If you are early in the Investment Visa process, you have probably learned that applying for an E-2 visa is one of the LAST steps of the process, once you have already made substantial strides toward opening your business. With that in mind, we reached out to leading business attorney Christopher Branson, who offers up a Guest Blog with insight into how to incorporate your business in the United States, and important information about planning for a startup business.
Guest Blog: Business Start Up Primer for E-2 Investors
By Christopher Branson, Murray Plumb & Murray
Anyone applying for an Investor Visa (or “E Visa”) will need to have a business plan for forming, buying or investing in a business in the United States. Here is a legal guide to business entities and business start-ups in the United States. First, we will look at the different types of legal entities typically used by businesses in the U.S., and then we will review a checklist of questions you should be prepared to discuss with a business lawyer as you plan your investment in the U.S.
Leading Types of U.S. Business Entities
Determining the best type of entity for your business is an important first step, as the business structure has lasting implications for your business and the way business revenue is taxed. There are three primary forms of U.S. business entities, and also the option to use no legal entity at all.
Limited Liability Company (or “LLC”):
A Limited Liability Company, or LLC, is one of the more popular forms of business entity in the U.S. Two key features of an LLC are that it provides so-called “limited liability” to its owners, and it typically provides “flow-through” tax treatment (which means that the LLC itself does not pay U.S. income taxes, but instead those taxes “flow through” and are paid by the owners of the LLC on a proportional basis).
Advantages of using a Limited Liability Company (LLC):
- They can be custom tailored to fit your business
- LLCs are often more tax efficient than C Corps.
Disadvantages of using a Limited Liability Company (LLC):
- LLCs can be more expensive to set up than an “off-the-shelf” corporation
- S Corporation can be more tax efficient with self-employment taxes of owners.
LLCs are the entity of choice for holding real estate and are also used for a wide variety of other businesses.
U.S. corporations come in two varieties: “S” and “C.” Both provide limited liability for the owners, but the tax treatment for the two is different. An “S-Corporation” enjoys flow-through tax treatment similar to LLCs.
Advantage of an S-Corporations:
- S-corporations generally provide lower self-employment taxes for business owners.
Disadvantage of an S-Corporation:
- A key disadvantage of an S-Corporation is that legal restrictions make it harder for outside investors to invest in the business.
S-Corporations are frequently used for service businesses where services are the primary source of revenue.
A C-Corporation, unlike an S-Corporation, it is not a flow-through tax entity. Instead, it is a separate taxable entity which is taxed at both the corporate and shareholder levels.
Advantages of using a C-Corporation:
- C-Corporations also lack the legal restrictions which make S-Corporations unattractive to outside investors, which makes the C-Corporation a better option than an S-Corporation if outside investors may be needed for the business.
Disadvantages of using a C-Corporation
- Taxation at both the corporate and shareholder levels produces the “double taxation” which is often cited as a disadvantage of using a C-Corporation.
For some small businesses, the best choice is no legal entity at all. This is a “sole proprietor.”
Advantages of a Sole Proprietorship:
- Some advantages of operating as a sole proprietor include the simplicity and cost savings of conducting business without a legal entity.
Disadvantage of a Sole Proprietorship:
- A disadvantage is that sole proprietorships do not get the benefit of limited liability which most business entities provide.
Examples of businesses which may sometimes operate as a sole proprietor include plumbers, electricians and other tradesmen, bookkeepers, yoga instructors, freelance writers, and more.
Questions You Should Ask Your Business Lawyer
So now you are ready to speak with a business lawyer about setting up or investing in your new business. What should you plan to discuss? Here is a list of topics you will want to cover in your first call or meeting with a business attorney. Not only are these topics essential to successful business startups, they are all critical components of E Visa petitions.
Business overview: Plan to provide the lawyer with an overview of your business, including a summary of the personnel, physical space requirements and the equipment you will use.
Roles of owners and employees: Be sure to tell your lawyer what roles you and the other owners will play in the business. Will some owners work for the business while others are silent investors? This information will help the lawyer recommend an appropriate legal structure to assist your business. If you are planning to hire foreign workers on an E visa, make sure they qualify under USCIS guidelines.
Your prior business experience: Be ready to explain how much prior experience you and the other owners of the business have. This will help the lawyer understand what risks and challenges your business faces and how best to protect you.
Name of the business: Be prepared to discuss your business name and have at least one back-up name in mind in case your first choice is unavailable for any reason. Remember that you should not use a name that is already in use and you should avoid names that are similar to registered trademarks owned by others.
Business locations: Be prepared to discuss where you will conduct your business and what kinds of physical locations you will need including a list of states where you expect to have employees or physical locations. This will help the lawyer better advise you on leases and insurance. It is also important to determining in which states you may need to qualify to do business.
Investors: Will some of the owners or other third parties be putting up money to start or grow the business? This information will help with compliance with securities laws and help the lawyer guide you to an appropriate business structure. In order to qualify for an E Visa, the principal investor should be at least 50% owner of the business.
Business structure (choice of entity): Be prepared to discuss possible entities and structures for your business. Do you have a preference for an LLC? S-Corp? C-Corp? Do you understand the advantages and disadvantages of each for your business? Answering these questions will help the lawyer guide you to the best fit for your business.
Insurance: Be prepared to discuss your insurance needs. Most businesses carry Commercial General Liability (CGL) coverage. Depending on your business, you may also need or want other types of coverage.
Bank accounts: If you don’t have a bank yet for your business, be prepared to discuss your banking needs. Your lawyer can help guide you through the legal steps to set up a business bank account. It is important to show that you are prepared to make a substantial investment in your business in the United States, and a business account with traceable assets can help satisfy the investment provision.
Payroll arrangements: If your business will have employees, you should be prepared to discuss arrangements for payroll. If you have not already selected a payroll service, it is often a good idea to use a service that is recommended by either your bank or accountant.
Accountant/tax preparer: Most businesses benefit from using the services of an accountant or other professional tax preparer. They often have helpful tips about setting up your business that will save you time and money later.
Licenses: Some businesses require one or more government-issued licenses to conduct business. It could be as routine as a food license for a restaurant or as arcane as FDA approval for a biotech firm. Be prepared to discuss this so the lawyer can help make sure you have all the approvals you need in order to operate.
Your budget for legal services: Lawyers work with a range of clients with a range of budgets. Be prepared to tell your lawyer what you have budgeted for legal services. This will allow the lawyer to help you triage your legal needs to stay within your budget and create a plan for attacking your most urgent legal needs first.
Business Planning to Prepare for a Successful E Visa Petition
The decision to start or invest in a business can be nerve wracking under the best of circumstances, and even more so if you are planning to use the business to work and live in the United States. Proper planning during the inception and startup of your business will do more than set you up for success in your E Visa petition; it will put you on the best path forward as you look to share your unique skills and acumen through your venture. Contact me today for more information about the business offerings of Murray Plumb & Murray, including our fixed-rate MPM Launchpad.
Christopher Branson is the Business and Corporate Law Practice Chair at Murray Plumb & Murray. He often serves as general counsel to clients, and his experience covers the spectrum of the business cycle, from start-up, through investment and growth, to succession planning and exit strategies.
His past and present clients include biotech and technology companies, financial institutions, investment firms, logistics companies, entertainment venues, craft distilleries, winemakers, restaurants and retail businesses.