10 Things to Know about Proposed International Entrepreneur Rule

10 Things to Know about Proposed International Entrepreneur Rule

August 29, 2016

By:  Bernard P. Wolfsdorf, Esq. and Joseph M. Barnett, Esq.

On August 26, 2016, the U.S. Citizenship and Immigration Services (“USCIS”) within the Department of Homeland Security (“DHS”) released an advanced version of the notice of a proposed rulemaking – the International Entrepreneur Rule – which will be published in the Federal Register and then subject to public notice and comment for 45 days.  The proposed rule allows certain international entrepreneurs to apply for parole (temporary permission to be in the U.S.) to start or scale their U.S. business.  Under the proposed rule, DHS would be able to parole certain entrepreneurs whose stay in the U.S. would provide a “significant public benefit through the substantial and demonstrated potential for rapid business growth and job creation.”

Wolfsdorf Rosenthal LLP applauds the Obama Administration, DHS, and USCIS in proposing the International Entrepreneur Rule, which is aimed at generating economic growth, job creation, and innovation in the U.S.  Foreign entrepreneurs of start-up entities in the U.S. have had restricted immigration options in the past.  Rather than adversely affecting U.S. labor markets, DHS believes the proposed rule would encourage entrepreneurs to pursue business opportunities in the U.S. instead of abroad, providing an alternative option to international students graduating from U.S. universities or specialty workers not chosen in the H-1B lottery. Unfortunately, the proposed rule does not seem to provide much relief to EB-5 investors due to the strict business capitalization requirements, unless the entrepreneur can otherwise demonstrated that the start up entity can provide a significant public benefit. Here are 10 things to know about the proposed International Entrepreneur Rule.

  1. The Basics. Under the proposed rule, an individual seeking parole would need to demonstrate: (a) the creation of a U.S. business entity within the three years preceding the date of filing the initial parole application; (b) the ability of the parole applicant to advance the entity’s business through significant (at least 15%) ownership interest and active and central role in the operations and growth of the entity; and (c) investments of minimum capital of $345,000 from established U.S. investors, the receipt of significant awards or grants totaling $100,000 or more from Federal, State, or local entities, or other reliable and compelling evidence showing significant public benefit to the U.S.  DHS is also seeking to automatically increase the investment and revenue amounts every three (3) years by the Consumer Price Index.
  1. Legal Authority. Section 212(d)(5) of the Immigration and Nationality Act (“INA”), 8 U.S.C. § 1182(d)(5), grants the Secretary of Homeland Security the discretionary authority to parole individuals into the United States, on a case-by-case basis, for urgent humanitarian reasons or significant public benefit.  The International Entrepreneur Rule provides the criteria for the case-by-case evaluation of parole applications filed by entrepreneurs of start-up entities in the U.S. under DHS’s existing discretionary statutory parole authority.  Additionally, section 274A(h)(3)(B) of the INA, 8 U.S.C. § 1324a(h)(3)(B), recognizes the Secretary of Homeland Security’s general authority to extend employment authorization to noncitizens in the U.S.
  1. Future Use and Cost; New Form I-941. DHS estimates that 2,940 entrepreneurs could be eligible for parole annually under the proposed International Entrepreneur Rule, with an additional 3,234 dependent spouses and children seeking parole based on the estimated of principal applicants.  A parole applicant would be required to file with USCIS an Application for Entrepreneur Parole (Form I-941), along with supporting documentation, a proposed filing fee of $1,200, and a biometric service fee.
  1. Established Record of Successful Investments in Start-Up Entities. DHS proposes to limit parole applicants to qualifying investors with an established record of successful investments in start-up entities.  The applicant will need to demonstrate (a) one (1) or more investments in other start-up entities in at least three (3) separate calendar years during the five (5) year period prior to the date of filing the Form I-941 in exchange for equity or convertible debt equaling no less than $1M and (b) at least two (2) such entities each created at least five (5) qualified jobs or achieved a minimum of $500K in revenue with average annualized revenue growth of at least twenty percent (20%).

    Because of these proposed requirements, it is unlikely that the International Entrepreneur Rule will provide relief to EB-5 investors, especially those participating in the EB-5 Regional Center Program. Direct EB-5 investors may be able to take advantage of the proposed rule but will need to properly structure the business’ capital stack to meet both sets of regulatory requirements.

