What Does The Proposed Entrepreneur Parole Really Offer My Client?
I have practiced law for over 35 years and for over a decade I, also, was an entrepreneur, founder and CEO of a start up company. Entrepreneurs have few immigrant and nonimmigrant visa categories that are appropriate for them in the US. The EB-5 immigrant investor visa requires a very substantial $1 million investment (or $500,000 Regional Center investment for a non-active investor). The E nonimmigrant visa availability is restricted only to citizens of certain designated treaty countries. The H-1B nonimmigrant work visa allows many talented professionals to work in the US for an employer, but there are significant challenges in the regulatory framework for H-1B visas for self-sponsorship required of entrepreneurs. There is no entrepreneur category in US immigration law.
The US immigration system desperately needs an entrepreneur or start-up visa category. Though promised by the Obama administration for several years, the start-up visa has not happened. The Obama administration proposed a new rule at 8 CFR 212.19 to allow foreign startup founders who have raised money from American investors to come to the United States for two to five years—the International Entrepreneur Rule comment period ends October 17. The proposed entrepreneur parole is far short of what is needed.
The proposed entrepreneur parole rule emanates from the INA’s concept of temporary parole, which permits the government to grant people temporary entry into the US, with employment authorization, on a case-by-case basis for “urgent humanitarian reasons” or “significant public benefit.” The White House proposes that entrepreneurs who create jobs in the US and contribute to gross domestic product are providing a “significant public benefit,” and the rule would allow some small but undefined number of international entrepreneurs to be considered for parole so that they may start or scale their businesses here in the US. (DHS estimates there will be fewer than 3,000 people approved annually.)
Overview of Proposed Entrepreneur Parole
Initial Parole Eligibility Requirements
Under the proposed rule, in order to qualify for the initial two-year parole term, an entrepreneur would have to demonstrate:
§ The applicant has established a new entity in the US within the last three years;
§ The applicant has at least 15% ownership interest and has an active and central role in the operation and growth of the company (no passive investors); and
§ The company can show potential for rapid growth and job creation by:
o Receiving $345,000 or more investment from qualified US investors (venture capital, accelerators, etc.); or
o Receiving $100,000 or more from government business development or similar grants; or
o Providing other reliable evidence that the entity would provide significant benefit to the US.
The grant of parole can be renewed for another three-year term for a maximum permitted total time of five years. To qualify for the parole renewal, an entrepreneur would have to demonstrate:
§ The initial entity continues to exist and operate in the US and continues to have substantial potential for growth and job creation;
§ The applicant continues to have at least 10% ownership interest and contuse to play an active and central role in the operations and growth of the company;
§ The company has to show that the potential for job creation and growth remains by showing:
o During the two-year initial parole term the company received at least $500,000 in additional funding or investment;
o At least $500,000 in annual revenue with average annualized revenue growth of at least 20% during the 2-year parole period;
o The company has created at least 10 full-time jobs for US workers during the 2-year parole period; or
o There are other reliable factors and evidence that supports expectation of significant public benefit.
Dependents and Spouse Work Authorization
The rule contemplates that the entrepreneur-parolee’s dependents (spouses and children under 21) would be eligible for parole to stay in the US. together with the principal entrepreneur-parolee. Spouses will be eligible to apply for an employment authorization document.
Evaluating Entrepreneur Parole Usefulness
I always tell my clients not to make a business decision for immigration benefit purposes. I think that is bad business. However, if the proposed entrepreneur parole is intended to stimulate business, employment and the US economy, then it seems to me the proposed entrepreneur parole should really promote these targeted businesses and make it easier for these businesses to succeed, not make their success problematic.
Tenuous parole pocked with a minefield of “gotchas” may be the best we can expect from this White House. Only Congress can authorize a new visa category. Certainly, given Congressional gridlock, making new immigration legislation seems impossible. But we have been waiting for several years for the Obama administration to present its promised start-up visa” and its proposed entrepreneur parole misses by several miles what is needed in terms of the hoped for start-up visa or entrepreneur visa Mr. Obama promised several years ago.
The proposed entrepreneur parole rule is barely a life preserver and a poor substitute for an entrepreneur visa or start-up visa. What is needed is a visa classification that will encourage talented foreign nationals to invest in the US and grow their new start up businesses in the US—attracting capital, growing revenues and creating jobs.
The proposed entrepreneur parole may be effective in limited circumstances, e.g., a last option for an H-1B professional whose employer will not be filing a permanent visa petition. If H-1B visa holders reach the maximum time allowed in H-1B, some of them may be willing to start their own companies if they’re able to get up to five years of parole in the United States. This is parole, not status.
So should I advise my client who is an H-1B visa holder with an approved I-140 employer petition, but who has 10 or more years waiting on the immigrant visa number, when s/he calls to tell me s/he is getting anxious and wants to jump ship and apply for entrepreneur parole?
