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  • Article: Incorporation in the United States for the U.S. Investor Visa Client By Jonas M. Grant

    Incorporation in the United States for the U.S. Investor Visa Client

    by


    For immigration attorneys whose practice includes investor visas such as the E-2, L-1, and EB-5, their clients will typically need to incorporate a U.S. business entity and may face some unique challenges in doing so.

    Business Entity Selection and Formation

    Foreign national clients are not generally familiar with U.S. business entity laws. Proprietary limited companies and managing directors may be the norm in their home countries, but not here. For example, one common misconception is that they can form a U.S. corporation or limited liability company (LLC). Corporations and LLCs are actually creatures of state law, so there are California corporations, Nevada LLCs, and so on, but no U.S. federally chartered business entities. The simplest and most cost-effective option for most clients will be to form an entity in the state in which they intend to operate their new business. For most small businesses, the benefits, if any, of incorporation in a state like Delaware are not worth the additional initial and ongoing costs. Occasionally, there are situations where choice of jurisdiction is a more difficult question, such as when the client prefers maximum limited liability protection regardless of costs, plans to conduct business in multiple states, or hasn’t yet confirmed where the business will be located.

    Choice of entity also implicates tax decisions, because a corporation can be taxed as a C corporation or S corporation, and an LLC can also elect to be taxed in one of the same manners, in addition to the disregarded entity and partnership defaults. Foreign nationals may not qualify for an S corporation election – at least initially – because this is only available if all owners are U.S. residents. Once they relocate to the United States full-time, they may consider an S corporation election for year two of operations. C corporation taxation can be an attractive alternative for clients worried about overseas or U.S. personal tax reporting requirements stemming from their ownership of a U.S. business prior to their move to the States. Unless and until the business earns sufficient profits to overcome initial startup losses and further re-investment into the company and other ongoing business expenses, no salary or dividend need be paid to the owners, often resulting in no personal foreign or U.S. tax or tax reporting requirements.

    For the same reasons clients unfamiliar with U.S. law should consider engaging a business attorney to assist them in making choice of jurisdiction and choice of entity decisions, the client should be encouraged to engage a U.S. CPA early on in the process, well before it’s time to file a tax return. At the early stages, the CPA can assist with the entity taxation decision and tax compliance and with setting up an accounting/bookkeeping system.

    Taxpayer Identification Numbers

    All new business entities need a U.S. Employment Identification Number (EIN) to file tax returns, hire employees, and for other purposes. EINs are relatively easy to obtain for individuals with a social security number or Individual Taxpayer Identification Number (ITIN); however, an EIN is commonly needed before the foreign national qualifies for a social security number or ITIN, to open a corporate bank account. The IRS issues ITINs to individuals who need to comply with U.S. tax law, but do not qualify for a social security number. For EIN applicants lacking a social security number of ITIN, the process has become so difficult and slow in recent years that some online incorporation services either don’t realize it is possible to obtain an EIN for a foreign national business owner or have made a business decision that it is not worth the hassle to attempt to obtain them for their customers.

    Banking

    Once the client’s business entity has been selected, formed, and its EIN obtained, the client will almost always need to travel to the States to open a business bank account. Due to “know your customer” banking regulations implemented as part of the Patriot Act in the wake of the 9/11 terror attacks, U.S. banks require customers to apply for an account in person in a bank branch. Even then, the lack of a social security number and a local address, coupled with bank employees who may not be familiar with procedures and requirements for opening accounts for foreign national customers, may result in one or more rejections. Often, the solution is as simple as visiting another branch of the same bank or a competing bank across the street, as each bank’s and even bank branch and bank managers’ policies and practices vary widely. Establishing relationships with bankers who want to do business with these clients – or with business attorneys and CPAs who have these relationships – can be helpful in overcoming this hurdle. The client can use this visit efficiently by additionally meeting with his or her immigration attorney, business attorney, CPA; leasing or acquiring a business location; and other preparatory steps.

