Get to know the authorIf you’re an H-1B visa holder, you may have heard that the visa doesn’t permit self-employment. Given this, you might think that the question “Can H-1B holders start a business?” is a flat-out no.
Fortunately, there are indeed options for aspiring H-1B entrepreneurs.
That said, to avoid putting your immigration status on the line, you’ll need to be sure to start your business within the confines of the visa requirements. Read on to learn how H-1B visa holders can start a business, what it takes to register one, how that will affect your taxes, and more.
Can H-1B holders really start a business?
If you’ve wondered whether H-1B visa holders can actually start a business, we’ve got good news for you. The answer is “yes,” as long as you comply with the rules of the visa. To provide some context, let’s recap the H-1B visa requirements.
H-1B visa requirements
To get an H-1B visa, you need:
- A job offer: Your job offer must come from a company registered within the US that is willing to sponsor your visa. The offer must further demonstrate an employer-employee relationship
- A specialized occupation: The role offered must require specialized training or knowledge
- The right educational/professional background: The applicant must hold a Bachelor’s degree or higher in a relevant field or have equivalent professional experience
- An approved labor certification: This document certifies that you will receive fair treatment as an employee. It also certifies that your hiring would not negatively impact the US job market (for example, by undercutting industry-standard wages)
Tip:
To maintain your visa status, you must continue working for the original sponsoring employer. What’s more, you can’t actively work for another company unless you receive authorization — but a new, separate H-1B work visa can allow you to do so.
Getting a new H-1B visa
Once you register with your own company, that company can petition for an H-1B visa to hire you. You must continue to work for your original sponsoring employer throughout the application process to maintain your H-1B status.
Once your new H-1B visa is approved, you can either resign from your first job or continue working for both (as long as you can make both schedules work).
Keep in mind that a successful H-1B visa petition must prove an offer of an employer-employee relationship. You can do this by appointing a Board of Directors or by owning less than 50% of the company. In the latter case, the rest of the business must be owned by investors or shareholders who have the right to manage your employment.
Active work vs. passive work
At this point you might be wondering: “How can I register a business if my current H-1B visa doesn’t allow me to actively work for another employer?”
The key word here is “actively.” While the H-1B visa forbids active work for another business without authorization, it does permit passive work.
Examples of forbidden active work include:
- Performing services for which you receive compensation
- Developing the company’s product
- Overseeing staff
- Managing day-to-day operations
Examples of permitted passive work include:
- Customer & market research
- Planning investments & purchases with your co-founders
- Networking to find investors, co-founders, board members, & clients
- Registering the business
- Passively investing or holding shares of the business
If the work you do to set up your business is passive until you receive your new H-1B visa, that shouldn’t violate the terms of your current H-1B visa. However, to be sure you’re staying within the boundaries of permissible work, it’s always best to consult an immigration attorney.
Registering your business as an H-1B holder
Choosing a business structure
Electing a business structure has important tax and legal implications, so it’s important to pick the most suitable one for you. A few of the most common options among H-1B holders include:
Limited Liability Companies (LLCs)
Limited liability companies are flexible business structures that — as the name suggests — limit the legal and financial liability of members. This means that an LLC member’s personal assets are almost always safe from seizure related to business debts. LLCs allow for an unlimited number of members, and are fairly simple and affordable to create and maintain.
Note:
LLCs’ flexibility and simplicity make them a popular choice for H-1B visa holders starting businesses.
Limited Liability Partnerships (LLPs)
Limited liability partnerships also offer limited liability—not just for personal asset seizure but also for the actions of other partners.
LLPs are common among licensed professionals like lawyers, doctors and accountants, where partners share equal management responsibilities. However, not all states allow LLP formation.
LLPs usually require more time and effort to create and maintain than LLCs, but less than other business structures.
C Corporations
C corporations are businesses that exist as entities separate from their owners. They can sell multiple classes of stock, making them attractive to investors, and allow owners to leave the organization or sell their shares without disrupting the business’s operation.
Of all the business structures, C corps offer the highest degree of liability protection for owners. However, C corps are the most complex and expensive business structure to form and maintain. They’re usually best suited for businesses that need a higher degree of protection and/or want to scale significantly long-term.
Steps for business registration
Exact business registration requirements vary by state, but generally, you must:
- Choose a state to register in: It’s almost always easiest and most tax-beneficial to register your business in the state where you reside. If you’ll operate in multiple states, you may need to register or file for foreign qualification there as well.
- Appoint a registered agent: A registered agent is someone with a physical location in the state where you want to incorporate your business. They will receive official documents and notices on your behalf. Fees usually vary between $150 and $300.
