Sometimes, startup founders prefer to get started with their business while staying abroad. Let’s talk about the potential pitfalls such scenario would present.
First, the incorporation. As we previously explained, there is no problem with setting up a company in the United States. Creating and owning a company do not request any type of visa status. There is no restriction towards ownership of the US entity. So a foreign entrepreneur can definitely proceed with those steps from abroad, or from the United States.
Second, managing or operating the business. This time, the foreign entrepreneur would like to be an officer of the company (ie CEO) and work on the company, but without violating immigration law since the entrepreneur remains abroad and the restrictions are attached to the US territory. This could work for a while. But problems can arise quickly.
A first issue we would like to discuss are travels to the US. As we just explained, being a shareholder doesn’t conflict with immigration law, but problems arise when the same person cumulate several roles. This is generally the case for early-stage startup founders who are often both shareholders and officers of the company. This becomes an issue because the role of an officer is to take care of the company operations, and this constitutes work under immigration law, even if this work is without pay.
When the foreign entrepreneur needs to travel to the US for business purposes – on a B-1 visa or ESTA Business Visitor for example – the nature of the activities can become problematic and be very scrutinized by CBP. We already explained in detail the permissible activities under B-1/ESTA status (link to that same article), but in this situation, the fact that the entrepreneur is also CEO of the company can pose additional difficulty. Since this is a gray area in the law, the nature of the activities will be subject to the interpretation of the CBP Officer at the border. The foreign entrepreneur will need to be very careful on how s/he explains the purpose of their visit to the US.
A second issue we anticipate is in regard to fundraising. One can definitely raise funds from US investors from abroad. The entrepreneur can certainly meet potential investors in person in the US, but some incubator and accelerator programs require competition, pitching, setting up demos, etc. and this could start to look like work, but again, this is a gray area and subject to interpretation, which in itself represents a risk for the foreign entrepreneur and for business. What’s more, if the entrepreneur is selected, the incubator or accelerator programs will certainly request work authorization in the US. Indeed, US investors would expect that the foreign entrepreneur has a plan to get a visa or immigration status that allow them to work and engage in business. At that time, the foreign entrepreneur will need to apply for an immigration visa, such as the E or O visa, or apply for the international entrepreneur parole program to get a proper work authorization. You can learn more about the IER by watching our video here.
A third issue we would like to discuss is actually more logistical. It is already very hard to start and build a business from the ground up, so building a business at a distance, without being able to undertake many of the activities that other founders can do because of the limitations of the US immigration status can be very difficult and challenging. It is important to start working with an immigration attorney early on in the process to define a good strategy towards obtaining a work authorization. Good alternatives are also to hire a US worker to start working on the company or co-found the company with a US citizen or LPR and avoid all the restrictions we previously listed.
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