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Issue 2017-02

The International Entrepreneur rule: a new way to enhance Foreign investments in the U.S.

 

INTRODUCTION

On January 17, 2017, the Department of Homeland Security (“DHS”) published the final regulation allowing the Secretary of Homeland Security's discretionary parole authority in order to increase and enhance entrepreneurship, innovation, and job creation in the United States. The International Entrepreneur Rule (the “Final Rule”) will become effective on July 17, 2017.

Usually, parole was granted for urgent humanitarian reasons or significant public benefit to applicants for admission temporarily on a case-by-case basis. The Final Rule adds new regulatory provisions guiding the use of parole on a case-by-case basis with respect to entrepreneurs of start-up entities who can demonstrate through evidence of substantial and demonstrated potential for rapid business growth and job creation that they would provide a significant public benefit to the United States.

If granted, parole would provide a temporary initial stay of up to 30 months (which may be extended by up to an additional 30 months) to facilitate the applicant's ability to oversee and grow his or her start-up entity in the United States.

The grant of parole is intended to facilitate the applicant's ability to oversee and grow the start-up entity, In other words, it allows foreign investors to legally stay in the United States for the purposes granted with the parole without obtaining a visa.

APPLICABILITY

An applicant would need to demonstrate that his or her parole would provide a significant public benefit because he or she is the entrepreneur of a new start-up entity in the United States that has significant potential for rapid growth and job creation.

In order to achieve this result, among other things, the foreign investor needs to show the receipt of (i) the receipt of significant capital investment from U.S. investors with established records of successful investments or (ii) significant awards or grants from certain Federal, State, or local government entities. The Final Rule also includes alternative criteria for applicants who partially meet the thresholds for capital investment or government awards or grants and can provide additional reliable and compelling evidence of their entities' significant potential for rapid growth and job creation.

GENERAL CRITERIA

Below a summary of the general criteria to be considered for the entrepreneurial parole.

  1. Formation of New Start-Up Entity. The applicant has recently formed a new entity in the United States that has lawfully done business since its creation and has substantial potential for rapid growth and job creation. An entity may be considered recently formed if it was created within the 5 years immediately preceding the date of the filing of the initial parole application.
  2. Applicant is an Entrepreneur. The applicant is an entrepreneur of the start-up entity who is well-positioned to advance the entity's business. An applicant may meet this standard by providing evidence that he or she (i) possesses a significant (at least 10 percent) ownership interest in the entity at the time of adjudication of the initial grant of parole, and (ii) 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.
  3. Significant U.S. Capital Investment or Government Funding. The applicant can further validate, through reliable supporting evidence, the entity's substantial potential for rapid growth and job creation. An applicant may be able to satisfy this criterion in one of several ways:

    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. An applicant would generally be able to meet this standard by demonstrating that the start-up entity has received investments of capital totaling $250,000 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.

    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, or job creation. 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.

    c. Alternative criteria. The Final Rule provides alternative criteria under which an applicant who partially meets one or more of the above 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 they would provide a significant public benefit to the United States. Such evidence must serve as a compelling validation of the entity's substantial potential for rapid growth and job creation.

DURATION OF THE PAROLE

An applicant who meets the above criteria (and his or her spouse and minor, unmarried children, if any) generally may be considered under this rule for a discretionary grant of parole lasting up to 30 months (2.5 years) based on the significant public benefit that would be provided by the applicant's (or family's) parole into the United States. No more than three entrepreneurs may receive parole with respect to any one qualifying start-up entity.

FAMILY MEMBERS

If parole is granted, the entrepreneur will be authorized for employment incident to the grant of parole, but only with respect to the entrepreneur's start-up entity. The entrepreneur's spouse and children, if any, may be permitted to apply for employment authorization. DHS retains the authority to revoke any such grant of parole at any time as a matter of discretion or if DHS determines that parole no longer provides a significant public benefit, such as when the entity has ceased operations in the United States or DHS has reason to believe that the approved application involves fraud or misrepresentation.

INCREASE OF THE PAROLE PERIOD

In addition, the Final Rule allows individuals granted parole under this rule to be considered for re-parole for an additional period of up to 30 months (2.5 years) 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.

An applicant will 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. For purposes of seeking re-parole, an applicant may 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. An applicant may meet this standard by providing evidence that he or she (a) continues to possess a significant (at least 5 percent) ownership interest in the entity at the time of adjudication of the grant of re-parole, 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. This reduced ownership amount takes into account the need of some successful start-up entities to raise additional venture capital investment by selling ownership interest during their initial years of operation.
  3. Significant U.S. Investment/Revenue/Job Creation. The applicant further validates, through reliable supporting evidence, the start-up entity's continued potential for rapid growth and job creation. An applicant may be able to satisfy this criterion in one of several ways:

    a. Additional Investments or Grants. 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 U.S. government entities that regularly provide such funding to start-up entities; or a combination of both. 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. As noted previously, any private investment that the applicant is relying upon as evidence that the investment criterion has been met must be made by qualified 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. Government awards or grants must be from U.S. federal, state or local government entities with expertise in economic development, research and development, or job creation.

    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. To satisfy this criterion, an applicant will need 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. To satisfy this criterion, an applicant will need to demonstrate that the entity created at least 5 full-time jobs for U.S. workers during the initial parole period.

    d. Alternative criteria. As with initial parole, the Final Rule includes alternative criteria under which an applicant who partially meets one or more of the above 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 will continue to provide a significant public benefit. As discussed above, such evidence must serve as a compelling validation of the entity's substantial potential for rapid growth and job creation.

An applicant who generally meets the above criteria and merits a favorable exercise of discretion may be granted an additional 30-month period of re-parole, for a total maximum period of 5 years of parole to work with the same start-up entity based on the significant public benefit that would be served by his or her continued parole in the United States. No more than three entrepreneurs (and their spouses and children) may receive such additional periods of parole with respect to any one qualifying entity.

SEEKING ADMISSION IN THE U.S.

The entrepreneur and any dependents granted parole under this program will be required to depart the United States when their parole periods have expired or have otherwise been terminated, unless such individuals are otherwise eligible to lawfully remain in the United States. At any time prior to reaching the 5-year limit for parole under this Final Rule, such individuals may apply for any immigrant or nonimmigrant classification for which they may be eligible (such as classification as an O-1 nonimmigrant or as a lawful permanent resident pursuant to an EB-2 National Interest Waiver). Because parole is not considered an admission to the United States, parolees are ineligible to adjust or change their status in the United States under many immigrant or nonimmigrant visa classifications. For example, if such individuals are approved for a nonimmigrant or employment-based immigrant visa classification, they would generally need to depart the United States and apply for a visa with the Department of State (DOS) for admission to the United States as a nonimmigrant or lawful permanent resident.

CONCLUSION

In the mind of the legislator, the International Entrepreneur Rule should encourage foreign entrepreneurs to create and develop start-up entities with high growth potential in the United States, which are expected to facilitate research and development in the country, create jobs for U.S. workers, and otherwise benefit the U.S. economy through increased business activity, innovation, and dynamism.

Despite the criteria described in this article, the Final Rule allows foreign entrepreneurs to invest in the U.S. market, with funds mainly provided by domestic investors (private and or public entities), and receive in exchange the possibility to remain in the U.S. on parole for a period up to five years without obtaining a visa.

For this reason, foreign entrepreneurs should look for U.S. private or public investors in order to collect those funds necessary to meet the criteria to be eligible for the entrepreneurial parole.