Starting a Startup While on an H-1B Visa

Authored by Bryan Springmeyer Bryan Springmeyer is a California corporate attorney who represents startup companies and investors. The information on this page should not be construed as legal advice.

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The work restrictions on H-1B’s create some extra complexities to the ordinary task of forming an entity for a startup. While an employee is on an active H1-B visa, they cannot have simultaneous employment with a company other than the sponsor of their petition. This leads to a few areas of concern for venture scale startups.

1. Certain roles that founders typically play look like employment

A corporation has several levels of involvement. The stockholders own the corporation and appoint the Board of Directors, which is the high-level management for the corporation. The corporation also has executive level officers including a President, Treasurer, and Secretary. The executive level officer roles, which can also include titles such as Chief Executive Officer and Chief Technology Officer, look a lot like employment titles. This is usually a concern for most of the immigration attorneys that advise the individual founders of companies we work with. Often, immigration attorneys feel comfortable with H-1B holders becoming stockholders of a corporation, and serving as Board members. However, many immigration attorneys do not like to have H-1B holders serving as officers for a non-employer corporation, since those officer roles are commonly associated with employment.

2. Seamless employment is more important for H-1B beneficiaries

Technically, the H-1B visa terminates simultaneously with the termination of employment. If an H-1B employee quit their job or was fired, they would be “out of status” if they continued to be present in the United States after the date of termination. This means that founders must often get their startup to a position where it can become their visa sponsor before quitting their present job. This is a bit more challenging than the typical route of a founder who might decide to quit their employment at an earlier stage of development. Starting a startup while employed is not the ideal scenario, but when employees are thinking of going this route, they’ll want to understand their employer’s conflict of interest policy, how employer-IP ownership works.

A note on tax elections

There are also certain tax elections that are typically filed by founders in connection with their stock. Some founders on H-1B visas feel uncomfortable making elections connected to income provisions of the tax code, since there could be an inference that the income-related tax provisions are connected to employment. There are some modifications to the conventional capital structuring that can alleviate the need to make these elections.

Related Articles: Starting a Startup While Employed Starting a Startup With Foreign Founders  Starting a Competing Company in California