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International Entrepreneurs: Can a Foreign Non-Citizen be a Founder of a New U.S. Startup?

foreignCalifornia is home to the top two startup ecosystems in the world, Silicon Valley and the Los Angeles metro area.  Each year, thousands of foreign founders, entrepreneurs, and investors look for opportunities to participate in new California startups.

One of the top questions foreign citizens often have involves the limits on what activities non-citizens can engage in with respect to a new U.S. startup or venture.

Generally Acceptable Activities. Although U.S. immigration laws and restrictions are complex, as a general matter, foreign non-citizens are 100% allowed to found and start U.S. based businesses, as long as they are not “working” for the company or involved in running the business and its day to day activities.

Generally, foreign entrepreneurs, investors, founders, and other businesspeople can obtain B1 business visas to the U.S. to participate in business activities of a commercial or professional nature. A B1 Visa will allow a foreign founder, shareholder, entrepreneur, or investor to engage in a variety of business-related activities, including:

  • Consulting with business associates
  • Traveling for business reasons on specific dates
  • Discussing  planned investment or purchases.
  • Making investments or purchases
  • Attending meetings and fully participating in them
  • Conducting research
  • Purchasing real estate
  • Founding a startup
  • Being a shareholder of a startup
  • Investing in a startup
  • Acting as a director of a startup

A non-citizen can generally found a C-Corporation or LLC without any problems.  It is not possible, however, to start or found an S-Corporation, as shareholders must be citizens.  Under a B1 Visa, passive business activities are allowed, but no productive work is permitted.

Restrictions. On the other hand, the following activities require a working visa, and B1/B2 visitors may not engage in these activities

  • Working
  • Receiving payment for providing services
  • Running a business.
  • Being an officer of the startup (Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Vice President, Secretary, Treasurer, Etc.)
  • “Gainful employment”.
  • Being an employee of the startup
  • Providing independent contractor services for the startup
  • Receiving payment from the business or startup for work

Length of Stay. Foreign visitors to the U.S. on a B1 business visa are usually given an entry stamp for a period of up to 6 months. During the stay, the visitor is allowed to file an extension giving a stay of up to 1 year. However, business visitors must be wary of not spending more time in the U.S. than in their home countries under a B1 visa as that type of visa is intended to permit business meetings or other business activities of a passive nature, and not active work or employment in the U.S.

What are the Consequences of Working With a B1/B2 Visa? Business visitors who work without authorization in the U.S. risk not being able to obtain another visa in the future. Consular officers look very closely at past stays in the United States. Long and/or frequent trips (even with approved extensions) will often cause a consular officer to question whether you were working while in the United States.  For practical purposes, investors or shareholders will generally have no problem using a B1 Visa to fulfill all of the natural activities involved with investing in a new startup, such as conducting due diligence, negotiating investor or shareholder agreements, investing money, making capital contributions, or other investment activities. Officers, on the other hand, such as CEOs, CFOs, COOs, CIOs, secretaries, treasurers, etc., are responsible for the entity and its operations on a day-to-day level – these are activities specifically prohibited for holders of a B1 Visa. Directors can fall into a grey area. An unpaid/volunteer director who is a foreign citizen with a B1 Visa that comes to the U.S. to attend meetings, attend conferences, etc. would not be violating the prohibits, whereas a paid director receiving wages for services to the corporation would be.  If you are concerned about whether your activities in the U.S. with respect to a startup are permitted, it is always best to consult with an attorney.

What are Some Other Options?
If a B1/B2 Visa is not workable for your startup, there are some other options that may be available:

  • Visa Waiver. If you are form one of the countries that participate in the United States’ Visa Waiver Program, you may enter the U.S. for up to 90 days for business, tourism, visiting, or pleasure.
  • O-1. An O-1 Visa may be available for individuals of “outstanding” abilities.
  • E-2 Visas (Investor Visas). This type of Visa is an investor visa that requries a that the foreign resident invest a substantial amount of money into the entity. This type of Visa applies to countries to which U.S. has treaties. By investing a substantial amount of money, non-citizens may be able to apply for an E-2 Visa, which permits actively working as a director. However, the foreign resident must own at least 50% of the company, and will lose the VISA status as soon the stake in the startup falls below 50%. This type of Visa is applicable for two years, and may be extended for two-year periods unlimited times. The problem with this Visa, however, is that there is no official path to a green card, so foreigners with this Visa will remain non-resident aliens.
  • H-1B Visa (Specialty Employee). A specialty employee Visa permits U.S. businesses to hire foreign workers for a complex or unique job, up to a period of three (3) years, which can be extended to six years. Many foreign business visitors want to know whether they can start with a B1/B2 Visa and readjust status to an H-1B Visa, which is an employment Visa that permits employees working for U.S. companies to live and work here in the U.S. legally.  However, the U.S. Citizinship Immigration Services has provided guidance on the issue and determind that a) an employee who owns a majority of the corporation; and b) reports only to him or herself does not have a valid employment relationship for H-1B purposes. Also, U.S. CIS carefully scrutinizes H-1B Visas to ensure that the business requesting the specialty employee’s services is established and has strength.

AXIS Legal Counsel’s International Practice and  Business and Corporations Practice provides legal advice to international businesses concerning a variety of legal matters, including business formations, contracts, deals, and transactions, business administration, corporate governance, operations, risk management / insurance,  labor/employment matters, intellectual property, healthcare, crisis management, directors/officers, private/data security, technology, statutory/legal compliance, and business litigation. AXIS represents businesses, corporations, LLCs, LLPS, partnerships, and startups in need of a corporate lawyer, for business legal matters as well as business litigation, such as disagreements, non-solicit agreements, non-competes, trade secrets, and others. We are also experienced in providing assistance to business clients concerning business contracts, corporate formation matters, contracts and transactions, business litigation, business legal advice for Corporations, LLPs, LLCs, Partnerships, Small Business, Startups, and others involving corporate law.

For information on retaining AXIS Legal Counsel to represent your international business in connection with any legal matter, contact [email protected] or call (213) 403-0130 for a confidential consultation. Axis’ managing attorney Rabeh M. A. Soofi is ranked as one of the “Top Women Lawyers of Southern California” by SuperLawyers Rising Stars, and is a Los Angeles Business Lawyer representing international businesses and start-ups throughout Los Angeles and California.

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