    Leasing Space

    Clients often experience a chicken-and-egg problem: They need a bank account and corporate paperwork in order to lease space (which should be in the corporate name, instead of their personal name as tenant), but can’t finalize the corporate paperwork and bank account without a business location. One workaround is to stutter-step the incorporation process, only filing the Articles and obtaining the EIN initially, then having the client open a bank account with these using the immigration or business lawyer’s office address, CPA’s office address, or a virtual office address temporarily. Virtual offices can typically be rented online from overseas, on a month-to-month or other short-term basis. Once the “permanent” lease is signed, the bank account address is updated and the remainder of the corporate setup can be completed using this business address before the visa application package is submitted. This approach works best for solo business owners or married co-owners; it is not recommended that other co-owners conduct any business without finalizing customized bylaws for the corporation or an operating agreement for an LLC, in case a dispute should break out between co-owners during the initial phases of the business.

    Taxes and Regulation

    Clients are sometimes surprised to learn that the foregoing steps are only the beginning of the regulatory and tax landscape in the United States. Depending on the location and type of business selected, one or more state or local business licenses, zoning or regulatory permits, fictitious business name registrations, sales tax permits, employer payroll tax account registrations may be required, in addition to workers’ compensation and other insurance requirements (leases often require commercial general liability coverage). Labor law compliance is an area of the law where clients will usually make mistakes sooner or later without professional assistance.

    Immigration Attorney’s Role in Business Startup

    An immigration attorney may not practice business, employment, franchise, or intellectual property law but can issue spot for the client and suggest the client engage one or more attorneys to assist. If the immigration attorney notices that the client’s startup legal budget is co-equal with his or her immigration law fees, then the attorney may want to suggest that the client has not budgeted this line item correctly for a business in the United States, a society that may be more litigious than the country from which they are emigrating and certainly has very different laws and business customs. A proper client startup legal budget may include assistance with the investor visa application, business incorporation, reviewing and negotiating a lease, reviewing and negotiating a franchise agreement, drafting or reviewing and negotiating a business purchase agreement, employment law drafting and advice, and obtaining a trademark and likely runs into the five rather than four figures in U.S. dollars, depending on the type of business, its location, number of employees, and other factors. Most or all of these legal fees will qualify as part of the client’s investment in the new business for visa qualification purposes. If the client insists on doing things themselves or using an online incorporation service, this may result in difficulties when the immigration officer reviews improperly prepared corporate paperwork, a lease signed in the name of the owner instead of the entity, missing business licenses and DBA filings, etc.

    Because immigration law is federal law, many immigration attorneys have E-2, L-1, and EB-5 clients who intend to open their business in areas of the country other than where the immigration attorney office is located. Therefore, immigration attorneys are well advised to cultivate relationships with business attorneys, CPAs, and bankers across the country, so as to better assist their clients. Because business entity, real estate, employment, and franchising laws are all entirely or partially state-specific, immigration attorneys who additionally practice in these areas of the law should be careful not to engage in the unauthorized practice of law outside the jurisdictions in which they are licensed. Referrals from colleagues, online immigration law forums and e-mail discussion lists, bar association referrals, and review sites like Avvo.com and Yelp.com are some of the resources that can be utilized to locate suitable assistance and some of these can be provided to clients directly (who are probably unaware of them) so the client can interview professionals directly if the immigration attorney does not have a personal referral to make or prefers not to make referrals. Most of these professional will attempt to provide reciprocal referrals when appropriate, and some may even offer referral fees when permitted by the relevant bar association(s).

    Just as business attorneys are not well advised to dabble in immigration law, which may lead to mistakes, delays, and even malpractice suits and bar complaints, immigration specialists should consider building a team that includes one or more business law attorneys to assist their investor visa clients in helping their clients achieve investor visa approvals as quickly and smoothly as possible and realizing their goal of small business ownership in America.


    About The Author

    Jonas M. Grant focuses on business and employment law and frequently works with foreign national clients and their immigration attorneys. Attorney Grant obtained his undergraduate degree from Northwestern University and a JD/MBA degree from Indiana University – Bloomington. He is admitted to the California and Nevada State Bars and practices law from his office in Woodland Hills, California.


    The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.

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