America has long been known as the land of opportunity, where immigrants can achieve their dreams of entrepreneurship and business ownership. The welcoming environment of free enterprises and access to labor, land and financing makes the United States an attractive destination for aspiring immigrant entrepreneurs.
However, navigating the legal and regulatory landscape can make it a long and complicated journey to starting a business in the USA as an immigrant. If you are a new immigrant who are trying to realize your ambition, you have come to the right place. In this comprehensive guide, we will cover key considerations such as the steps and resources you will need to successfully start your own venture in your new country.
Choosing a Business Entity Type
The first major decision that immigrants looking to start a business need to make is choosing the right legal structure. The business structure defines the ownership model, operational framework, tax treatment, personal liability, and other implications for the company.
Here are some key types to consider:
Sole Proprietorship
A sole proprietorship is the simplest and most common structure for new small businesses. It is not a separate legal entity, and simply refers to an individual operating a company using their own personal name and social security number for all legal and tax purposes.
Sole proprietorships are easy and inexpensive to form with minimal paperwork. They offer complete managerial control to the business owner. That said, they also carry unlimited personal liability, meaning the owner is legally and financially responsible for all debts and obligations of the business. This risk extends to personal assets of the proprietor, which can be seized to settle business debts. This makes sole proprietorships best suited for low-risk ventures.
Partnership
In a general partnership, two or more people share ownership of a single business. Common examples include professional services firms like attorneys, architects or doctors. Partnerships are still fairly simple to establish with some paperwork and a partnership agreement a vital document. The agreement sets out what is expected from each of the partners, how key decisions are made, and how profits and liabilities are divided.
General partnerships offer owners flexibility in structuring the entity but also joint responsibility for debts and obligations. Limited partnerships can be formed with both general and limited partners, where limited partners enjoy income and losses from the business but are shielded from liability.
Limited Liability Company (LLC)
Limited Liability Companies have risen in popularity in recent decades due to the personal liability protection they offer to owners. As the name implies, this structure limits the financial liability of owners to their investment amount while shielding personal assets from business obligations.
Compared to corporations, LLCs involve less paperwork, fewer legal formalities and offer more flexibility in management structure. Tax treatment is similar to partnerships with income and losses passed through to members’ personal tax returns. Overall, the limited liability company offers the best of both worlds – liability protection of a corporation with the tax benefits of a partnership or sole proprietorship.
C Corporation
A corporation is a distinct legal entity that exists separately from its owners. C Corporations are the most complex business entity types and structures with substantial legal paperwork and registration requirements.
Corporations offer the strongest protection of owners’ personal assets from business debts and lawsuits. The downside is double taxation where the corporation needs to pay taxes on profits before funds are distributed to shareholders. That makes a Corporation more expensive to set up and maintain. Corporations allow for unlimited expansion through the sale of stock but require regular shareholder meetings, directors, officers, bylaws, and other formalities.
S Corporation
S corporation is a special tax status elected by corporations to be taxed similar to partnerships. Thus, business income, losses, deductions, and credits pass through the company to owners who report them individually. This avoids double taxation.
S corp provides owners limited liability protection, regardless of its tax status. Limited liability protection means that the owner’s personal assets are shielded from the claims of business creditors—whether the claims arise from contracts or litigation.
However, choosing S corporation status has strict legal compliance requirements, such as the number of shareholders, only one class of stock, and US citizenship. Paperwork and documentation process are also more complicated.
As you can tell by the above, no single business structure is suitable for every scenario. Aspiring foreign entrepreneurs and immigrants starting their new business should carefully assess their enterprise type, vision, tax situation, risk appetite, and desired control when opting for sole proprietorship, LLC, partnership, or corporation. Consulting legal, tax, and business professionals during the decision process is highly recommended.
Business Registration & Licensing
Once you have decided on the most appropriate company structure for your business, the next step is to complete all registrations and obtain licenses to legally operate your business. We have summarized the key requirements below as a starter for you.
1. Business Name Registration
One of the most important and early steps to open a US company is selecting and registering a name for your business. Business names need to be unique, verified for use, and registered with the appropriate state authority. Incorporation documents establish the legal name for corporations, LLCs, and partnerships.
Be sure to check online databases to ensure your desired name is not already being used or trademarked. The USPTO website allows trademark searches. Reserve your business name by registering it with the appropriate state or local agencies. You may also consider filing for a DBA (“doing business as”) for alternate names.
