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The Immigration Lawyers Podcast’s Complete Guide and Overview of USCIS Proposal for Parole of Entrepreneurs
Hi everyone, today I am doing a comprehensive review of the proposed entrepreneur parole program recently announced by DHS. The thorough breakdown of the program will include some of my own notes and opinions as well.
On August 26, 2016 the Department of Homeland Security (“DHS”) announced a proposal implementing a discretionary parole authority to increase and enhance entrepreneurship, innovation, and job creation in the United States. This is an interesting new way for foreigners to enter the US, which has been talked about for some time. Note that his is different than the EB-5 Immigrant Investor program which leads to Lawful Permanent Residency in the U.S. or the E-2 program that allows a renewable investment based Non-Immigrant Visa for a foreign investor from a treaty country.
The proposed rule would add a new provision allowing the use of parole on a case-by-case basis with respect to entrepreneurs of start-up entities whose entry into the United States would provide a significant public benefit through the substantial and demonstrated potential for rapid business growth and job creation. This was partially done to compete with other countries that are doing similar programs. DHS has discretionary authority to parole individuals into the United States, on a case-by-case basis, for urgent humanitarian reasons or significant public benefit. DHS estimates that 2,940 entrepreneurs could be eligible for this type of parole annually. Note that this regulation is not limited to Tech entrepreneurs, but practically speaking, they will be disproportionately using it. DHS has given a 45-day comment period before finalizing this proposal.
To grant parole, adjudicators would be required to conclude, based on the totality of the circumstances, that both: (1) the applicant’s parole would provide a significant public benefit, and (2) the applicant merits a grant of parole as a matter of discretion.
The text of the proposal can be found at USCIS.Gov: https://www.uscis.gov/sites/default/files/USCIS/Laws/Articles/FR_2016-20663_793250_OFR.pdf
What does the “Parolee” get?
Parole is temporary permission to enter the United States, and is not considered “Admission” or a grant of “Status” in the US. Because parole does not constitute an admission, individuals may be paroled into the United States even if they are inadmissible. If trying to change (or get status), the parolee would have to exit the U.S. and reenter with that status after going through the proper procedures.
If granted, this type of parole would provide a temporary initial stay of up to 2 years (which may be extended by up to an additional 3 years, for a total of 5 years) to facilitate the applicant’s ability to oversee and grow his or her start-up entity in the United States. Their spouse and minor unmarried children would also apply for get parole through separate application.
The entrepreneur would be authorized for employment incident to the grant of parole, but only with respect to the entrepreneur’s start-up entity. This permission for the employee’s I-9 would be shown through the Parolees I-94 and would not require an Employment Authorization Document (EAD). The entrepreneur’s spouse could apply for an EAD once in the US, but children are not permitted employment.
Aliens who seek parole as entrepreneurs under this rule may need to apply for advance parole if at the time of application, they are present in the United States after admission in a nonimmigrant classification, as US Citizenship and Immigration Services (“USCIS”) is unable to grant parole to aliens who are not “applicants for admission.”
DHS would also assign a new code of admission for this class: “PE-1.” Only 3 Entrepreneurs per company are allowed. DHS will issue a multiple entry travel document for individuals granted parole under this rule to permit travel during their parole validity period.
The Process: The Requirements for an applicant for Parole include the following:
What needs to be shown to receive the initial grant of Parole:
An individual seeking to operate and grow his or her start-up entity in the United States would generally need to demonstrate the following to be considered for a discretionary grant of parole under this proposed rule:
DHS believes that evidence such as the following, would assist USCIS officers in determining whether an entity has substantial potential for rapid growth and job creation and, ultimately, whether an applicant has met the required standard for parole and merits a favorable exercise of discretion:
2. The second thing to show is that: The Applicant is an Entrepreneur of the start-up entity who is well-positioned to advance the entity’s business. DHS proposes that an applicant may generally meet this standard by providing evidence that he or she:
a. Possesses a significant (at least 15 percent) ownership interest in the entity at the time of adjudication of the initial grant of parole. Ownership can decrease to 10% after granting of Parole and for the extension. Ownership must be properly documented with copies of legal or financial documents—such as formation and organizational documents, equity certificates, equity ledgers, ownership schedules, or capitalization tables—indicating the applicant’s ownership interest in the start-up entity.
b. Has an active and central role in the operations and future growth of the entity, such that his or her knowledge, skills, or experience would substantially assist the entity in conducting and growing its business in the United States. Such an applicant cannot be a mere investor.
Hopefully this is not an L-Visa style breakdown of duties.
