International Entrepreneurs Rule

On August 24, 2016 the Secretary of the Department of Homeland Security proposed a new rule commonly known at the International Entrepreneurs Rule (“Rule”). This new Rule seeks to open up a new avenue for entrepreneurs to enter the United States to start and develop a business. However, as often with new proposals are also misconceptions. This article seeks to clarify some misconceptions this new rule.

This new rule is not a law and thus can be enacted by Obama without Congressional action in the next few months. However, it can be changed by Congress, the courts or a

future president.

  1. This New Rule Does Not Provide a Visa

The first misconception is that this Rule provides applicants with a visa to enter the United States. In fact, an applicant who successfully applies to enter the US on this Rule is only provided a temporary parole – right to enter the US, but has no immigration status.

Under US law, the Secretary of Homeland Security has discretionary authority to grant temporary parole “under conditions as he may prescribe only on a case-by-case basis for urgent humanitarian reasons or significant public benefit to any individual applying for admission to the US.” (See INA Section 212(d)(5)(A), 8 U.S.C. 1182(d)(5)(A)). This Rule utilizes this law to allow the Secretary of Homeland Security to propose this new Rule to expand his/her parole powers to include new entrepreneurs.

In fact, federal law is very clear that a parole is not an admission to the United State. (INA Section 101(a)(13)(B), 8 U.S.C. 1101(a)(13)(B); 8 CFR 1.2 (stating “An arriving alien remains an arriving alien even if paroled pursuant to section 212(d)(5)…and even after any such parole is terminated or revoked”). What all this means is that a successful parole does not provide a parolee with temporary nonimmigrant status or lawful permanent resident status. Nor does it provide the parolee with a basis for changing status to that of a nonimmigrant or adjusting status to that of a lawful permanent resident, unless the parolee is otherwise eligible1.

In other words, applying for entry into the US on basis of this Rule is not a method to immigrating to the US long-term, but only as a method to enter the US for the limited purpose of starting and developing a business.

However, near the end of the parole period an applicant may be able to apply for other permanent visas. A startup visa was proposed as part of Obama’s comprehensive immigration reform since 2013 but did not pass. In August of 2014 Obama took executive action ordering USCIS to take action on creating a startup visa. This action would include creating a parole and guidance for NIW (National Interest Waiver) EB-2 applicants which USCIS will likely issue this year. The improved guidance may make it easier for parole applicants to qualify under concrete standards rather than the current NIW standards.

2. Applicant needs to demonstrate start-up business has significant potential for rapid growth and job creation

Remember that this Rule was created for the purpose of increasing and enhancing entrepreneurship, innovation, and job creation in the US. Therefore the Rule provides for strict guidelines on how to qualify.

a. Formation of a New Start-Up Entity

The first qualification is to have a new start-up entity. This is a fairly simple qualification to meet as to start a company in many states is simply filing to necessary paperwork and having the required documents. However, it is important to note that all the correct procedures for starting a business are followed and documented correctly as proof of a valid company will need to be provided for the application. Under the Rule, a business is considered a new start-up entity if it has been in existence for less than 3 years.

b. Applicant is an Entrepreneur

An applicant must be an entrepreneur, which, according to the Rule, the applicant must own at least 15% of the new start-up entity. Additionally aside from showing at least 15% interest in the new start-up entity, the applicant must also show that he/she has an active and central role in the operations and future growth of the entity, such that his or her knowledge, skills, or experience would substantially assist the entity in conducting and growing its business in the US.

The important thing to note for this requirement is that the Rule does not specifically require the applicant to be an officer / director of the new start-up entity. However, the applicant does have to be in an integral part of the entity to effect the development of the entity. Presumably, it this means the applicant has to be in some sort of management position. Regardless, it is important for the applicant to have written documentation evidencing his/her position at the company and a detailed description of his or her responsibility.

c. Significant US Capital Investment or Government Funding

Proving US Capital Investment or government funding is the most important and probably the most difficult to achieve. According to the Rule, there are three ways to meet this requirement:

  • Entity must receive at least $345,000 or more from an established US investor. The Rule actually defined what qualifies as an established US investor stating it has to be a venture capitalist, angel investor, or a start-up accelerator. This is important because a foreign investor will not qualify. The entity must find a US investor willing to invest at least $345,000. (Self-investment of $345,000 will not qualify).

