Imagine that ABC Ltd., a two-year-old company, closes an investment round from a U.S. based venture fund for 13 million dollars, on a post money valuation of 100 million dollars, a tremendous success by all accounts. The majority of the U.S. investment will be used to further enhance the sales operations of ABC Inc, ABC Ltd’s subsidiary in the United States. The United States is a key market representing over 90% of its total sales. Unknown to either the CEO or the new investor, half of the existing staff in the U.S. subsidiary, including the CEO herself, have, as a result of the successful fundraising, lost their E-1 visa status, which permits them to live and work legally in the United States, because ABC Ltd. is no longer majority-owned by Israeli nationals who are not dual U.S.-Israeli citizens or Lawful Permanent Residents of the United States, which is a condition of the E-1 Treaty Trader Visa Category. Those employees must now leave the United States, crippling ABC Ltd.’s U.S. operations for months as it scrambles to rebuild its staff and manage its operations in the meantime.
Even if ABC Ltd. is able to file a new visa petition for its CEO, her husband and children cannot work or attend school, disrupting their domestic lives. One possible alternative visa process typically takes a minimum of two months, during which time the CEO and her family will have to leave the U.S. in order to request entrance to the United States under a new status. Had ABC Ltd. or its investor been properly advised by U.S. immigration counsel, as part of their corporate team, to seek alternative visa types for their existing foreign employees prior to the closing, they could have avoided this disruption.
One could imagine countless scenarios where corporate actions have negative unintended consequences on the existing alien workforce or effectively increase the exposure of the entity to substantial monetary liabilities. In some cases just completing a simple memo at closing can obviate the need for a tremendous amount of post closing legal work and maneuvering.
The late sociologist Robert K. Merton posited in his article, “The Unanticipated Consequences of Purposive Social Action” that one of the causes of unanticipated consequences is purely ignorance, as can be seen in the case above.
Currently, any due diligence process that neglects the immigration consequences of a transaction, even when there are no alien workers involved, can be a gross error and can lead to additional legal work and cost, disruption of business operations, and possibly, substantially increased financial, and even criminal, liability. Take for example a scenario in which ABC Ltd. purchases a U.S.-based company. If ABC Ltd.’s attorneys do not review the I-9 Employment Eligibility Verification forms of the target, it may well inherit liability for the target’s noncompliance. Alternatively, if the target employs alien workers in H-1B status, and ABC Ltd. fails to inspect and assume the liability of the Labor Certification Applications previously filed with, and approved by, the Department of Labor, ABC Ltd. may have to file amended or new applications costing thousands of dollars in legal and filing fees.
Although there may always be unintended consequences to corporate actions, immigration problems need not be one of them.