I would find it hard to recommend applying for entrepreneur parole under the proposed rule. Once my client’s H-1B status expires and s/he is in “parole” the only way s/he can get back into a valid nonimmigrant status is by departing the US first and applying for new status abroad—for which s/he gave up on an approved I-140 that would eventually make him/her available for adjustment of status to lawful permanent residence.
The reality is that if s/he has tolerated the job s/he has this long, can’t s/he tolerate a few more years? My point is this entrepreneur parole is not going to entice him/her to take parole and start a new business.
Frankly, this proposed entrepreneur parole is a “hard sell”; in other words not a very good option, when a foreign national considers staying in the US to begin a start-up business.
Even worse, I find the tenuous nature of parole a reason for a “qualified investor” not to invest in a business whose key employee or founder hangs by the thread of limited parole.
Below are further observations concerning proposed entrepreneur parole:
1. Parole is Too Tenuous to Entice Most Entrepreneurs
There is a distinction between being “admitted” as a nonimmigrant into the US on a visa and being “paroled” into the US. Technically, a parole is not an “admission” into the US; rather, it is a way for the government to let people into the US without having to obtain a US visa stamp (or using the Visa Waiver Program).
Parole is not a ‘non-immigrant status.” A foreign national who is already in valid nonimmigrant status or hopes to eventually obtain permanent resident status will not find parole very helpful. The reality is that unless a foreign national has no other avenue to obtaining status and simply seeks a few years of employment authorization, the proposed entrepreneurial parole offers no mechanism for permanent residence.
As stated in the Federal Register:
“Because parole does not constitute an admission, individuals may be paroled into the United States even if they are inadmissible. See section 212(a) of the INA, 8 U.S.C. 1182(a). Further, parole does not confer any immigration “status.” See section 101(a)(13)(B) of the INA, 8 U.S.C. 1101(a)(13)(B); section 212(d)(5)(A) of the INA, 8 U.S. C. 1182(d)(5)(A). Parole does not provide a parolee with temporary nonimmigrant status or lawful permanent resident status. Nor does it provide the parolee with a basis for changing status to that of a nonimmigrant or adjusting status to that of a lawful permanent resident, unless the parolee is otherwise eligible.”
Under the proposed entrepreneur parole rule, the foreign national is only granted parole. S/he technically will not be in a “nonimmigrant status.” This means changing to a different nonimmigrant status when s/he is finished with this parole will be difficult unless s/he is willing to depart the US, and apply for a new visa to return. For most practitioners this is not what we had in mind when we consider a “start-up visa.”
2. Limited Time in the US with Entrepreneur Parole—CBP Discretion on Each Entry
Under the proposed entrepreneur parole rule, initial parole may be granted for up to 2 years, and DHS retains discretion to provide a shorter period of parole where appropriate. Moreover, notwithstanding USCIS approval of the parole application, CBP retains the authority to deny parole or to modify the parole period when the individual appears at the port of entry. Parolees will be issued a multiple entry travel document to permit travel for the duration of the parole period. CBP will assign a new “PE-1” code of admission to entrepreneur parolees. Re-parole is available for another up to 3 years, if the applicant and the business meet certain eligibilities.
Under the proposed rule, the entrepreneur would have, at most, five years to get the business running; and then what—s/he must leave the US. A limited number of these entrepreneur parolees might be able to subsequently qualify to the US on an E-2 visa if they are from a treaty country. But if from a treaty country, would not an E-2 visa be a substantially better immigration option from the start, rather than this parole? Even fewer of these entrepreneur parolees may be able to qualify for an EB-5 visa after 5 years of parole, provided they invested enough of their own money in the business. But how many potential E-2 or EB-5 prospects are really going to be in this entrepreneur parole applicant pool?
If s/he cannot return in E-2 or EB-5 classification at the end of five years, then what is the foreign national entrepreneur-parolee’s option to get a new visa to return and manage his/her start-up business here in the US, or re-apply his/her entrepreneurial business talents into a new start-up business in the US?
Some number of these entrepreneur-parolees may marry in the US during the five years or have adult children or other family to petition for them. For those who do not, however, entrepreneur parole does not offer any permanent option.
3. Substantial Qualified Investment—Too Complex
The parolee-applicant must demonstrate a significant investment showing “substantial potential” from qualified investors.
The applicant himself/herself must have a “substantial ownership interest” in the entity of at least 15% and play an active role in operations.
The “qualified investment,” excluding the entrepreneur’s money or family money, must be at least $345,000 from one or more “qualified investors,” or at least $100,000 through one or more “qualified government awards or grants”—within the preceding 365 days.
The definition of “qualified investor” puts the applicant to extreme documentation requirements. As a condition of vetting a prospective “qualified investor” that investor must be able and willing to provide the entrepreneur or entity documentation that s/he has made investments (the proposed rule requires monetary investments rather than non-monetary ones) in start-up entities in exchange for equity or convertible debt in at least 3 separate calendar years totaling no less than $1,000,000; and subsequent to such investment, at least 2 entities each created at least 5 qualified jobs or generated at least $500,000 in revenue with an average annualized revenue growth of at least 20%. Now that’s something every entrepreneur wants to require of an investor before you accept the investment—documentation from his/her previous investments.
