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Little Known Rule Provides Immigration Path for Foreign Entrepreneurs

April 22, 2021, 8:01 AM

The three-week H-1B registration period ended March 26. Since then, some H-1B visa hopefuls were delighted to find out they were selected, and many others have learned the disappointing news that an H-1B visa—which allows U.S. employers to temporarily employ foreign workers in certain occupations—is likely not in the cards for them this coming year.

This H-1B selection process is highly competitive and the uncertainty involved is stressful for everyone involved. It is that much more stressful for foreign founders and shareholders of startup companies, who face even more hurdles in the process than others.

It would seem logical that having an ownership stake in a U.S. startup company, an objective indicator of the shareholder’s commitment to making his or her company succeed in the U.S. marketplace, should be a positive factor in the eyes of the government. Unfortunately, it is seen as a negative factor and something that must be overcome when seeking an H-1B visa.

The H-1B rules require that the employer and beneficiary of the visa have an arms-length relationship and the employer must prove that it controls the H-1B visa holder and not vice versa. This disconnect illustrates that the H-1B visa program was not designed with company founders in mind.

Work Visa Designed for Entrepreneurs

The U.S. does not have a temporary work visa category designed for foreign entrepreneurs. Attempts by Congress over the years to pass start-up visa legislation have all ended in failure. Until Congress amends the immigration law to include a visa that is geared toward startup founders, foreign entrepreneurs must navigate a patchwork of imperfect immigration options.

There is the E-2 investor visa, but this temporary work visa is only available to citizens of specific countries that have treaties with the U.S. and it is premised on the concept of foreign direct investment. For this visa to be viable, the U.S. company must at all times be at least 50% owned by the foreign entrepreneur or others who share his or her nationality. As soon as the ownership percentage of the U.S. company drops below 50% foreign ownership, the visa status becomes void.

This automatic voiding of a foreign entrepreneur’s E-2 visa status is a cause of great frustration both to foreign entrepreneurs and their U.S. funders. Venture capitalists must have assurances that the founders they have backed will have the legal right to stay in the U.S. and continue to grow their companies.

Benefits of Parole Rule for Foreign Entrepreneurs

One bright light at this time is the international entrepreneur parole (IEP) rule. The rule provides a temporary immigration pathway for foreign entrepreneurs who have founded U.S. companies that have attracted venture capital or other funding, and are likely to grow and add jobs to the U.S. economy, which is a significant public benefit.

“Parole” is not a visa status. Rather, it is a type of immigration status that authorizes the beneficiary the right to enter and stay in the U.S. for a specific period of time granted by the Department of Homeland Security. The parolee is not “admitted” into the U.S. the way someone is on a student or visitor visa.

This is a drawback of parole status because the parolee may not change to a different immigration status, such as H-1B, in the U.S. because they have not been admitted. However, the parolee would be eligible to file a petition for an H-1B visa, and if approved, the parolee could then exit the U.S. and return with the new H-1B visa stamped into their passport.

Parole status provides the distinct advantage as an option for foreign entrepreneurs since it is oriented to the realities of the startup ecosystem. Successful IEP applicants must show that they (1) founded their startup within three years prior to submitting their application; (2) are well-positioned to advance the business of the enterprise; and (3) secured either (a) at least $250,000 in financing from U.S. venture capital or other investors who can prove they have a history of successful startup investing, or (b) grants of at least $100,000 from federal, state, or local government agencies oriented to economic development, research, and/or job creation.

Parole status is granted for an initial period of two years, with an option for a three-year extension if the business continues to grow.

Option Should Be Utilized

The IEP rule was promulgated shortly before President Obama left office. Soon after President Trump was inaugurated, his administration tried to remove the regulation and blocked its implementation by delaying the effective date of the rule.

The National Venture Capital Association (NVCA) filed a lawsuit in September 2017 in federal court to stop the Trump administration from improperly blocking the rule, and to compel DHS to adjudicate the applications that had been filed by hopeful foreign entrepreneurs. The court ruled in favor of the NVCA in December 2017.

The Trump administration did adjudicate the few applications that had been filed, but it indicated its hostility to the rule by publishing a notice in the Federal Register that it intended to withdraw the rule. Fortunately, the Trump administration did not carry through on its intention and as of today the rule is still on the books.

Because of the uncertainty over the last four years surrounding the IEP rule, this immigration option directly tailored to foreign entrepreneurs never received the publicity it deserves. Foreign startup founders should take advantage of IEP and demonstrate the economic benefits they generate to the local and larger communities in which they operate, grow, recruit, and hire.

The economic data and metrics generated by these cases (especially, during the renewal requests, when the foreign entrepreneurs must share information with the DHS about how their companies have grown and added workers) will be of great interest to the Biden administration and to Congress in considering the benefits of creating a visa option specifically for foreign entrepreneurs.

We have so few good visa options for foreign job creators—let’s not let this one go to waste.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Susan J. Cohen is the founding chair of Mintz’s Immigration practice. She structures innovative and effective solutions for corporate clients, including startups and early stage companies, to address their unique immigration challenges. She has contributed to federal and state immigration regulations, and promotes immigrants’ rights through pro bono and social justice efforts.

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