2. Business Structure Filing
Documents like articles of incorporation, partnership agreements and LLC articles of organization need to be filed with the state to establish the legal business entity.
3. Federal Employer Identification Number
Businesses need a federal EIN, which works like a social security number. This can be obtained from the Internal Revenue Service (IRS) and is used for paying federal taxes.
4. State Tax Registration
Registering with state taxing authorities is mandatory in every state to legally collect and remit sales taxes. Business licenses may also be required.
5. Local Licenses, Permits & Registrations
Most local counties and municipalities require purchasing a business license to operate. Special permits and registrations may be needed for specific activities like food handling, workplace safety, alcohol sales, professional services etc. Zoning regulations must be followed.
Proper business licensing and compliance goes beyond a one-time effort. Laws evolve, licenses need renewal and penalties can be assessed for non-compliance. Hence, staying up-to-date on regulatory changes that impact your company is an ongoing responsibility.
6. Appointing a Registered Agent/Resident Agent.
Registered agent services are provided by a resident agent or statutory agent, who is a person or company designated to receive legal correspondence on behalf of your business.
When forming an LLC or corporation, you must name a registered agent as part of your formation documents. The registered agent’s physical address will be your official business address on file. This allows your business to meet the legal requirement of having a registered office location.
A registered agent accepts service of process on behalf of the business, meaning they receive lawsuits, summons, subpoenas or other legal notices sent to the business.
Hire Employees
Providing fair and competitive employee compensation is crucial for attracting and retaining talent, motivating performance, and complying with labor laws.
As a business owner, it is important to understand federal, state, and local laws related to minimum wage, overtime pay, and employee rights. Violations can lead to lawsuits or penalties. Businesses that hire employees must maintain a workers’ compensation policy to cover job-related injuries and illnesses. Coverage requirements vary by state.
In addition to wages/salaries, full compensation includes bonuses, commissions, stock options, retirement contributions, health insurance, vacation time, and other benefits. Besides, companies with employees must pay state unemployment insurance taxes. Rates vary by state.
Immigration Rules & Requirements
As an immigrant entrepreneur in the U.S., one of the key considerations is ensuring compliance with immigration laws while starting and running a business. For example, does your immigration status come with any restriction on operating a business of your own?
The type of visa or immigration status held determines if and how an immigrant can start a business. For instance, B-1 business visitors or F-1 student visas explicitly prohibit engaging in productive employment. Options like H-1B work visa, L-1 intracompany transferee visa, E-2 investor visa, or green card allow starting a business under certain conditions. Overstaying a visa or working outside permissible activities could trigger deportation. Hence, clearly understanding the scope of your immigration status is critical.
Given the complexity of immigration law, we recommend that you consult experienced immigration attorneys when planning an entrepreneurial venture.
Opening Business Bank Account
Opening a business bank account as an immigrant entrepreneur can be challenging, but is certainly possible if you come prepared.
First of all, make sure you have the proper visas or work permits that allow you to legally operate a business in the US. Bring your passport, US visa, and proof of address. Banks or any financial institutions need these documents to verify your identity and residency as a foreign business owner which is the basic procedure for opening a business bank account.
Bring certificates of formation/incorporation if you have legally registered your business. Be ready to provide a Tax ID Number (Taxpayer identification number) or EIN if you have formed a legal business entity like an LLC.
Have a detailed business plan outlining your company’s activities and projected financials to give the bank confidence. To increase the chance of being accepted by the banks, providing personal guarantees or collateral to secure the account helps. You may also consider bringing a US citizen as a co-signer when applying for business bank accounts. That provides added comfort and assurance to the banks.
If rejected, keep trying other banks and build your case with successful business operations.
Financing the Business
Sufficient capital is vital for starting any successful business. If you are a foreigner or an immigrant looking to start your own business, how to access funding may be one of your key concerns. You may be wondering whether there are financial resources such as grants and small business loans for immigrants.
We have previously discussed ways to get business loans for new businesses and explored financing resources available in the U.S. supporting immigrant entrepreneurs.
In general, you may explore options like a traditional bank business loan, Small Business Administration (SBA) Loans, government grants, and other financial support from non-profit organizations that specialize in helping foreign entrepreneurs. You may refer to the details here.
