Can a non US citizen form an LLC, S Corp, etc. in California and can they run it independently?

A non-citizen can establish a CA LLC, but not a CA S-corp, which does require shareholders to be U.S. citizens or residents (and natural persons, not corporations or partnership, etc.). I'm not sure what you mean by "he will become a citizen next to merchants." Try re-posting this under immigration law. Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship.

I have helped more than two dozen foreign entrepreneurs and companies form companies here in the U.S. There are too many issues to be addressed fully here. I will focus on a few of the more important points. Yes, your fiance can set up an LLC. The LLC should obtain an Employer Identification Number (forget about an ITIN). If your fiance has a social security number, obtaining an EIN online is easy. If not, see "Foreign Company Alert: Obtaining an EIN may be your Biggest Challenge in the U.S." at http://dana.sh/bRsAnI. An O-1 will not allow him to work for the LLC. If he has a lot of money, he can apply for an E-2 investor visa - see "Visa Basics for Foreign Entrepreneurs Coming to the U.S." at http://dana.sh/diDRaK. Your fiance should consider retaining an attorney with experience in this type of matter to help him through the process. Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.