  1. No Public Charge. As a condition of entrepreneur parole, the parolee must maintain a household income greater than 400% of the Federal Poverty Line for his/her household size (currently $97,200 for a family of four in the 48 contiguous states and District of Columbia), defined by U.S. Department of Health and Human Services, as he/she grows and develops his/her start-up entity.
  1. Additional Exclusions. DHS is seeking to exclude the following types of start-up businesses:  (a) an entity that is an investment vehicle primarily engaged in the offer, purchase, sale or trading of securities, futures contracts, derivatives or similar instruments, to ensure that the start-up entities receiving investment capital under this proposed rule are not merely serving as a conduit for reinvestment, but are providing or seeking to provide goods or services with the substantial potential for rapid growth and job creation; and (b) small businesses with limited growth potential created by entrepreneurs for the sole or primary purpose of providing income to the entrepreneurs and their families.  Additionally, only three (3) co-founding entrepreneurs may use the start-up entity as a basis for their parole application.
  1. Authorized Period for Entrepreneur Parolees; Re-Parole.   DHS proposes an initial authorized parole period of up to two (2) years for entrepreneur parole applicants to allow them sufficient time to develop the business.  One additional, successive period of “re-parole” of up to three (3) additional years with the same start-up entity if such additional period of parole is possible if such period of parole is determined to serve a significant public benefit by demonstrating either $500K in annual revenue and at least twenty percent (20%) average annual revenue growth or creation of at least 10 full-time jobs for qualifying U.S. workers during initial parole period.  DHS will issue a multiple entry travel document for individuals granted parole under this rule to permit travel during their parole validity period.  DHS would also assign a new code of admission for this class:  “PE-1.”  It is critical to note that parole is not an admission to the U.S., parole does not confer any immigration status, and parole may be terminated at any time in DHS’s discretion, consistent with existing regulations.  Parole does not provide a basis for changing status to a nonimmigrant or adjusting status to a lawful permanent resident, unless the parolee is otherwise eligible.  Each spouse and child seeking parole must independently establish eligibility for parole basis on significant public benefit (or, alternatively, for urgent humanitarian reasons), and that the individual merits favorable exercise of discretion.
  1. Employment Authorization. An entrepreneur who is paroled into the United States pursuant to this section is automatically authorized for employment, but only with the start-up entity incident to the conditions of his or her parole.  DHS proposes to automatically extend the employment authorization of an entrepreneur parolee whose parole has expired who has timely filed an application for re-parole with the same start-up entity, for a period not to exceed 240 days beginning on date of expiration of parole.  The spouse of the entrepreneur parolee, after being paroled into the United States, may be eligible for employment authorization with other entities after receiving approval of a Form I-765.  There is no employment authorization for children of an entrepreneur parolee.
  1. Case-By-Case Determination. Entrepreneur parole determinations will be made on a discretionary, case-by-case basis.  As a discretionary benefit, DHS is proposing no right of appeal following a decision to deny entrepreneur parole, as is the case currently with other parole requests.  DHS is also proposing that applicants be precluded from filing motions to reopen or reconsider a decision to deny entrepreneur parole.  However, DHS may reopen a decision and deny parole at any time if DHS finds the decision was issued in error.  It will thus become critically important to prepare a compelling package with supporting evidence to include with a Form I-941 filing.
  1. Likely Documentation Required. DHS will be looking for the documentation concerning the entity’s business; its substantial potential for rapid growth and job creation; and its capital investment and government funding.  The following can used as a guide only:

Entity Formation Documents

  1. Articles of Organization/Incorporation;
  2. By-Laws/Operating Agreement/Partnership Agreement; and
  3. Employer Identification Number

Operational Documents

  1. Business Licenses
  2. Business Plan (evidence of significant revenue generation and growth in revenue)
  3. Market Analysis
  4. Job Creation Timeline
  5. Evidence applicant has played active and central role in success of prior start-up entities;
  6. Evidence applicant or entity has been recently invited to participate in, is currently participating in, or has graduated from one or more established and reputable start-up accelerators;
  7. Payroll, bookkeeping, salary, or bank records relating to jobs created prior to filing request for parole; and
  8. Lease Agreement, if applicable

Capital Investment/Government Funding

  1. Evidence of capital investment from qualified investors (not including entrepreneur him or herself; parent, spouse, brother, sister, son, nor daughter of entrepreneur; nor any company owned by such individuals)
  2. Government awards or grants
  3. Letters from relevant government entities, qualified investors, or established business associations with knowledge of entity’s research, products, or services, and/or parole applicants knowledge, skills, or experience that would advance entity’s business;
  4. Newspaper articles demonstrating applicant or entity has received significant attention or recognition
  5. Patent awards demonstrating applicant or entity is focusing on developing new technologies or cutting-edge research; and
  6. Other relevant, probative, and credible evidence indicating entity’s potential for growth and/or applicant’s ability to advance entity’s business in the U.S.

If you would like to schedule a professional consultation to discuss your immigration options, please contact a Wolfsdorf Rosenthal LLP attorney to discuss your case.

This post is designed to provide practical and useful information on the subject matter covered.  However, it is provided with the understanding that no legal, tax, accounting, or other professional services are being rendered or provided.  If legal advice or other expert assistance is required, the services of a competent professional should be sought.

2016-08-29T17:33:08-08:00 August 29th, 2016|

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