  • If the entity cannot show an investment of at least $345,000, then the entity will need to show that the entity has received either a government (Federal, State or Local government) award or grant of at least $100,000.

  • Lastly, the Rule does provide for an alternative to the two methods mentioned above. The Rule states that the entity can “provide additional reliable and compelling evidence that his or her entity would provide significant public benefit to the US”-meaning that the evidence has to show the company has potential for rapid growth and job creation. It is difficult to determine what this actually means, but presumably it mean significant documentation and market research supporting “rapid growth and job creation.”

3. Grant of Parole Limited to 2-Year Term

If everything goes according to plan and the applicant is granted parole, the applicant is limited to a 2-year entry to the US. Additionally, the applicant is limited to only employment with the start-up entity. This means that if the applicant decides to leave the start-up entity, he applicant will automatically have to be deported unless he/she finds another legal way to change his/her immigration status.

On a positive note, the entry extends to the applicant’s spouse and unmarried children. The children cannot work but the spouse can apply for a work permit EAD under this Rule.

It is important to note that the revoke of parole can happen anytime at the discretion of the Department of Homeland Security. This means that the entity as well as the applicant should keep current records supporting the legitimacy of the entity and funding.

4. Renewal is Limited to 3-Year Term

At the end of the 2-year term, the applicant has the opportunity to apply for a 3-year renewal. However, the renewal qualifications are more stringent than the initial application qualifications.

First, the entity / applicant has to show that the start-up entity has been lawfully operating in the US during the 2-year period and continues to have substantial potential for rapid growth and job creation. Essentially this means during this 2-year period, the company has to maintain documents showing profitability.

Second, the applicant has to show he/she owns at least 10 percent of the company. This is 5 percent lower than the initial qualification meaning that the applicant (during the 2-year period) can give up some equity in exchange for additional funding for the company. Additionally, the applicant has to continue to show he/she has an active and central role in the operations and future growth of the entity such that his or her knowledge, skills, or experience would substantially assist the entity in conducting and continuing to grow its business in the US.

Third, and probably the most difficult to achieve is to show at least one of the following:

  • Entity, during the initial 2-year period, entity must receive at least $500,000in additional qualifying funding. Again, qualifying funding means funding from an US investor, not a foreign investor. Another method to qualify for the renewal is to show that the entity has reached at least $500,000 in annual revenue (gross revenue), with at least a growth of 20% annually. This is probably the most difficult to achieve considering a company only has 2-years to show $500,000 annual revenue and show 20% increase per year.

  • If 1 and 2 does not work, then the company will have to show that company has hired 10 full-time employees during the 2-year period. Keep in mind this is full-time employees and not independent contractors.

  • Lastly, the Rule does provide for an alternative by showing additional reliable and compelling evidence that his or her parole would continue to provide a significant public benefit (substantial potential for rapid growth and job creation).

Conclusion

While the International Entrepreneur Rule does provide for a new method of entry into the US, applicants need to understand that this Rule does not provide for permanent method of immigration. This Rule is designed to encourage business growth and applicants will need to find another method of permanently immigrating to the US.

Additionally, the Rule has fairly stringent requirements. Applicants / companies interesting in using this Rule must make sure there are records and documents that can prove and show the above-mentioned requirements. In fact the governments own estimate states 2,900 entrepreneurs may qualify every year. Overall, this Rule is an interesting new method of entering the US, but there may be other simpler methods of immigrating into the

US.

Eric W. Ching is a real estate attorney with Ching & Associates, a real estate and business law firm in San Diego. David Seto is an immigration attorney with the Law Offices of David Seto.

Eric W. Ching | Real Estate & Business Attorney David Seto | Immigration Attorney

  • 6650 Lusk Blvd., Ste. B-203 San Diego, CA 92121

  • Office: (619)-663-8821

  • Direct: (510)-449-1091

  • www.chinglawgroup.com


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