On Sep 20 2016 by William A. Stock

Proposed Rule May Help Attract More International Entrepreneurs

One shortcoming of the current ­immigration system is the lack of visa options appropriate for ­early-stage businesses. Nationals of some countries can be granted visas under bilateral investment treaties if they are starting a business, but those visas cannot be based on U.S. angel or venture capital ­investments. Other employment-related visas are not explicitly limited to larger businesses, but have regulatory requirements that may be difficult for startup businesses to meet. In some cases, foreign students receive a technical education at U.S. universities, but then have to take their job-creating companies to Canada or other countries because U.S. law lacks an appropriate mechanism to allow them to stay and create their companies here.

In November 2014, President Barack Obama announced a package of administrative ­reforms he planned to implement in his final years in office. These administrative reforms were meant to go as far as the president could in fixing problems with the immigration system without changes to the Immigration and Nationality Act. While headlines and later court actions have focused on his plan to grant “deferred action” to undocumented immigrants who are parents of U.S. citizens (the DAPA program, for Deferred Action for Parents of Americans), there were several smaller ­reforms promised in the area of employment-based immigration.

Shortly before Labor Day, the Department of Homeland Security issued a proposed rule that would create a set of guidelines about when international entrepreneurs could be granted admission to the United States to create and guide their business. The proposed regulation would use the mechanism of “parole” to allow ­entrepreneurs to enter or remain in the United States and be granted employment authorization. A grant of parole would, therefore, allow entrepreneurs to manage and develop startup ­companies in the United States.

Given the political and legal opposition to the president’s attempted creation of the Deferred Action for Parents of Americans program in 2014, and the U.S. Supreme Court’s refusal to lift an injunction halting implementation of the program during a legal challenge by 26 states, attorneys may question whether the president has the ­authority to implement a program such as the proposed “parole for entrepreneurs.”

One key difference between the DAPA proposal and the proposed entrepreneur rule is the explicit statutory authority for “parole.” Section 212(d)(5) of the Immigration and Nationality Act of 1952, codified at 8 USC Section 1182(d)(5), provides the secretary of Homeland Security with the authority to “parole” any foreign national into the United States for “urgent humanitarian reasons or significant public benefit.” Over the years, the Department of Homeland Security and its component agencies have developed mechanisms to make parole ­determinations for numerous categories of people, such as children needing to be united with relatives in the United States due to humanitarian considerations, ­persons needing medical treatment, and ­immediate family of U.S. Armed Services members.

Another key difference between the DAPA proposal and the proposed ­entrepreneur rule is that the ­entrepreneur parole program is being proposed as a rule under the “notice and comment” procedure mandated by the Administrative Procedures Act. By proposing the rule under the APA, the ­administration ­insulated itself against one of the legal bases for the injunction issued against the DAPA program.

The goal of the proposed rule is to facilitate business development in the United States, while creating jobs for U.S. ­workers and promoting innovation. Parole will provide entrepreneurs with an option that makes sense for their unique situation, while also promoting the United States as a place where ­entrepreneurs can start and grow their businesses. While the entrepreneur can work in the United States, the employment is limited to the startup company for which the parole was granted, thereby limiting the entrepreneur from working on other projects.

The proposed rule outlines the following criteria in order to take advantage of this benefit:

  • The entrepreneur must have at least a 15 percent ownership interest in the company.
  • The entrepreneur must have an ­active and central role within the company that will utilize his knowledge, skills or ­experience to substantially assist the company in managing and developing the business. The entrepreneur cannot merely be an investor in the business.
  • The company must have been recently formed (generally within the three years preceding the parole application).
  • The company must provide significant public benefit through a substantial and demonstrated potential for rapid business growth and U.S. job creation. The rule proposes three ways in which potential for rapid business growth can be demonstrated: receipt of at least $345,000 in angel or ­venture capital; receipt of at least $100,000 in certain federal, state, or local government startup grants; or partially satisfying one or both of the above criteria, in addition to providing reliable and compelling evidence of the company’s substantial potential for rapid growth and U.S. job creation.

Under the proposed rule, the initial grant of parole will be for up to two years. The entrepreneur would then subsequently apply for an extension for up to three years, upon demonstrating that the company has continued to provide a significant public benefit by showing increases to the capital investment, job creation, or revenue. The parole could be revoked if it is found that the entrepreneur and the startup are no ­longer providing a significant public ­benefit. There will be also be a limit to the number of entrepreneurs who can benefit from one startup—parole can only be issued to three entrepreneurs in each qualifying entity.

Comments on the proposed rule are being accepted until early October, and the rule may become final by the end of the year or in early 2017. While this proposed rule will provide a useful path for some ­entrepreneurs to obtain a temporary status in the United States, it does not provide any path to permanent residence (a green card) for those entrepreneurs. Entrepreneurs who want to live and work in the country permanently—or indeed, at all after the five years of parole—would have to be sponsored in another category. As such, entrepreneurs still must await guidance promised in November of 2014 on use of a permanent residence option—National Interest Waivers for Entrepreneurs—to be confident of their long-term options in the United States.

Reprinted with permission from the September 20, 2016 edition of the The Legal Intelligencer© 2016 ALM Media Properties, LLC. All rights reserved.

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