Key Takeaways

  • H1B visa holders can start a business in the U.S. but must establish a valid employer-employee relationship.
  • Recent changes allow H1B startup founders to self-sponsor their visa if they meet eligibility criteria.
  • Entrepreneurs must demonstrate that their role requires specialized knowledge and that they will be treated as an employee of their company.
  • The business entity structure (LLC, C-Corp, etc.) impacts the ability to comply with visa regulations.
  • Passive ownership is permitted, but actively managing the company requires additional steps, such as changing visa status.
  • Alternatives like the EB-5 Immigrant Investor Program offer pathways to permanent residency for entrepreneurs.
  • It is advisable to seek legal counsel to navigate the complexities of starting a company as an H1B visa holder.

Starting a company on H1B visa is important for entrepreneurs and business owners that may only have temporary ability to work in the U.S. for U.S. employers. In general, the requirement for an H1B is a job offer for a specialty position in a U.S.-based company (see H-1B application). The worker must also possess a Bachelor's degree or higher that is relevant to the position they want to obtain.

A Labor Condition Application is required for an employee who is going through the process to obtain an H1B. The form basically states that a relationship must exist. The relationship must be referred to as a “the conventional master-servant relationship as understood by common-law agency doctrine.”

Establishing an Employer/Employee Relationship

For a relationship to be established, the employer must prove the right to control the employee. Conditions that must be met include:

  • The employer is in control of the daily tasks of the employee.
  • The employer provides the equipment that the employee needs to complete their work.
  • The employer has the power to hire, pay, and terminate the employee.
  • The employee is claimed for taxes.
  • The employer has control over how the work is done.

These conditions must be present for as long as the status of the H-1B visa is valid. While the USCIS says that no particular factor will decide termination but that all will be taken collectively to make a decision. Because of this, there is no mandate for or against an H-1B holder starting their own business. As long as they are not violating the terms of their visa, there seems to be no problem.

Though because the stipulation that the holder must only work for the petitioning employer, it is understood that while they can start a business, they may not be able to technically work for it.

Clarification was made in 2010 by the USCIS that stated an H-1B holder can start and work for their business is:

  • The holder cannot be the sole proprietor.
  • The holder will be treated as an employee even though they have ownership.
  • The position must be valid and not just to create a circumstance to obtain the visa.
  • The position must require a higher degree.
  • The business plan must include the hiring of American workers.

There are a few things to note before attempting this process.

  • It can be difficult to set up a board of directors when you are not yet in the U.S.
  • You will have to remain a passive shareholder.
  • You will never be able to run the business as the CEO. Obtaining this position would require a change of visa status.
  • Citizenship or green card status are the best routes to being able to fully run your company.

USCIS’s Updated H1B Rules for Startup Founders

In a significant policy shift, the U.S. Citizenship and Immigration Services (USCIS) has clarified that H1B startup founders may now self-sponsor their visa under their own company, provided they meet the necessary criteria. The company must demonstrate an employer-employee relationship, meaning that the founder cannot have unchecked authority over their employment.

Key factors USCIS considers:

  • The startup must have a governing body (such as a board of directors) that can make hiring and firing decisions.
  • The founder’s role must require specialized knowledge and align with the qualifications of the H1B visa.
  • The company should have a structured payroll and comply with prevailing wage laws.
  • There must be a separation between ownership and management functions.

These changes create new opportunities for H1B startup founders to actively work in their businesses while adhering to immigration regulations.

