© Farhad Sethna, Attorney, 2013
Many times, enterprising foreign students pose the same question: can I set up a business in the United States while I am still a student? The drive to succeed, coupled with the United States’ easily navigable company formation laws make it attractive for an entrepreneur with a bright idea to form a company in the USA. While there is no question that a U.S. citizen or permanent resident can set up a business with no immigration consequences, the law is rather murky with it comes to the ability of a foreign student to do the same.
Specific immigration prohibitions:
There is no specific law or regulation which would prevent a F-1 or J-1 student who is in legal valid non-immigrant student status from starting up his or her own business. However, the student must remain in valid student status, registered as a full time student, or be between semesters. Another issue of importance is whether the student will receive any remuneration from the business. The student cannot be an “employee” of his or her own business. If he or she was an employee, he or she would have to be paid a wage by the business. Payment of a wage signifies employment, which – unless the student is permitted to accept – is prohibited under the immigration law. If the student violates the terms and conditions of his or her student status, he or she will fall out of status and potentially face removal (deportation).
Given these caveats, how does a student set up and operate a business? What form should the business be in?
The student can incorporate a business or potentially even set up an LLC. The preferred method might be for the LLC to be a subsidiary of an overseas company- let’s say, the student’s family has a family business in another country. That country might hold the majority of the shares in the US company, or might be a member in the US company if that company is an LLC. The student can then set up a company, either as a corporation [sub-chapter “S” is not permissible as all shareholders must be either U.S. Citizens or Legal Permanent Residents], or as an LLC. The foreign student could be the sole member of this single-member LLC. Conceivably, the student could even set up the business as a sole proprietorship. The student would have to obtain the necessary certificate of incorporation and or LLC organization, and, in the case of any form of business entity, including a sole proprietorship, the student will also have to apply for and obtain a federal employer identification number (FEIN). For all business purposes, the student should set up and maintain separate business bank accounts, using the company name and FEIN. All company revenue and expenses should be segregated from the student’s personal, school, and living expenses.
However, as stated above, the company cannot pay the student a salary or a wage. While the company can declare dividends or profits, there is an open question as to whether the disbursement of such dividends or profits to the student might constitute impermissible income under the immigration act. However, please note that there is no statutory or case law authority directly on point on this issue.
Leading case – Matter of Hira (BIA, AG, 1966)
The leading case regarding remuneration to a non-employment authorised non-immigrant visa-holder is Matter of Hira, 11 I&N Dec. 824 (BIA, 1966; Affirmed, Attorney General). Hira involved a B-1 (Business Visitor) visa holder who came to the USA to collect measurements for mens’ suits and sent those measurements to his Hong-Kong based employer, Mohan’s Limited. The BIA considered that facts that Hira was not receiving any salary in the USA (his salary was sent directly to his parents in India), and was receiving only a small amount of money in the USA for “living expenses”. Consequently, the BIA held that Hira was not “employed” in the USA and had not therefore violated the terms of his visitor-visa status.
Thus the BIA’s holding in Hira may be used to support an option where the student could repatriate any profits to an overseas dollarized bank account in the name of the company (not in the individual’s name). The company could then use the money deposited in that bank account as it sees fit, including, for example – disbursement to the student in the United States for incidental and necessary living expenses.
In sum, while the statute does not preclude a formation of a company or entrepreneurship, the underlying restrictions must be strictly observed: maintenance of student status, and non-payment of any remuneration or salary to the student in the United States directly from the company.
Copyright, Farhad Sethna, Attorney, 2013
About the author: Attorney Farhad Sethna has practiced law for over 20 years. Since 1996, he has been an adjunct professor of Immigration Law at the University of Akron, School of Law, in Akron, Ohio. He is a frequent speaker at Continuing Legal Education and professional development seminars on various immigration-related topics. His practice is limited to immigration and small business. With offices in Akron and Dover, Ohio, Attorney Sethna represents clients in all types of immigration cases. Our number is: (330)-384-8000. Please send your general immigration questions to AttorneySethna@immigration-america.com. We will try to answer as many questions as possible.
This is only general legal information. Please consult a qualified immigration attorney for advice on your specific case.