There are alternative criteria to the $345,000/$100,000 investment. The parole-applicant who only partially meets one or both of the criteria for the $345,000 qualified investment or $100,000 government business development grant or award, may still qualify if s/he can provide “other reliable and compelling evidence” of the entity’s substantial potential for rapid growth and job creation. DHS has not defined the type of evidence that might be deemed “reliable and compelling.”
Why should investment from the entrepreneur’s family be excluded? It is just parole for goodness sakes; there is no status being granted.
And why not carve out safer harbor circumstance for an inventor or key researcher? The premise of the proposed entrepreneur parole rule is to allow foreign nationals to be present in the US with employment authorization if that work “provides a significant public benefit.” If that foreign national is a bona fide investor or key researcher, why should s/he be required to jump through all these “qualified investment” hoops?
Furthermore, I find the term limit of entrepreneur parole, as proposed, renders the concept of a “qualified investor” very curious. I question just how “qualified” the contemplated “qualified investors” can really be if they are willing to risk their investment in a start-up that depends on a foreign national entrepreneur parolee as founder or key-employee where the maximum period of stay is 2-5 years, and may be terminated at any time.
4. Material Change & Income Variables and Attenuation
As proposed, entrepreneur parole is adversely affected by additional variables, including the “material change” trap door,” and the required income level for the foreign national parolee.
An overbroad definition of “material change” can result in termination of this entrepreneur parole. A “material change” includes: any criminal charge, no contest plea, conviction or other criminal judicial determination against either the entrepreneur-parolee or the entity; any complaint, settlement or other determination concerning the entrepreneur or the entity; sale or disposition of substantially all the entity’s assets; filing of bankruptcy; significant change in entrepreneur-parolee’s ownership or control. This is a “trap door” circumstance that should result in most “qualified investors” taking a pass on the investment in the first place.
Another “trap door” involves the require income of the foreign national entrepreneur parole applicant. There is an income requirement the entrepreneur-parolee must maintain which is greater than 400% of the federal poverty guideline for his/her household. Parole terminates if the income level is not maintained. That makes his/her minimum salary $64,020, under the 2016 Poverty Guidelines. To me that could be a rather substantial salary for an entity that may not have even $500,000 revenues. After all, the business likely has some cost of goods, likely has other employees, and certainly has some overhead. If the entrepreneur-parolee gets married or has a child, then the entity is required to give him/her a raise or lose its founder or key-employee? If the entrepreneur parolee has a household size of three, then that required income threshold/trap door becomes $80,640. What happens if the business has two entrepreneur parolees? These salary springs could cripple the investment. Again, this is an unacceptable trap door circumstance that most “qualified investors” would run from.
5. Requirements for Re-Parole
The re-parole process, to get additional years after 2 years, underscores the tenuous nature of the proposed entrepreneur parole.
In general, re-parole requires a new showing of “significant public benefit to the US.” Re-parole applicants must demonstrate they continue to have at least a 10% ownership interest in the entity, and the entity must have, at the time of re-parole application:
§ $500,000 total qualified investments; and
§ 20% annual growth; and
§ Created at least 10 “qualified jobs,” or reached $500,000 in revenue and averaged 20% growth in the first 2 years.
There are alternative re-parole criteria in the event the entity only partially meets one or all of the criteria for re-parole (i.e., $500,000/10 jobs/$500,000 revenue and 20% growth); the applicant may still qualify by providing “other reliable and compelling evidence” of the start-up entity’s substantial potential for rapid growth and job creation.
The problem with this re-parole requirement is if the business takes a little longer to develop. How many start-up businesses experience no delays in developing? None. Again, this presents an unacceptable risk to the “qualified investor” who is willing to take a risky investment in a start-up—which is made all the riskier because the business involves an entrepreneur parolee as key employee or founder.
6. Pathway to National Interest Waiver (NIW)
If a foreign national entrepreneur can meet all these proposed hurdles for entrepreneur parole, including justifying the substantial investment, and meeting the requirements for re-parole, then that foreign national entrepreneur should have a pathway to permanent residence. The proposed rule does not include any pathway to any immigration status. Under the proposed rule the pathway is to go home!
Entrepreneur parole would certainly be a substantially more realistic immigration option if parole was a pathway to the self-petition entrepreneur National Interest Waiver (NIW) permanent resident process. Frankly, it seems apparent on its face that if a foreign national entrepreneur can pull together this level of qualified investment and qualify for re-parole, then this should establish a rebuttable presumption the entrepreneur-parolee qualifies for NIW self-petition green card.
Gerald P. Goulder is the principal at the Goulder Immigration Law Firm located in Greensboro, NC.