As part of the application process, an applicant would generally be expected to submit supporting documentation concerning the entity’s business and its substantial potential for rapid growth and job creation and the entrepreneur’s day-to-day role in the business. DHS expects that an applicant would provide supporting documentation of his or her role within the entity, as well as the knowledge and experience that is central to the entity’s business. Such supporting documentation may include:
3. Significant U.S. Capital Investment or Government Funding (“Qualifying Funding” through “Qualifying Investments”). The applicant can further validate, through reliable supporting evidence, the entity’s substantial potential for rapid growth and job creation and, ultimately, of the significant public benefit that a grant of parole would provide in an individual case. Meeting these criteria, however, is intended to supplement—and not supplant—the need to provide other supporting evidence establishing that the applicant meets the general criteria for a grant of parole under the proposed rule. Even if an entity meets the investment or funding criteria discussed herein, additional evidence would generally assist USCIS officers in determining whether an applicant has met the required standard for parole and merits a favorable exercise of discretion. Among other things, such supplementary evidence may: provide additional external validation of the start-up entity (e.g., receiving additional funding from a government entity, being accepted into a start-up accelerator, generating significant revenue, or creating jobs); show that the entity works in fields important to economic growth (e.g., creating new technologies or engaging in cutting-edge research); or demonstrate that the entrepreneur has knowledge, skills, or experience that would substantially advance the entity’s business (e.g., successfully leading prior start-up entities, having advanced degrees in the appropriate field, or establishing critical patents).
DHS proposes that an applicant may be able to satisfy this criterion in one of several ways. Note that DHS proposes that the investment and revenue amounts specified will be automatically adjusted every 3 years by the Consumer Price Index for All Urban Consumers. The substantial investment be received within the 365 days immediately preceding the filing of the application for initial parole.
a. Investments from established U.S. investors. The applicant may show that the entity has received significant investment of capital from certain qualified U.S. investors with established records of successful investments. DHS proposes that an applicant would generally be able to meet this standard by demonstrating that the start-up entity has received investments of capital totaling $345,000 or more from established U.S. investors (such as venture capital firms, angel investors, or start-up accelerators) with a history of substantial investment in successful start-up entities.
DHS proposes to define “qualified investor” as either an individual or an organization. If the investor is an individual, the investor would need to be a U.S. citizen or lawful permanent resident. If the investor is an organization, the investor would need to be located in the United States and operate through a legal entity organized under the laws of the United States that is majority owned and controlled, directly or indirectly, by U.S. citizens or lawful permanent residents.
In either case, such investor could not have been permanently or temporarily enjoined from participating in the offer or sale of a security or in the provision of investment services, barred from association with any entity involved in the offer or sale of securities, or otherwise found to have participated in the offer or sale of securities or provision of such services in violation of law.
In addition, DHS proposes to limit qualifying investors to those who have an established record of successful investments in start-up entities. DHS proposes that such a record would include, during the 5-year period prior to the date of filing of the parole application, 1 or more investments in other start-up entities in at least 3 separate calendar years in exchange for equity or convertible debt comprising a total of no less than $1,000,000. DHS will require monetary commitments, rather than non-monetary commitments such as credit for in-kind value (e.g., credit for services). The applicant would also need to show that, subsequent to such investment by the investor, at least 2 such entities each created at least 5 qualified jobs or achieved at least $500,000 in revenue with average annualized revenue growth of at least 20 percent. This is a potentially heavy documentation requirement and a high standard. It will make it so that larger investors can entice potential foreign entrepreneurs by including this parole benefit when partnering up with them.
Finally, DHS proposes to limit “qualified investments” under this rule to investments of lawfully derived capital in start-up entities through the purchase of equity or convertible debt issued by such entities. Is it not clear how deep the “Source of Funds” review must go. Whether an E-2 Visa or EB-5 level of sourcing is required.
DHS proposes that a qualified investment would not include an investment from: (1) the entrepreneur him or herself; (2) the parents, spouse, brother, sister, son, or daughter of such entrepreneur; or (3) any corporation, limited liability company, partnership, or other entity in which such entrepreneur or the parents, spouse, brother, sister, son, or daughter of such entrepreneur directly or indirectly has any ownership interest. DHS is proposing these exclusions to help ensure that the qualified investment was acquired through an arms-length transaction and is a bona fide investment. Any investment that does not meet the definition of “qualified investment” will not count toward the criteria to meet the proposed rule’s minimum investment threshold. This prevents an entrepreneur investor from gaming this proposal.
b. Government grants. The applicant may show that the start-up entity has received significant awards or grants from Federal, State or local government entities with expertise in economic development, research and development, and/or job creation. DHS proposes that an applicant would generally be able to meet this standard by demonstrating that the start-up entity has received monetary awards or grants totaling $100,000 or more from government entities that typically provide such funding to U.S. businesses for economic, research and development, or job creation purposes. DHS also proposes to exclude any contractual commitment for goods or services, including any contracts that might appear to be, or could be made to look like, an award or grant.
c. Alternative criteria. DHS further proposes alternative criteria under which an applicant who partially meets one or more of the above sub-criteria related to capital investment or government funding may be considered for parole under this rule if he or she provides additional reliable and compelling evidence that his or her entry would provide a significant public benefit to the United States. Such evidence would need to serve as a compelling validation of the entity’s substantial potential for rapid growth and job creation.