Bookkeeping, Accounting & Taxes
Careful record-keeping and compliance with tax regulations are legal necessities for operating US business entities. Without basic proficiency in managing income statements, balance sheets, general ledgers, cash flow statements, and performing double-entry bookkeeping, financial management can quickly become overwhelming.
Having said that, by learning the fundamentals, using technology like cloud accounting software, and working closely with accounting and tax professionals, new entrepreneurs can overcome these hurdles. Well-managed finances and compliance provide peace of mind as well as the data to steer the business successfully.
Here are some of the essential fundamentals a new business owner needs to be well aware of.
GAAP/IFRS Standards
US accounting standards known as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS) provide guidelines for recording and reporting financial transactions.
Accounting Systems
Setting up efficient systems and processes for tracking income, expenses, accounts receivable, accounts payable, inventory, fixed assets, payroll etc. right from the start is crucial. Options range from spreadsheets to cloud-based accounting platforms like Quickbooks or Xero.
Federal and State Taxes
Complex federal and state tax compliance requirements like quarterly estimated payments, withholding amounts, sales taxes, multiple tax filings etc. may trip up new business owners. For example, improperly accounting for personal vs business expenses can lead to major tax issues or trigger an audit. Many make expensive mistakes by not using an accountant or tax expert.
Payroll Administration
Payroll systems are needed to properly calculate wages, withholdings, deductions and net pay for employees. Payroll tax returns must be filed.
Labor Laws
Businesses with employees must comply with federal and state laws related to minimum wage, overtime pay, meal breaks, discrimination, harassment, safety etc.
Accounting/Legal Help
Experienced accountants, tax preparers and attorneys are worth their fees to ensure full compliance and minimize tax obligations. The IRS and state agencies have tremendous reach to impose fines, penalties and legal consequences for non-compliance.
The volume of legal paperwork surrounding accounting and taxes – registrations, permits, insurance, licenses etc. can be daunting for first-time business owners unfamiliar with requirements. No matter what types of business you are incorporating, staying current with constantly changing laws is important and challenging. Dedicated work on setting up sound systems and seeking professional helps early saves considerable headaches down the road.
Insurance Needs
Risk is part of any business. Being properly insured allows immigrant entrepreneurs to manage exposures that could otherwise lead to lawsuits, bankruptcy, or closure. Here is some insurance coverage that you may consider depending on the type of business you are operating.
General Liability Insurance – This is essential for almost any business to protect against third party bodily injury, property damage, personal injury and advertising injury lawsuits. It covers legal defense costs and settlements.
Professional Liability Insurance – Also called errors and omissions insurance, this covers claims arising from negligent work or services. It is critical for consultants, doctors, accountants, lawyers etc.
Property Insurance – This protects the physical premises and equipment of the business against loss due to theft, fire, storms and other perils. Business interruption coverage provides additional protection.
Cyber Liability Insurance – Technology exposures like data breaches, hacking, malware, privacy violations and electronic data loss are mitigated by this coverage. Nearly all businesses need cyber insurance today.
Workers’ Compensation – Required for businesses with employees, this insurance covers medical treatment, lost wages, rehabilitation and death benefits in case of workplace injuries or illnesses.
Key Person Insurance – This protects businesses against the disruption and financial loss from death or disability of key employees. It covers costs of temporary replacement and revenue declines.
Insurance increases expenses but provides valuable protection against catastrophic losses. As the business expands, your risks evolve and coverage needs must be re-evaluated. Working with an experienced agent helps secure adequate policies at optimal rates.
Choosing a Business Location
The physical location of a business impacts visibility, accessibility, costs, supply logistics and other key factors that are tied to your success. For immigrant entrepreneurs, there are some specific regulations and rules that may be new to you but are important to know.
Regulatory Environments are another important consideration when you are choosing your business location. In some areas, complex local regulations, strict permitting processes, or licensing bureaucracy can deter new business activity. Business-friendly locations can simplify compliance. For example, there are Local Zoning Regulations that dictate which business activities are permitted in any given area. Common zones include commercial, industrial, residential, or mixed-use. Home-based businesses have additional rules.
Many US states or communities offer Incentives and Tax Credits for investing in high unemployment or opportunity zones. This can significantly impact cost savings and profits.
Rental rates, utility expenses, labor costs, and tax rates often have wide variability between different cities, counties, and states. Careful analysis on Cost Comparison is required to maximize affordability.
