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Starting a Business in Which an F-1 / H-1B Visa Holder is a Shareholder or Owner
Many international students want and are able to start their own businesses in America. However, because students in F-1 status are generally prohibited from working, many F-1 students fear that starting a business will jeopardize their status and their right to remain in the U.S. This article will clarify how starting a business affects F-1 visa status. Depending on whether an F-1 student is in class or in OPT, starting a business has different consequences. Thus, this article is divides the F-1 durational stay into two periods: when the student is studying and has no employment authorization; and the OPT period during which the student maintains F-1 status but has restricted employment authorization. Finally, this article will discuss how starting a business affects H1-B visa holders.
Currently, F-1 students are generally prohibited from working while in F-1 status. However, immigration law does not expressly forbid any alien from to investing or establishing a new business in America. Thus, for students in F-1 status, investing or establishing their own companies in the U.S. is a viable option. However, such students cannot work for their own companies.
Can it be deemed volunteering instead of employment if I work for my company without pay? No, students in F-1 status cannot be involved in any job relating to the operation of the company or otherwise “engage in business.” There is an exception if volunteering for churches or community service groups; but working without pay for a for-profit entity is never considered volunteering and will jeopardize an F-1 visa holder’s status. Although an F-1 student is prevented from working for his or her own company, preliminary planning prior to start up should not be deemed to be “engaging in business,” and thus, the F-1 student can also participate in limited preparation and planning for his or her own business.
Next, let’s discuss which types of business entities will be suitable for an F-1 student. A “closely-held corporation” or its equivalent under state law may be a good option for students. A closely-held corporation is generally eligible for S-Corporation tax classification under the Internal Revenue Code (IRC). This will avoid “double taxation.” S-Corporation requires its shareholders to be US residents for tax purpose. They include US citizens, Permanent Residents and other aliens who meet the substantive presence test. Thus, a student in F-1 status may be eligible as an S-Corporation shareholder if he can demonstrate his substantive presence in accordance with the test. An F-1 student can also consider other choices, such as various types of professional partnerships, which could be eligible for C-Corporation status under the IRC and, in limited circumstances, S-Corporation status. Finally, a student in F-1 status should not consider a sole proprietorship, because it would require the student to engage in business, as the owner will have to hire employees.
How can an F-1 student benefit from the company if he cannot engage in business and receive compensation? First, the student can receive dividends legally and freely as long as he files an income tax return. This is almost like buying public stock in Google and receiving dividends as a passive investor. Second, it will be more convenient for him after graduation if he uses his own company to file an H-1B petition for himself. We will talk about this in detail later.
Once the OPT is approved, the student may still maintain his F-1 status and will be granted restricted employment authorization for the supplemental period of his study. An F-1 student can then usually work for his own company.
How can an F-1 student continue on his career after the one-year OPT period? The common practice is to find a company to file an H-1B petition for him. Then he will be granted a 3-year durational H-1B visa to work for the petitioning company, with possibilities for extension.
In accordance with the USCIS Policy Memoranda issued on August 2, 2011, self-employed aliens cannot file an H-1B petition for themselves unless they meet all criteria below:
H-1B portability rule
Some H-1B holders may want to start their own businesses while already working for their original H-1B petitioning employer.
There are two ways to do that:
The first option for an H-1B visa holder would be to create the company and file an H-1B petition for himself. The H-1B visa holder still has to file an H-1B petition for the new job, but can maintain his old job. After the approval of the new H-1B, he can work for both his original petitioning employer and his new company at the same time. Of course, the new job for his own company might have to be part-time if the original job is full-time, and, if so, he should notate that in the petition.
The second way is to take the advantage of the H-1B portability rule, so long as the beneficiary meets the requirements. If that is the case, then the H-1B visa holder can promptly work for his own company right after the new petition is filed. The requirements are as follows:
Note the change in policy; that there can no longer be gaps in the beneficiary’s H-1B status if he wants to take advantage of the portability rule. This change in policy was announced on April 2, 2011. In other words, if an H-1B visa holder acquired status under another category, such as F-1 or H-4, then he cannot take advantage of portability, and, as such, has to wait until the new petition is approved and his H-1B status is effective before he can begin working for his company.
Therefore, we suggest that those who want to file a new H-1B petition to work for their own companies maintain their original H-1B status until the new petition is approved. This will avoid periods of unauthorized stay or unlawful presence in the event the new H-1B is denied.
Founded in 1996, Zhang & Associates, P.C. offers legal services to clients nationwide in all aspects of U.S immigration law. We have successfully handled thousands of immigration cases.
At Zhang & Associates, P.C., our attorneys and supporting professionals are committed to providing high-quality immigration and non-immigration visa services. We specialize in NIW, EB-1, PERM, and I-485 cases. In the past fifteen years, we have successfully helped thousands of clients get green cards. If you plan to apply for a green card, please send your CV to Attorney Jerry Zhang (firstname.lastname@example.org) for a free evaluation.
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