One Last Surprise from the Obama Administration
On January 17, 2017, the Department of Homeland Security (DHS) published a final rule (“The International Entrepreneur Rule”) to improve the ability of certain promising start-up founders to begin growing their companies within the United States and help improve the economy through increased capital spending, innovation and job creation. DHS published this final rule just 3 days before the Trump administration took office.
Under this final rule, DHS may use its “parole” authority to grant a period of authorized stay, on a case-by-case basis, to foreign entrepreneurs who demonstrate that their stay in the United States would provide a significant public benefit through the potential for rapid business growth and job creation. The new rule is effective on July 17, 2017.
Under this final rule, eligibility may be extended to up to three entrepreneurs per start-up entity, as well as spouses and children. Entrepreneurs granted parole will be eligible to work only for their start-up business. Their spouses may apply for work authorization in the United States, but their minor children will not be eligible for work authorization.
Validity Period of the Entrepreneur Parole
Eligible entrepreneurs may be granted a stay of up to 30 months, with the possibility to extend the period by up to 30 additional months if they meet certain criteria, in the discretion of DHS. An entrepreneur may not exceed the maximum period of five years on a parole based on the same-start up entity.
How to Qualify for the Entrepreneur Parole
To qualify, an entrepreneur must demonstrate that he or she meets the following criteria:
- The entrepreneur possesses a substantial ownership interest in a start-up entity created within the past five years in the United States that has substantial potential for rapid growth and job creation.
- An entrepreneur must possess at least a 10 percent ownership interest in the start-up entity at the time of adjudication of the initial parole; and
- An entrepreneur must possess at least a 5 percent ownership interest in the start-up entity at the time of adjudication of the re-parole.
- During the initial parole, the entrepreneur may continue to reduce ownership interest, but must at all times during the initial parole period, maintain at least a 5 percent ownership interest in the entity.
- During the re-parole period, the entrepreneur may continue to reduce the ownership interest, but must, at all times maintain an ownership interest in the entity.
- The entrepreneur has a central and active role in the start-up entity such that the applicant is well-positioned to substantially assist with the growth and success of the business.
- The entrepreneur can prove that his or her stay will provide a significant public benefit to the United States based on his or her role as an entrepreneur of the start-up entity by:
- Showing that the start-up entity has received a significant investment of capital from certain qualified U.S. investors with established records of successful investments;
- Showing that the start-up entity has received significant awards or grants for economic development, research and development, or job creation (or other types of grants or awards typically given to start-up entities) from federal, state or local government entities that regularly provide such awards or grants to start-up entities; or
- Alternative criteria: showing that they partially meet either or both of the previous two requirements and providing additional reliable and compelling evidence of the start-up entity’s substantial potential for rapid growth and job creation.
Qualified Investment: An investment made in good faith that is not an attempt to circumvent any limitations imposed on investments, of lawfully derived capital in a start-up entity that is a purchase from such entity of its equity, convertible debt, or other security convertible into its equity commonly used in financing transactions within such entity’s industry. A qualified investment cannot come, whether directly or indirectly, from the entrepreneur; the parents, spouse, brother, sister, son or daughter of such an entrepreneur; or any corporation, limited liability company, partnership, or other entity in which such entrepreneur or the parents, spouse, brother, sister, son or daughter of such entrepreneur directly or indirectly has any ownership interest.
Qualified Investor: An individual who is a U.S. citizen or lawful permanent resident (i.e. green card) of the United States, or an organization that is located in the United States and operates through a legal entity organized under the laws of the United States or any state, that is majority owned and controlled, directly and indirectly, by U.S. citizens or lawful permanent residents of the United States. The “investor” must be an individual or organization that regularly makes substantial investments in start-up entities that subsequently exhibit substantial growth in terms of revenue generation and job creation.
A qualified investor must have in the preceding five years:
- Made investments in start-up entities in exchange for equity, convertible debt or other security convertible into equity commonly used in financing transactions within their respective industries, comprising a total in such 5-year period of no less than $600,000; and
- Subsequent to such investment, at least 2 such entities each created at least 5 qualified jobs or generated at least $500,000 in revenue with average annualized revenue growth of at least 20 percent.
Qualified Job: A full-time employment (35 hours per week) located in the United States that has been filled for at least 1 year by one or more qualifying employees. Combinations of part-time positions (even if when combined, such positions meet the hourly requirement per week) do not meet this definition of a “qualified job.”
Qualifying Employee: A U.S. citizen, a lawful permanent resident, or other immigrant lawfully authorized to be employed in the United States, who is not an entrepreneur of the relevant start-up entity or the parent, spouse, brother, sister, son, or daughter of such an entrepreneur. Independent contractors do not count as a qualified employee.
Applying for Initial Parole
- The start-up entity must have received, within 18 months prior to filing the application for parole, a qualified investment of at least $250,000 from one or more qualified investors; or
- The start-up entity must have received within 18 months prior to filing the application for parole, an amount of at least $100,000 through one or more qualified government awards or grants.
Applying for Re-Parole
To qualify for a re-parole, the entrepreneur must demonstrate that she or he is still an entrepreneur and that the start-up entity has:
- Received at least $500,000 in qualifying investments, qualified government awards or grants, or a combination of such funding during the initial parole period; or
- Created at least 5 qualified jobs with the start-up entity during the initial parole period; or
- Reached at least $500,000 in annual revenue in the United States and averaged 20 percent in annual revenue growth during the initial parole period.
Alternatively, an entrepreneur who partially meets one or more of the above criteria may provide other reliable and compelling evidence of the start-up entity’s substantial potential for rapid growth and job creation.
An entrepreneur who is paroled into the United States is authorized for employment with the start-up entity immediately upon entry or approval. However, the spouse of an entrepreneur must apply for employment authorization with USCIS which issues an Employment Authorization Document (EAD).
Maintaining the Entrepreneurial Parole
As a condition of parole, an entrepreneur must maintain household income that is greater than 400% of the federal poverty line for his or her household size as defined by the Department of Health and Human Services.
An entrepreneur granted a parole must report any material change(s) to USCIS. Material changes include but are not limited to the following: a significant change with respect to ownership and control of the start-up entity; a cessation of the entrepreneur’s qualifying ownership interest in the start-up entity or the entrepreneur’s central and active role in the operations of the start-up entity; a sale or other disposition of all or substantially all of the start-up entity’s assets; the liquidation, dissolution or cessation of operations of the start-up entity; the voluntary or involuntary filing of a bankruptcy petition by or against the start-up entity; any criminal charge, conviction, plea of no contest, or other judicial determination in a criminal case concerning the entrepreneur or start-up entity; any complaint, settlement, judgment, or other judicial or administrative determination concerning the entrepreneur or start-up entity in a legal or administrative proceeding brought by a government entity; any settlement, judgment or other legal determination concerning the entrepreneur or start-up entity in a legal proceeding brought by a private individual or organization other than proceedings primarily involving claims for damages not exceeding 10 percent of the current assets of the entrepreneur or start-up entity.
DHS estimates that 2,940 entrepreneurs will be eligible under this rule annually.
We will keep you posted with any further updates.