Distance to suppliers, target markets, and resources impact costs and efficiency. Convenient highways, public transport, or street access improves Accessibility. Parking availability is also important.
Overall, the ideal location balances costs, logistics, accessibility, visibility, incentives, and regulatory climate. As a practical first step, setting up a home office or renting a small commercial space allows for testing the market at a low cost. The business can expand into larger premises once established.
Marketing the Business
Gaining visibility and creating brand awareness is necessary to attract customers to all kinds of businesses. However, marketing can be costly, especially for immigrant entrepreneurs.
Marketing a small business in the US can pose some unique challenges for immigrant and foreign business owners. Limited familiarity with American consumer culture and purchasing preferences makes it difficult to effectively position and promote your products or services.
Let us discuss some of the common difficulties foreign business owners face and the ways to tackle them.
- Language barriers – lacking mastery over nuances of English marketing copy can make advertising and communications less impactful. Conduct additional market research and. consumer analysis. Partnering with a native English-speaking agency also helps.
- Restricted marketing budgets – this is a very common challenge for new startups. A limited marketing budget may prohibit extensive advertising spend on mainstream channels like TV, radio, and billboards. Try focusing on low-cost marketing channels and digital tactics. Social media like Facebook, Instagram, Yelp are user-friendly and low-cost platforms to start with. Accumulate positive reviews, testimonials, and referrals to quickly build credibility.
- Lack of local network and connections – lack of existing network and connections with local American influencers, partners and media outlets makes quickly building brand awareness tough. Try to participate in business expos, conferences, and networking events to meet prospects, industry experts, and media and local influencers.
- Geographic distance – For entrepreneurs immigrating to the US to start a business, there is often a large physical and cultural distance from their home country where they previously lived and operated. Being distanced from your home country makes transferring or adapting successful marketing strategies from your native region challenging. Stay plugged into local news, trends, and industry intelligence. Recruit local employees at the same time maintain relationships and regular communication with trusted suppliers, partners, and advisors back home to leverage their insights.
- Advertising Regulations – Unfamiliarity with US advertising regulations around claims, testimonials, disclosures etc. Raises legal risks if improperly managed. Review the Federal Trade Commission (FTC) website and their advertising guide for detailed information on federal rules around advertising disclosures, substantiation of claims, testimonials, etc. Check with your state’s Attorney General’s office for information on any state-specific advertising laws.
All-in-all, with a dedicated effort to understand the American consumer psyche, competitive landscape, marketing ecosystem, and regulations, immigrant entrepreneurs can craft campaigns that break through and achieve growth.
Leveraging Available Resources
Successfully launching a new venture in an unfamiliar environment presents daunting challenges for immigrants. Fortunately, federal, state and nonprofit organizations offer many helpful programs and resources, below are some examples that can help:
SBA Office of Advocacy
This arm of the SBA provides vital research, trainings and regulatory review to support small business interests. Their website offers a rich library of materials on planning, launching and managing a business.
SBA Learning Center
Free online courses, videos, templates, guides and other practical self-paced resources equip new entrepreneurs with important skills and knowledge.
SCORE Business Mentoring
SCORE provides free business mentorship from experienced executives, business owners and subject matter experts. One-on-one coaching is invaluable.
Small Business Development Centers
SBDCs provide free business consulting and affordable, targeted workshops on topics like writing business plans, securing financing, marketing, regulatory compliance etc.
Local SBA District Offices
District offices assist with navigating SBA loan programs, accessing local resources and understanding regulations that impact small businesses.
AILA Immigration Lawyer Referrals
The American Immigration Lawyers Association helps locate experienced immigration attorneys who can help you handle visa, permanent residency and compliance issues.
State & Local Programs
Many states and municipalities run small business support programs. These include incubators, shared workspaces, mentoring, financial assistance, training programs and more.
Thriving as an Immigrant Entrepreneur
While launching a business venture in a foreign land like America has added complexity, immigrants throughout history have demonstrated that it is possible to overcome the challenges. With determination, resourcefulness, and diligent preparation, the bureaucratic, financial and knowledge-related hurdles can be overcome to build a successful company.
Local community resources, professional advisors and government programs provide invaluable support to get started. Stay motivated by keeping the end goal in mind at all times. Remember, the rewards and satisfaction of entrepreneurship can be rewarding.
