One of the recent ideas that interests a lot of people, especially F-1 international students and H-1 professional workers, is the prospect of starting a new business (a “start-up”), usually with partners who are US citizens. We are seeing a huge spike in the number of start-ups, mostly in the world of IT.
A US citizen or permanent resident (someone with a “green card”) is certainly allowed to start a business by themselves or with others. However, non-immigrants are generally not allowed to engage in business ownership with the exceptions noted below. Non-immigrants are foreign nationals in the US, on a temporary basis, usually confined to one or a small number of activities. The difficulty for non-immigrants is USCIS considers ownership of even a small part of a “closely held” start-up to be “employment” even if the investor does not actually “work” for the company and only invests money. Investing money in companies listed on publicly traded stock exchanges, such as those on Wall Street, is not considered employment by USCIS because, according to the Immigration Service, no actual “work” is performed for the company. This distinction appears to be a contradiction but, nonetheless, that is the current state of the Service’s policies regarding company ownership.
One of the most common fact scenarios involves F-1 students who are granted Optional Practical Training (OPT) which is a one-year period of work authorization granted to the recent graduate as long as the employment is directly related to the degree most recently conferred. Graduates in science, technology, engineering, and math (STEM degrees) may be eligible for an additional two-years of OPT. As long as the new company is involved in work that requires the F-1 student’s most recent degree, the recent graduate can use OPT and STEM OPT to work for the company and invest in the same company. Most students will try to obtain H-1 status to continue working, gaining experience which will be required for the permanent residence/green card. USCIS recognizes the special status that corporations and partnerships hold as separate entities from the individual owners. So, for an H-1 worker, the non-immigrant is allowed to be both an employee and an owner of the same company.
So far, the plan appears to be working. And, hopefully, the business will be successful. However, from an immigration law perspective the goal is not to obtain OPT and H-1 status. The goal is to obtain permanent residence and eventually US citizenship. And this is where the problem arises: the first step of an employment-based case is called a labor certification which is obtained from the US Department of Labor (DOL). As part of the labor certification process, DOL will obtain from the new company a significant amount of financial documentation including information about the ownership. DOL does NOT allow the beneficiary of the labor certification to also have an ownership interest in the business. DOL will also not allow the non-immigrant beneficiary to sell her/his shares in the company at this part of the process and still be eligible for the labor certification.
So, the worst possible scenario is the F-1 student joins her/his friends in a start-up business with a great IT idea. The company quickly becomes successful and everyone is very excited about the future. The non-immigrant investor uses OPT and theH-1 to remain in the US, working for the start-up and maintaining the ownership interest. But when the time comes for permanent residence, the entire strategy collapses. The non-immigrant cannot even sell the ownership interest to obtain permanent residence.
The good news is there are options available to realize the dream of “owning” part of the start-up and still navigate the restrictions of the US immigration rules. But these options must be analyzed before the business is created; it is almost impossible to obtain permanent residence even if the ownership is given up in the H-1 process. It is best to create a strategy with the business attorney who creates the business and the Board Certified immigration attorney who will lead the non-immigrant to the green card and the business owners to success with the start-up. If this situation arises, or any issues regarding non-immigrants investing in private business entities and also seeking a green card through the same business, the first and most important step is the non-immigrant’s consultation with her/his immigration attorney.
Managing Partner – Dallas, Texas
David Swaim & Associates, P.C.