The Department of Homeland Security (DHS) issued a final regulation on January 17, 2017 intended to facilitate entrepreneurship and job creation in the United States. The new regulation allows qualified founders of start-up companies to enter the US to establish and grow their businesses. This is intended to help overcome the barriers faced by entrepreneurs in the early stages of business development. The regulation is slated to become effective on July 17, 2017.
Background: Efforts to Fill Gaps in Immigration Law for Entrepreneurs
The International Entrepreneur Rule stems from the Obama Administration’s efforts to improve US immigration options for entrepreneurs. The rule, initially proposed in August 2016, leverages an existing immigration option, public benefit parole, to allow qualified entrepreneurs to enter the US to start or expand businesses. Eligibility for this benefit requires receipt of US-based venture capital or US federal, state, or local government grants or awards. With no numerical limit on this category, DHS estimates that more than 2,900 entrepreneurs will qualify annually.
The Benefit: Parole to Establish or Grow Start-Up Business
Starting July 17, 2017, qualified individuals will be able to apply for a grant of parole. If granted, this permission will allow the entrepreneur to enter the US for an initial period of up to 30 months to operate and grow a start-up entity in the US.
To qualify, the applicant must establish that his or her start-up entity has significant potential for rapid growth and job creation. This, in turn, is tied to receipt of US investment funding and/or US federal, state, or local government grants or awards, as explained below.
Qualifications: Entrepreneurs and Start-up Entities
The grant of this public interest parole is only available to entrepreneurs of start-up entities. Thus, the applicant must meet the definition of an entrepreneur, and the company must qualify as a start-up entity.
Under the regulation for the initial parole, entrepreneurs must have at least 10% ownership in the entity. They must also hold a central and active role in the entity and be well positioned to substantially assist with the growth and success of the business.
Start-up entities are businesses that have been recently formed (within five years of parole application or receipt of funds). Eligible businesses must have lawfully done business since their formation and have substantial potential for rapid growth and job creation.
Investor or Government Funding Required for Substantial Potential
As mentioned above, in order to establish that a company has substantial potential for growth and job creation, entrepreneurs must secure investment funding from either a qualified US individual or institutional investors, or through government awards or grants. Investors without the confidence and financial commitment of these gatekeepers are not eligible for the public interest parole. In all cases, this funding must have been received within 18 months of the parole application filing.
There are three potential avenues for this funding-based qualification. Applicants must demonstrate receipt of:
- $250,000 or more from one or more qualified individual(s) or institutional investors; or
- $100,000 or more through one or more qualified government awards or grants; or
- Some portion of either or both of the two investment types, combined with other reliable and compelling evidence of the start-up’s potential.
Permitted Investment Sources
The funding used to establish the substantial potential for growth and job creation is subject to good faith requirements. The money cannot come from the individual applicant, family members, or companies owned by specified family members. It must come from either qualified investors or qualified government awards or grants. These terms are further defined in the regulation. Thus, interested potential applicants need a careful review of their funding sources to assure compliance with the regulatory requirements.
Under this regulation, qualified investors who can provide funding for the entrepreneur’s venture can be individual US citizens (USCs), lawful permanent residents (LPRs), or US organizations that regularly make substantial investments in start-up entities that subsequently exhibit substantial growth in revenue generation and/or job creation. A US organization is located in US, organized under US laws, and the majority is owned and controlled by USCs and/or LPRs.
Qualified government awards or grants can be made by US federal, state, or local government entities that regularly provide such funding to start-up entities. The funding must be for economic development, research and development, job creation, or similar.
Longer Term Options
The regulation contains provisions allowing for potential extension of parole for an additional 30-month period. However, that alone is not enough, as entrepreneurs need avenues for long-term immigration benefits in the form of viable immigration options at the end of the parole period. Thus, the introduction of the short-term parole option ties in well with another recent improvement in the US immigration landscape for entrepreneurs. A separate interpretive change revised the requirements for qualification for permanent residence (“green card”) through a National Interest Waiver (NIW) as explained in our Advisory, Entrepreneurs and Investors Granted Improved Immigration Option.