Whether you are in the United States to attend school, work, or spend time with family – if you are thinking about starting a business there are several important considerations of which you need to be aware. From making sure you have the right type of visa to choosing the best legal entity structure for your business, there are lots of boxes you need to check before you can hit the ground running.
1. You Need to Confirm That You Have the Right Type of Visa (or a Green Card).
Obtaining a visa does not give you the ability to do anything you want during your time in the United States. Visas issued by US Citizenship and Immigration Services (USCIS) are for specified purposes only; and depending on the type of visa you have, you may or may not be eligible to start a business.
The primary type of visa available to foreign nationals seeking to start businesses in the United States is the B-1 (“temporary visitor for business”) visa. As stated by USCIS, “To visit the United States for business purposes you will need to obtain a visa as a temporary visitor for business (B-1 visa), unless you qualify for admission without a visa under the Visa Waiver Program.” If you are starting a business through an educational program, or if you will be working as an employee of a startup, you may be able to start your business while in the US on an F1/F2 or H1-B Visa as well (although you may need to transition to a different type of visa or obtain a green card later). If you already have your green card (in which case you are classified as a “lawful permanent resident”), generally speaking, you can start and own a business the same as a US citizen.
2. The United States Has a Three-Tiered Legal System.
In the United States, startups and their founders are subject to laws and regulations at the federal, state, and local levels. Legal compliance is a critical issue for all startup founders, but especially for foreign nationals – as certain legal violations can result in loss of your immigration status. As a general rule:
- Federal laws apply to issues such as immigration, selling shares to the public, discrimination in employment, intellectual property rights, environmental protection, and others issues with national public policy implications.
- State laws cover many of the same topics as federal laws but state laws can vary from one jurisdiction to the next. They cover a wide range of other business-related issues as well. For example, in the US, business entities are formed under state law.
- In the business context, local laws primarily come into play with regard to licensing and permitting requirements (although certain types of licenses must be obtained at the state level). Figuring out your local jurisdiction’s requirements can be a challenge, but you need to try to comply in order to avoid the risk of fines and other penalties.
3. Establishing a Legal Entity Should Be One of Your First Priorities.
Forming a legal entity has numerous benefits, and it should be one of your first priorities as a startup founder. By forming (and properly documenting and managing) a legal entity, you can:
- Avoid personal liability to your startup’s creditors (unless you sign a personal guaranty);
- Achieve tax savings at the federal, state, and local levels;
- Establish co-founders’ management rights and responsibilities;
- Structure your startup so that it is attractive to outside investors; and
- Determine how your startup’s revenue will be reinvested or distributed.
As we mentioned above, forming a business entity is something that is done at the state level. This means that you have 50 states to choose from. You do not need to form your entity in the state in which you live, and certain states have corporation and limited liability company (LLC) laws that are particularly favorable to small businesses.
4. Intellectual Property Assets Protected Overseas Are Not Protected in the US.
As a startup founder, some of your most valuable assets are likely to be in the form of intellectual property (IP). In the US, trademarks, copyrights, and patents need to be protected at the federal level. If you developed and registered your IP assets overseas, they are not protected in the US. Although certain trademark and copyright protections arise automatically, there are major benefits to registration with the US Patent and Trademark Office (USPTO) and US Copyright Office – and it is important to register your IP before someone else beats you to the punch.
5. You Need to Use Contracts to Your Startup’s Advantage.
In the US, the risk of litigation is a very real concern for startups and their founders. From infringing on someone else’s IP rights (e.g., if you fail to “clear” a trademark prior to use or use third-party software without a license) to facing allegations of deficient performance by a customer – in our litigious society mistakes can quickly spiral out of control.
For startups, one of the best ways to mitigate the risk of litigation is through the effective use of contracts. Although every deal is unique, broadly speaking, a well-drafted contract should:
- Establish clear rights and responsibilities so that it is clear when one party is in breach;
- Establish specific remedies for certain types of breaches (such as payment with interest for past-due amounts);
- Include appropriate limitations of liability (such as damages caps and waivers) and shift liability for third-party claims to the appropriate contracting parties (through warranty and indemnification provisions);
- Establish choice of law and jurisdiction so that you to not have to travel out-of-state to enforce your contractual rights; and
- Include appropriate provisions for alternative dispute resolution (ADR), payment of attorneys’ fees, and other clauses designed to make it cost-effective to enforce your rights without exposing yourself to unnecessary risk of liability.
6. Your Family and Financial Circumstances May Need to Influence Certain Business Decisions.
Do you have substantial personal assets in the US or overseas that you need to protect? Are you married? Do you have family still living in another country? Are you in the US on a visa or green card? The answers to these questions and others like them may influence decisions such as the type of entity (or entities) you choose to form. For more information, we encourage you to read:
7. Foreign Data Protection Laws May Apply to Your Startup.
Many startup founders are surprised to learn that the US does not have a particularly comprehensive or cohesive set of laws when it comes to personal data protection. However, even if you form your company in the US, you may need to comply with foreign data privacy laws if you have clients or customers overseas, and these laws can impose significant logistical and financial burdens.
Speak with a US Startup Lawyer at Jiah Kim & Associates
If you are a foreign national who is preparing to launch a startup in the US, we encourage you to contact us for a confidential consultation. To learn more about what you need to do to make your business (and yourself) legal, please call (646) 389-5065 or inquire online today.
This blog post is written for educational and general information purposes only, and does not constitute specific legal advice. You understand that there is no attorney-client relationship between you and the blog publisher. This blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.