The applicant would need to show as a preliminary matter that his or her entity has received a substantial level of capital investment or government funding, although less than $345,000 or $100,000, respectively. The applicant would also need to further validate the entity’s substantial potential for rapid growth and job creation by submitting additional evidence that DHS determines to be both reliable and compelling. But is not proposing to define the specific types of evidence that may be deemed “reliable and compelling”. DHS believes that to meet the parole standard in this context without meeting the threshold criteria, such additional evidence would need to be particularly persuasive.
Moreover, DHS may give particular weight to evidence that tends to serve as a strong validation of the entity’s substantial potential for rapid growth and job creation. For example, evidence that an entity has been selected to participate in, is participating in, or has graduated from one or more established and reputable start-up accelerators (or incubators) may serve as, depending on the accelerator’s success rate and other factors, a strong indicator of the entity’s potential. With respect to start-up accelerators, DHS expects to evaluate them on several relevant factors, including years in existence, graduation rates, significant exits by portfolio startups, significant investment or fundraising by portfolio start-ups, and valuation of portfolio start-ups. This gives a lot of authority to Accelerators and incubators.
How to Renew the Parole?
Re-parole would be considered only when the entrepreneur and his or her start-up entity continues to provide a significant public benefit as evidenced by substantial increases in capital investment, revenue, or jobs. if, and only if, they can demonstrate that their entities have shown signs of significant growth since the initial grant of parole and such entities continue to have substantial potential for rapid growth and job creation.
Re-parole would happen with filing Form I-941 (or successor form) again with all filing fees. Dependents would have to go through their own process as well. The application must be submitted before expiration of previous parole. The applicant does not have to leave the US and reenter to renew.
DHS is proposing that an entrepreneur parolee may file a request for re-parole beginning 90 days prior to the expiration date of his or her current period of parole. In addition, DHS proposes to automatically extend the employment authorization of an entrepreneur parolee whose parole has expired but who has filed a timely application for re-parole with the same start-up entity for a period not to exceed 240 days beginning on the date of expiration of parole.
As proposed, an applicant under this rule would generally need to demonstrate the following to be considered for a discretionary grant of an additional period of parole:
1. Continuation of Start-Up Entity. The entity continues to be a start-up entity as defined by the proposed rule. For purposes of seeking re-parole, an applicant would be able to meet this standard by showing that the entity:
a. Has been lawfully operating in the United States during the period of parole; and
b. Continues to have substantial potential for rapid growth and job creation.
2. Applicant Continues to Be an Entrepreneur. The applicant continues to be an entrepreneur of the start-up entity who is well-positioned to advance the entity’s business. DHS proposes that an applicant may generally meet this standard by providing evidence that he or she:
a. Continues to possess a significant (at least 10 percent) ownership interest in the entity; This reduced ownership amount takes into account the need of some successful start-up entities to raise additional venture capital financing by selling ownership interest during their initial years of operation; and
b. Continues to have an active and central role in the operations and future growth of the entity, such that his or her knowledge, skills, or experience would substantially assist the entity in conducting and continuing to grow its business in the United States.
3. Significant U.S. Investment/Revenue/Job Creation. The applicant can further validate, through reliable supporting evidence, the start-up entity’s continued potential for rapid growth and job creation. DHS considered proposing revenue and growth thresholds that varied by industry and geographic location, but determined that such an approach would be extremely difficult to administer. DHS proposes that an applicant would be able to satisfy this criterion in one of several ways.
a. Additional Investments from established U.S. investors. The applicant may show that during the initial period of parole the start-up entity received additional substantial investments of capital, including through qualified investments from U.S. investors with established records of successful investments; significant awards or grants from government entities that regularly provide such funding to start-up entities; or a combination of both. DHS proposes that an applicant would generally be expected to demonstrate that the entity received at least $500,000 in additional qualifying funding during the initial parole period. Potential large scale investors can stagger their initial investment to save some of the investment funds for the re-parole period.
