other legislation passes, foreign nationals who want to start a company must use the existing visa system to declare their immigration status. This includes the H-1B, E-2 treaty investor, or EB-5 Investor Program options.
The type of visa you select has certain criteria. If you have an established business outside of the U.S. that is at least a year old and employs four or more people, then the L-1A visa is an option.
If your business is less than 12 months old or has fewer than four employees, then the E-2 visa is an option. This visa would also be ideal for an immigrant who does not have a business outside of the U.S., but is moving here to start one.
There’s also the O-1 visa for an individual or student who can prove they have extraordinary ability or achievement in areas like sciences, arts, education or athletics, which may benefit the U.S.
Starting a business as a non-resident
Immigrant business owners don’t need to have resident status to open a business and file taxes. Like other small business owners, immigrants should first select a company structure, such as a C corporation that can include resident investors, or a limited partnership structure.
The next step is to register in a particular state like Delaware that offers flexible corporate rules. For example, Delaware doesn’t require a bank account or local physical address. After picking a state, select a company name and registered agent as well as fill out a certificate of incorporation.
The process of starting a business also includes getting an Employer Identification Number. You need this for tax purposes, for getting a business license and for opening a bank account.
There are financial advisors who may also specialize in helping immigrant entrepreneurs complete this part of the startup process.
Things to remember
There’s one main thing to consider about starting and managing a business in the U.S. as a non-permanent resident – it does not come with automatic work privileges. That means a foreign entrepreneur can be a corporate officer or director of a startup or established company.
However, immigrants cannot work in the U.S. or receive a salary without first getting a work permit. Examples of this include a green card or a special visa issued by the U.S. government. A foreign citizen can still earn profits from their company, but they must pay the proper taxes on those profits.
Also, they can only receive compensation from a branch of the same company located in their home country. Therefore, an immigrant entrepreneur must make sure they have enough money to support themselves until they get a green card or become a citizen.
What are the business resources for immigrant entrepreneurs?
Starting a business can be a challenge for anyone, especially for someone new to the country who is unfamiliar with processes and laws. Fortunately, there are numerous resources available to help immigrant small business owners succeed.
Sites like the U.S. Small Business Administration focus on helping entrepreneurs grow their businesses, offering education, financial assistance and templates. Other organizations like Immigrant Biz provide a directory of resource options, including micro-lenders that specifically help immigrants, as well as local loan programs by state for immigrants.
Venture capital, funding options and loans for immigrants
If you don’t have full resident status, you cannot get a social security number (SSN), which is a critical number for opening most bank accounts, getting loans and obtaining credit.
While some financial institutions will accept Individual Taxpayer Identification Numbers (ITINs) instead, it’s not a guarantee.
Another option for funding is grants for immigrants. These include business development grants for immigrants who have small businesses but are socially or economically disadvantaged.
The Department of Health and Human Services provides discretionary grants focused on financial literacy. They also offer specialized training like business plan development and marketing for immigrants from Cuba, Haiti and Asia.
The Wilson/Fish Program managed by the U.S. Department of Health and Human Services also provides refugee and entrant help. This is a cooperative-agreement grant limited to immigrants from:
Cuba
Haiti
Iraq
Afghanistan
Some Asian countries
The grant includes services, funded projects in immigrant communities and cash assistance for eight months.
Additionally, it’s possible to build credit as a new immigrant, so you can tap into more funding that may help fuel business growth. While it may take some time, this option can help provide additional funding if you can wait to start your business.
It can also help you after you use up any grants, crowdfunding, or other funding.
What are some commonly seen businesses begun by immigrants?
Often, immigrant entrepreneurs start businesses, work in professional services, retail, restaurants, real estate, technology, healthcare or construction. They sometimes own franchises and small businesses like grocery stores, gas stations and fast food restaurants.