Starting a U.S. Business as an International Student - Varnum LLP (2024)

Many schools encourage students to innovate and create, so it isn’t surprising that a lot of entrepreneurial ideas spring from students. However, for international students, starting a business can be intimidating because of their intertwined immigration status.This overview is intended to help international students follow their dream of starting their own businesses in the U.S.

Immigration Status

Most international students enter the U.S. with an F-1 nonimmigrant visa, which means the visa holder must possess nonimmigrant intent to reside in the U.S. temporarily.The visa holder is only permitted to work off-campus if Curricular Practical Training (CPT) or Optional Practical Training (OPT) are specifically authorized by the education institution.

This is not an issue for an international student intending to only passively own a business in the U.S.However, this is a hurdle for an international student wanting to engage in the actual operation of a business. Operating or working for a startup business (even if it does not generate revenue) could be deemed “working off campus” in violation of certain conditions of an F-1 visa.

There are ways to overcome this issue. Depending on the international student’s relationship with the school, one or more of the following methods would allow a student to operate or work for his or her own business.

Working on Campus

One option for an international student is to work with his or her education institution for the operation of or work for the startup.Essentially, the student’s startup would enter into an agreement with the institution under which the institution acts as an agent, independent contractor or a joint-venture partner to the startup. The startup owns all of the business intellectual property rights, and the institution performs all the substantive work for the startup (i.e., research and development, production, testing, etc.). At the same time, the institution employs the international student as an employee to do such work on the institution’s behalf.

While this strategy assists F-1 visa holders, this option may not be a complete solution for an international student if there is any residual work the startup requires that cannot or is not performed by the institution on-campus.For example, administrative work for the startup holding the intellectual property may still be deemed “work off campus.”

This option also requires that the international student have a very close relationship with the institution, which may or may not be the case depending on the institution and the student’s program.

Practical Training

A second option for international students involves F-1 visa holders’ eligibility for two types of “practical training” periods, which could also avoid violation of the F-1 requirements.

There are two types of practical training as referenced above: 1) CPT and 2) OPT. CPT requires that a student has an employer and requires the employment to be clearly related to the student’s program of study, but is not available for self-employment opportunities. This leaves OPT as the only viable option under F-1 Practical Training.

OPT is a program that temporarily allows international students with F-1 visas in the U.S. to work up to 12 months in relation to their program of study.Such students are eligible for OPT after completing their first academic year. OPT may be used both before and after the program end date, but generally, it only authorizes 12 months of employment for the applicant.

An exception to the 12-month time limit applies to students who have completed degrees in the areas of science, technology, engineering and mathematics (STEM). Such students are eligible for a 24-month extension for post-graduation completion of OPT employment, making the post-graduation work authorization eligibility a total of 36 months.

However, international students face additional challenges in securing the 24-month STEM extension because an OPT STEM employer has to be “E-Verified.” This requires the employer to have other employees. Unless the startup is mature enough to have hired other employees already, this could be a potential hurdle.

H-1B

In anticipation of the expiration of an F-1 visa, including upon conclusion of OPT work authorization, international students wishing to continue to operate or work for their startup in the U.S. often consider the H-1B dual intent visa for workers in specialty occupations. To obtain an H-1B visa, an H-1B applicant must have an employer sponsor and demonstrate a valid employer-employee relationship.

Demonstrating the valid employer-employee relationship can often be a hurdle for an international student working for and owning his or her own startup. Generally, the employer sponsoring the H-1B employment must be able to exert the authority to hire, pay, supervise and fire the international student as an employee independent of the student’s control. As such, to qualify for an H-1B visa, an international student’s ownership and control of his or her own startup needs to be structured in a manner to generally ensure that someone other than the student has the requisite authority over the student’s employment. Additionally, in terms of owning or investing in a startup, H-1B visa holders may only serve as passive investors or owners.That is, for example, the H-1B visa holder could not invest or own the startup unless it was truly passive and the holder cannot otherwise partake in day-to-day management of the startup.

International students who choose to apply for an H-1B visa will also face the mandated cap hurdle during the process. Every year, H-1B visa applicants go through a “lottery system” where only 85,000 of the applicants are granted the opportunity to be approved for the visa (i.e., a 65,000 regular cap and 20,000 special cap for individuals with an advanced degree). Applicants who were not selected must wait to be considered the following year.

Because the H-1B application may be submitted without affecting an international student’s ongoing OPT status under an F-1 visa, an applicant who is excluded from consideration for an H-1B visa because of the mandated cap may continue to work under his or her remaining OPT period and re-apply next year.

There are some exceptions to the H-1B visa mandated cap, including if the employer sponsoring the international student’s H-1B visa is a higher-education institution or non-profit organization that meets the definition for a cap-exempt employer.

One of the major advantages of utilizing an H-1B visa is that it is considered a dual-intent visa. While working under an H-1B visa, the student is eligible to apply for permanent residency in the U.S., which ultimately lifts several of the restrictions imposed on the student.

Access to Capital

Accessing capital for a startup company as an international student can also be difficult. Many U.S. angel investors and venture capital firms may be hesitant to invest in a startup that has an international student as one of the lead founders.The potential immigration issues for the founder adds another layer of risk to the investment.

A number of technology startups may, instead, consider seeking funding from federally supported programs like the Small Business Innovation Research and Small Business Technology Transfer; however, these programs typically require that a majority (more than 50 percent) of the business’s equity (e.g., stock or membership interest) must be directly owned and controlled by a U.S. citizen or an entity whose majority equity is owned and controlled by a U.S. citizen. For international entrepreneurs considering these programs, there may be a balancing act between retaining control over the startup and receiving funding though these federally-sponsored programs.

Conclusion

Although the legal work involved in starting a business as an international student may seem overwhelming, it is certainly possible. If you are thinking about starting your own business as an international student, seize the idea, do the research and ask for professional advice.There is always assistance available along the way to help you meet and clear your hurdles.Please contact a Varnum attorney for assistance navigating this process.