Ibrahim Gardner
International students in the United States often arrive with dreams of developing their innovative business ideas and becoming entrepreneurs. While this is possible, there are important visa-related considerations and limitations to be aware of. The type of visa an international student holds will determine what they can and cannot do in terms of starting and running a business. F-1 visa holders, for example, are allowed to create a business plan and launch a business, but they cannot engage in daily operations or receive compensation. To do so, they must apply for Optional Practical Training (OPT) authorization, which must relate to their program of study. Other visa options, such as the O-1, H-1B, and the International Entrepreneur Parole (IEP) Program, may also be explored. Seeking advice from professionals such as immigration attorneys, business advisors, and accountants is advisable to ensure compliance with legal prerequisites.
| Characteristics | Values |
|---|---|
| Visa type | F-1, O-1, H-1B, E-2 Treaty Investor, EB-5 Immigrant Investor, L-1A, L-1, IEP |
| Business type | E-commerce, blogging, digital marketing, tutoring, consultancy |
| Business stage | Planning, launching, operating |
| Work status | OPT, CPT, pre-completion OPT, post-completion OPT |
| Work hours | Maximum of 20 hours per week for pre-completion OPT |
| Business registration | LLC, C corporation, S corporation |
| Business location | Must have a U.S. mailing address |
| Tax requirements | Annual income tax return for dividend income |
| Compliance | Consult with Designated School Official and U.S. Citizenship and Immigration Services |
| Support | Immigration attorneys, business advisors, accountants |
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What You'll Learn
F-1 visa limitations and workarounds
International students on an F-1 visa can create a business plan and launch their own business. However, they cannot run the company or engage in business operations. This means that they cannot conduct business activities or receive compensation/a salary.
To get around this, F-1 visa holders can become passive investors in a new or established business and receive dividends. They can also invest their personal savings or loans from family and friends into their business, or go through a venture capitalist. They must also ensure they leave the business to a capable team after the preliminary planning phase.
F-1 visa holders can also apply for Optional Practical Training (OPT), which allows them to gain valuable work experience in a US-based company or organisation. The OPT must relate to the student's program of study and can occur before or after the completion of their program. F-1 students with a degree in a STEM field may be eligible for a 24-month extension of their OPT.
Another option is to change the visa status from an F-1 visa to another type of visa, such as those in the H, O, L, E, or G categories. For example, the H-1B visa is for international entrepreneurs who own a significant stake in a US company. However, it is generally easier to study on a work visa than to work on a student visa, and leaving a student visa means losing the OPT benefits.
Additionally, F-1 visa holders should be aware that their visa status will be included in investor due diligence, and some investors may be hesitant to invest in a startup with an international student as one of the lead founders. However, an international background could be an asset for marketing and attracting foreign investors.
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OPT and visa options
International students on an F-1 visa are prohibited from "engaging in business". However, they can create a business plan and launch a business. Once the business is established, they must cease any engagement in its operations and cannot receive compensation or a salary. F-1 visa holders can invest in their own company and receive dividends, but they must file an annual income tax return if they earn dividend income.
To actively work in their business, F-1 visa students must qualify and apply for optional practical training (OPT). OPT must relate to the student's program of study and can occur before or after completion of the program. F-1 students are generally authorized up to 12 months of OPT (part-time pre-completion OPT, on a 2:1 prorated basis, and post-completion OPT combined). Students participating in pre-completion OPT may not work more than 20 hours per week. F-1 students who graduated with a degree in a STEM field may be eligible for a 24-month extension of their post-completion OPT if their degree is listed on the Department of Homeland Security STEM-Designated Degree Program List. After OPT ends, students may not continue working unless they qualify for nonimmigrant or immigrant status.
International student entrepreneurs may struggle to obtain the required work authorization to stay in the US after graduation. They can consider various visa options to legally remain in the country while growing their business, such as O-1, E-1A, EB-1A, and EB-2 NIW visas. The EB-1A visa is the most difficult immigrant visa to acquire, requiring proof that the applicant is in the top 1% of their field. However, it offers shorter wait times for individuals from certain countries and starts the green card process. O-1, E-1A, and EB-2 NIW visas have similar criteria to O-1 visas, but building eligibility while in college can increase the chances of acceptance.
When selecting a business entity, international students should note that S corporations bar non-resident aliens from becoming investors. Therefore, they may need to choose a C corporation or LLC. They can also consider hiring attorneys to help negotiate with buyers regarding support for their H1-B or other visa status, allowing them to pursue a green card even after selling their business. Additionally, international students should be aware that some U.S. angel investors and venture capital firms may be hesitant to invest in startups with international student founders due to visa status concerns. However, an international background can be an asset for marketing expansion potential and attracting foreign investors.
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Investor visas
International students on an F-1 visa can create a business plan and launch their own business. However, they cannot engage in the running of the company or receive compensation. They can, however, invest in their own company and receive dividends.
