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

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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.






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