- Choose a name: Pick a name for your business that complies with state rules. Usually, it must not already be taken by anyone else.
- File articles of organization: Articles of organization are registration documents where you input official business information like your name, address, business type, and the names of your members. Fees vary from $35 to $500, depending on the state.
- Create an operating agreement: Operating agreements detail how you’ll run your business. While some states don’t require them, they can be valuable in clarifying organizational structure, roles, and procedures. Fees vary from around $99 for online services to $500 to several thousand or more for professionals and firms.
- Apply for your EIN: In some circumstances — like if you plan to hire employees or choose C-corp taxation status — you must apply for an Employer Identification Number (EIN). Other times, it’s optional. Many choose to apply for an EIN regardless to limit liability, protect against identity theft, and more easily open a business bank account.
- Comply with state & federal regulations: Depending on things like your location and profession, you may need to apply for business licenses or permits and file annual reports. And no matter what, you’ll need to meet federal tax and reporting requirements (more on that to come).
You can find detailed state-by-state requirements on the US Small Business Administration’s website.
Tax implications for H-1B business owners
Understanding tax residency
Whether or not you meet the US definition of tax residency significantly affects how you pay taxes.
Tax residents must pay US taxes on their worldwide income, while non-tax residents pay US taxes on their US-sourced income only, which includes any income directly connected to a US trade or business.
The US considers foreign nationals to be tax residents if they meet at least one of the following two tests:
- The Green Card Test: Those who have been a legal permanent resident at any point in the year meet the Green Card Test.
- The Substantial Presence Test: Those who have been present in the US for 31 days in the current year and 183 days throughout the last three years meet the Substantial Presence Test.
- Note: When calculating days present over the last three years, you only count ⅓ of the days you were present in the previous year and ⅙ of the days you were present in the year before that. Certain days — like any days you held a temporary student visa — do not count toward this limit.
For more details, reference the IRS website page on US tax residence.
Taxes on business income
The way the US taxes your business income will depend on what business structure you’ve chosen:
LLC taxation
LLCs are pass-through entities that pass business income through to individual members, who report their share of income on their personal tax returns. The US government taxes this income at standard personal rates from 10% to 37%, depending on an individual’s total taxable income.
LLP taxation
Like LLCs, LLPs are pass-through entities where each partner must report their share of business income on their personal tax returns and pay taxes from 10% to 37%.
C Corp taxation
Unlike LLCs and LLPs, C corps are not pass-through entities. As a result, they are subject to paying their own tax bill, and therefore double taxation. The business pays taxes on net profits (21%), while individual shareholders pay taxes on any income they receive from the C corp, such as wages or dividends (10% to 37%).
Tip:
Keeping accurate business records on income, expenses, contracts, etc. is essential for tax purposes.
Tax filing requirements
A few of the most common documents H-1B business owners must file include:
| Document | Purpose | Who Files It |
| Form 8832 | Electing business structure/tax treatment | LLCs, LLPs, C corps |
| Form 1040 | Reporting individual income as a US tax resident | Single-member LLCs whose owners meet the US tax resident definition |
| Form 1040-NR | Reporting individual income as a non-resident alien | Single-member LLCs whose owners don’t meet the US tax resident definition |
| Form 1065 | Reporting partnership income | Multi-member LLCs & LLPs |
| Schedule C | Reporting individual business profit & loss | Single-member LLCs |
| Schedule E | Reporting supplemental income & loss, such as rental income or royalties | Multi-member LLCs, LLPs |
| Schedule K-1 | Reporting partners share of income & deductions | Multi-member LLCs, LLPs |
| Form 1120 | Reporting annual corporate income | C corps |
Reminder:
This is a general overview of some documents you may have to file. The best way to ensure full compliance is by consulting a tax professional.
Ready to start a business in the US?
As you know, H-1B holders can indeed start a business by registering it and petitioning for a new H-1B visa as an owner.
However, you’ll need to prove an employer-employee relationship with your new business before doing so and avoid actively working for your new business before receiving your new H-1B visa.
Resources:
- H1B Visa Requirements: What You Need to Know
- Starting Your Own Business While on an H-1B Visa
- Limited Liability Partnership (LLP): Meaning and Features
- Choose a business structure
- How much does it cost to have a registered agent?
- How Much Does It Cost To Start An LLC? (2024 Guide)
- United States – Individual – Taxes on personal income
- Working on H-1B? Is a Green Card your next step?
- Can a startup sponsor an employee for an H-1B visa?