But some questions arise such as: is there a need to document that the funds were actually invested? Such as receipts (e.g. E-2 or EB-5 visas)? Attorney fees included as investment as well?
b. Revenue generation. The applicant may show that the start-up entity has generated substantial and rapidly increasing revenue in the United States during the initial parole period. DHS proposes that an applicant would generally be expected to demonstrate that the entity reached at least $500,000 in annual revenue, with average annualized revenue growth of at least 20 percent, during the initial parole period.
c. Job creation. The applicant may show that the start-up entity has demonstrated substantial job creation in the United States during the initial parole period. DHS proposes that an applicant would generally be expected to demonstrate that the entity created at least 10 full-time jobs for U.S. workers during the initial parole period.
Under the proposed rule, the term “qualified job” would mean fulltime employment, located in the United States with the entrepreneur’s start-up entity that has been filled for at least 1 year by one or more qualifying employees. In addition, the term “qualifying employee” would mean a U.S. citizen, a lawful permanent resident, or other immigrant lawfully authorized to be employed in the United States (e.g., an asylee or refugee), who is not an entrepreneur of the relevant start-up entity or the parent, spouse, brother, sister, son, or daughter of such an entrepreneur. “Full-time employment” would mean paid employment of an employee by the entrepreneur’s start-up entity in a position that requires a minimum of 35 working hours per week. Full-time employment, however, would not include combinations of part-time positions even if, when combined, such positions meet the hourly requirement per week.
d. Alternative criteria. As with initial parole, DHS further proposes alternative criteria under which an applicant who partially meets one or more of the above sub-criteria related to capital investment, revenue generation, or job creation may be considered for re-parole under this rule if he or she provides additional reliable and compelling evidence that his or her parole would continue to provide a significant public benefit. As discussed above, such evidence would need to serve as a compelling validation of the entity’s substantial potential for rapid growth and job creation. We will see how lenient USCIS will for this sub-criteria.
DHS proposes that, consistent with filing requirements for reporting material changes in other contexts (such as the requirement to submit amended petitions when there are material changes), an entrepreneur who has been granted parole under this rule would be required to immediately report to USCIS any material changes potentially affecting his or her grant of parole. In cases involving one or more material changes where the entrepreneur will continue to be employed or associated with his or her start-up entity, the entrepreneur must submit a new Application for Entrepreneur Parole with fee (would not include biometric fees) to notify USCIS of the material change(s).
Depending on the nature and scope of the material change(s) reported, USCIS may continue to authorize parole or seek to terminate parole. If the entrepreneur will no longer be employed or associated with the start-up entity, or if he or she ceases to possess at least a 10 percent ownership stake in the entity, the entrepreneur must immediately notify USCIS in writing of those changes. Upon receipt of such notification, USCIS would issue an automatic revocation of the entrepreneur’s parole, as well as the parole of any dependents. For purposes of this rule, DHS proposes the term “material change” to mean any change in facts that could reasonably affect the outcome of DHS’s determination that the entrepreneur provides, or continues to provide, a significant public benefit to the United States.
Such changes would include, but are not limited to, the following: any criminal charge (such as frequently seen DUI’s), conviction, plea of no contest, or other judicial determination in a criminal case concerning the entrepreneur or start-up entity; any complaint, settlement, judgment, or other judicial or administrative determination concerning the entrepreneur or start-up entity in a legal or administrative proceeding brought by a government entity; any settlement, judgment, or other legal determination concerning the entrepreneur or start-up entity in a legal proceeding brought by a private individual or organization involving claims for damages exceeding 10 percent of the current assets; a sale or other disposition of all or substantially all of the start-up entity’s assets; the liquidation, dissolution or cessation of operations of the start-up entity; the voluntary or involuntary filing of a bankruptcy petition by or against the start-up entity; and any significant change to the entrepreneur’s role in or ownership and control of the start-up entity or any other significant ownership and control change in the start-up entity. It may be important for the immigration attorney to be in continued communication with the entity’s business attorney.
Failure to timely file or otherwise comply with the material change reporting requirements may result in a denial of subsequent parole applications or revocation of parole.
- DHS has discretion to terminate parole. It will normally give a chance for rebuttal (but doesn’t have to). If it does, it usually gives 30 days for response. There is no right to appeal, or being subject to judicial review.
- In the event of a violation of one or more terms and conditions of parole solely by the spouse or a child of the entrepreneur, parole may be terminated for the violator (i.e., spouse or child) without affecting the entrepreneur’s parole.
It is good to have the entrepreneur enter the US and run the company, but what happens next? A thorough discussion with a business immigration attorney is recommended. Having a long-term plan from the very beginning is necessary for long term planning. The immigrant may be able to get some other non-immigrant status through O-1, TN, H-1B or potentially obtain a Green Card through EB-1, EB-2, EB-5.
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*None of the information provided here is considered legal advice. Please consult an attorney privately.