Starting Your Own Business While On An H-1B
Are you currently an employee in H-1B status and interested in venturing out to start your own company? We’re here to help you get started.
The H-1B is employer specific. What this means is that you must work for the U.S. employer that sponsored your H-1B petition. You can simultaneously set up your own company, but you cannot start working for your company without specific work authorization.
If you want to work for your own company in H-1B status, four things to keep in mind:
- Valid job offer: You must have a valid job offer, and the company must exist in the U.S.
- Employer-employee relationship: The company must have the right to control your work. If you will own more than 50% equity of the company, you will need to create a Board of Directors that has the ability to “hire, pay, fire, supervise, or otherwise control your work”. Otherwise, with a majority ownership and without a Board, the distinction between employer and employee would be blurred and this will harm your chances of obtaining a H-1B approval.
- Specialty occupation: The H-1B is a specialty occupation, meaning that the position must require at least a Bachelor’s degree in a related field and you must have a related degree. For example, if you will be the Chief Finance Officer (CFO), the position must require at least a Bachelor’s degree in Business, Finance, Accounting, or related. You must also demonstrate that you have one of the listed degrees, or a degree and/or work experience that would be equivalent to a related degree.
- Prevailing wage requirement: Your salary must meet or exceed the Department of Labor’s minimum wage level for your occupation in the U.S. county that you will work in.
How to start a company on H-1B status
You should be mindful of how the H-1B requirements may influence the structure of your business. You can use the below roadmap to get started.
Step 1: Remain employed with your existing H-1B sponsor.
You can continue working for your H-1B employer while planning the foundation for your own company.
The H-1B permits you to live and work in the U.S. as long as you remain employed by the sponsoring company. You don’t necessarily have to work at the original sponsoring company -- you can transfer the H-1B to another U.S. employer -- but you must maintain your H-1B status. Failure to maintain your status could result in you having to depart the U.S.
Step 2: Create your company!
You can create your company while still working for your H-1B employer, as long as you do not start working for the new company. A few things to consider:
- Whether you want to set up your company as an LLC or corporation. LLC stands for “Limited Liability Company”, which is easier to set up and has less requirements than a corporation. There are business reasons why you may want to create either an LLC or corporation, and you should consider consulting with a business attorney.
- Create and register your business with local and state offices.
- Contact the IRS to set up your Federal Employer Identification Number (FEIN), which will be your company’s tax identification number.
- Confirm that your company has all required permits and licenses to operate.
Step 3: Act as a passive shareholder.
Now that your company is set up, you can continue to work for your H-1B employer until you are ready to make the transition. During this time, you cannot have an active role in running your company, but you can draw passive income from the company as an investor/shareholder.
Step 4: H-1B petition sponsored by your company.
When you are ready to make the transition, your company can sponsor you for the H-1B. As a reminder, to be eligible for the H-1B, you need to have: a valid job offer from the U.S. company, a valid employer-employee relationship, a specialty occupation, and that your offered salary will meet or exceed the minimum salary requirement. The H-1B process can be complicated, and there are unique challenges for entrepreneurs. Please feel free to reach out to Legalpad if you have questions – we are here to help!
You may be able to start working for your new company based on the filing of the H-1B “change of employer” petition, meaning that you do not need to wait for the actual approval before starting. However, as a precaution, you may prefer to wait for the approval notice before making the transition. Legalpad can help you make the right decision based on your timeline and unique situation.
Let's Look At An Example
Let’s look at a scenario in which you could potentially obtain a H-1B through your own company.
You’re currently working at a major tech company as a software engineer, and you want to build your own startup. You’ll first need to set up the business. Because you own 75% of the equity, you will need to form a Board of Directors that has the right to “hire, pay, fire, supervise, or otherwise control your work,” like the power to update bylaws and make employment decisions.
You’ll continue working at your current employer until your new company files the H-1B “change of employer” petition. At that point, you can decide if you want to start with your company based on the H-1B filing, or whether you want to wait until the H-1B “change of employer” is actually approved before making the transition.
The H-1B is not the only option for you to start a company in the U.S. Alternative options include:
- O-1 “Alien of Extraordinary Ability”: To qualify for an O-1, you need to have received either a major, internationally-recognized award or document at least three eligibility criteria. Legalpad has successfully helped many entrepreneurs obtain O-1 work authorization in the U.S. Learn more about the O-1 here.
- L-1 “Intracompany Transferee”: You may qualify for the L-1 if you work for a subsidiary of your company outside the U.S for at least 1 year in either a managerial or specialized knowledge role, and then you are offered a managerial/specialized knowledge role for the same company inside the U.S.
- E-2 “Treaty Investor”: If you are from a treaty country, you may qualify for E-2 classification if you will be making a substantial business investment in the U.S.
We’ve only scratched the surface of options available to H-1B holders who want to start their own companies in the U.S. Reach out to Legalpad to discuss your unique situation and we can help you plan your next steps. We are here to support entrepreneurs through their immigration journeys.