Steps in Starting a Business on an H1B Visa

When starting a business on an H1B visa, there are certain steps that must be followed:

  1. You must remain employed with the employer that sponsored your H-1B visa. Even if you start your own business, you will have to stay with the job which got you your visa, or it could be terminated. If you quit, you will have to find a similar job, apply for nonimmigrant status, or leave the U.S.
  2. Develop a strong business plan to show it can be successful.
  3. Research different types of business entities.
  4. Enter into the business as a passive investor or shareholder. You will not be allowed to be a CEO, but you still can have shareholder voting rights.
  5. Create and register your business name with the local and state offices.
  6. Contact the IRS to receive an EIN or TIN which will serve as your taxpayer identification number.
  7. Choose a business location.
  8. Ensure that you have all licenses, permits, and necessary certifications.
  9. Make sure you follow all regulations regarding worker's compensations, benefits, insurance, health codes, taxes, and other issues to prevent legal problems.
  10. Hire someone to run the business since you will be unable to fill this role unless your immigrant status is changed.
  11. Oversee your business from the standpoint of a passive investor and shareholder without directly participating. You still will have ownership rights, benefit from business gains, and receive dividends.

Choosing the right business entity is critical for H1B visa holders looking to start a company. The entity structure affects the ability to establish an employer-employee relationship and comply with immigration laws.

  1. Limited Liability Company (LLC) – While an LLC offers flexibility, it may not be the best option for H1B entrepreneurs, as LLC owners are often considered self-employed, which conflicts with H1B regulations.
  2. C-Corporation (C-Corp) – This is the preferred structure for H1B founders because it allows the company to hire the founder as an employee while maintaining a separate legal identity.
  3. Professional Limited Liability Company (PLLC) – For professionals such as doctors and attorneys, a PLLC might be necessary, but similar limitations apply regarding active management​.

H1B founders should carefully assess which business structure aligns with both their business goals and visa compliance requirements.

Navigating Investment and Funding as an H1B Founder

Funding a startup as an H1B visa holder presents unique challenges. Since H1B holders must not engage in unauthorized employment, they need to structure investments in a way that complies with visa regulations.

Key considerations:

  • Passive Investment: H1B holders can invest in their startup and receive returns but cannot actively manage daily operations.
  • Venture Capital and Angel Investors: Attracting external investors can help ensure that the company has sufficient funding while allowing the founder to maintain compliance.
  • EB-5 Immigrant Investor Program: Entrepreneurs with significant capital may explore the EB-5 visa, which grants permanent residency in exchange for a substantial investment in a U.S. business​.

Understanding funding options is crucial for maintaining compliance and securing business growth.

Transitioning from H1B to Other Visa Options

Many H1B startup founders seek long-term solutions to continue operating their business. Several visa options exist for transitioning from an H1B to a status that provides greater flexibility.

  • O-1 Visa (Individuals with Extraordinary Ability): Entrepreneurs with a strong track record in their industry may qualify for an O-1 visa, which offers more flexibility than an H1B.
  • EB-2 National Interest Waiver (NIW): Founders with businesses that significantly benefit the U.S. economy or society may apply for an NIW, which bypasses the need for employer sponsorship.
  • L-1 Visa (Intra-Company Transfer): If the founder has an affiliated company abroad, they may transfer to the U.S. to manage the business under an L-1 visa.

Strategizing a visa transition plan early can help founders maintain continuity in their business​.

Frequently Asked Questions 

1. Can an H1B visa holder own 100% of a startup in the U.S.? Yes, an H1B holder can own a business, but they cannot actively manage it unless they establish an employer-employee relationship or change their visa status.

2. What is the best business structure for an H1B startup founder? A C-Corp is generally the best option because it allows the founder to be legally employed by their company while complying with H1B requirements.

3. Can an H1B visa holder apply for an EB-5 visa to run their business? Yes, if they invest a minimum of $800,000 in a U.S. business and create at least 10 full-time jobs for American workers, they can transition to permanent residency through the EB-5 program.

4. What are the new USCIS rules for H1B startup founders? The USCIS now allows H1B holders to self-sponsor their visa through their own company, provided they demonstrate an employer-employee relationship and meet other requirements.

5. Can an H1B visa holder apply for funding for their startup? Yes, they can seek venture capital, angel investments, or passive investment strategies, but they cannot directly manage operations without complying with H1B regulations.

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