If you are an international student looking to start a business in the United States, there are a few visa options to consider. Here is some information about investor visas:
EB-5 Immigrant Investor Visa
The EB-5 Visa is an immigrant visa that leads to a Green Card (permanent resident status) for the investor and their family members. This visa has higher financial thresholds, requiring a capital investment of $1,050,000 or a reduced investment of $800,000 if the investment is made in a Targeted Employment Area (TEA). To qualify for this visa, investors must create at least 10 jobs for skilled workers from the United States. The EB-5 Visa also allows investors to open local bank accounts in various currencies and provides benefits such as free education for their children at US schools.
E-2 Treaty Investor Visa
The E-2 Visa is a non-immigrant investor visa for foreign nationals of a treaty country. This visa has a lower capital investment requirement, with successful applicants investing as little as $80,000 to $100,000. There is no set minimum amount, but the investment must be sufficient to ensure the successful operation of the business. The E-2 Visa grants temporary status, allowing visa holders to invest in and manage a business. The processing time and fees for this visa vary depending on the applicant's home country and specific circumstances.
It is important to note that the visa process can be complex, and it may be helpful to consult with an immigration attorney or advisor to determine the best path for your specific situation.
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Business registration and compliance
International students in the US on an F-1 visa can create a business plan and launch their own business. However, there are challenges when it comes to running the business and engaging in daily operations. F-1 visa holders are prohibited from being found "engaging in business". While the law does not prevent an F-1 student visa holder from establishing a business, once the business plan is enacted and the business is fully established, the F-1 visa holder must cease any engagement in the running of the company. They are not allowed to conduct business activities or receive compensation or a salary.
F-1 visa holders can invest in their own company and receive dividends. They must file an annual income tax return if dividend income is earned. They can also set up a business structure, open a bank account, and participate in tasks that aren't considered employment, such as planning and marketing. However, they cannot actively work for the business without employment authorization.
To work for their own company, F-1 visa students must qualify and apply for optional practical training (OPT). OPT must relate to the student's program of study and can occur before or after the completion of the program. F-1 students with a degree in a STEM field may be eligible for a 24-month extension of their authorized period of post-completion OPT.
There are various visa options available to entrepreneurs, and international students must consult with their Designated School Official and U.S. Citizenship and Immigration Services to ensure compliance with the rules and regulations.
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Raising capital
International students on an F-1 visa in the United States are prohibited from "engaging in business". However, this only applies to the operation of a business, and does not directly prevent F-1 visa holders from establishing a business. This means that they can create a business plan and launch a company, but cannot run it or conduct business activities.
For international students on an F-1 visa, there are a few options to raise capital for their business:
- Opt for the H1-B Visa program: This program allows international students to work in the U.S. for 3 years, with the possibility of a 6-year extension afterward, followed by eligibility to apply for a green card. Under this program, students are barred from holding a majority stake in their company, but it provides an opportunity to gain work experience and save funds for their business idea.
- Explore remote investment options: F-1 visa holders can invest in their own company and receive dividends. They can create a business plan, conduct market research, and then leave the business to a capable team to run while they invest in it remotely.
- Seek alternative sources of funding: International students can consider alternative funding options such as angel investors or venture capital firms. While some of these investors may be hesitant to invest in startups with international students as lead founders due to visa status concerns, having a diverse team that includes American citizens can help mitigate this issue. Additionally, an international background can be an asset for marketing expansion potential and attracting foreign investors.
- Choose the right business entity: When selecting a business entity, it's important to note that S corporations bar non-resident aliens from becoming investors. Therefore, international students may need to choose a C corporation or LLC as their business entity.
- Personal investment: International students can also consider investing their own money, even if it's a small amount, to get started. Index funds, for example, are a good option for students as they hold a variety of stocks from different industries, reducing risk.
It is important to consult with a Designated School Official and U.S. Citizenship and Immigration Services to ensure compliance with all rules and regulations when pursuing entrepreneurial endeavours as an international student in the United States.
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Frequently asked questions
International students on an F-1 visa can create a business plan and launch their own business. However, they cannot engage in the day-to-day running of the company or receive compensation.
International students on an F-1 visa cannot "actively work" in the US without proper work authorization. They can, however, engage in passive work, which includes activities such as incorporating a US company, applying for an EIN, establishing a mailing address, and applying for a business license.
One challenge is that US angel investors and venture capital firms may be hesitant to invest in a startup with an international student as one of the lead founders due to their visa status. Additionally, the S corporation bars non-resident aliens from becoming investors.
There are several temporary and permanent pathways for international entrepreneurs to work in the US, including the International Entrepreneur Rule, E-2 Treaty Investor, EB-5 Immigrant Investor, O-1A nonimmigrant visa, and EB-1A first-preference immigrant visa.
International students can seek advice from professionals such as immigration attorneys, business advisors, and accountants to ensure compliance with legal and tax requirements. They can also explore resources provided by organizations like Study in the States and Fourscore Business Law, which offer guidance on visa options, raising capital, and planning exit strategies.
