“USCIS Regs Innovate Programs For Immigrant Entrepreneurs”
Law 360 09/30/16 By Eric D. Ledbetter
The U.S. Citizenship and Immigration Services recently proposed a new set of regulations that would bring much-needed modernization for immigrant entrepreneurs. The new program, once implemented, would increase entrepreneurship, promote market innovation and create new jobs in the United States. Specifically, the proposed regulation would authorize USCIS, on a case-by-case basis, to allow qualifying immigrant entrepreneurs to live and work in the United States for the purpose of operating a startup organization. Applicants would be required to demonstrate a substantial potential for rapid business growth and job creation.
According to a study published by the National Foundation for American Policy earlier this year, "Immigrants have started more than half (44 of 87) of America’s startup companies valued at $1 billion dollars or more and are key members of management or product development teams in over 70 percent (62 of 87) of these companies."
A 2015 report issued by the Kauffman Foundation similarly found that immigrant entrepreneurs started 28.5 percent of all new businesses in 2014 and 25.9 percent of all new businesses in 2013.
Despite the significant role played by immigrant entrepreneurs in America, our current immigration laws in this area are woefully complex and out-of-date. In fact, a generation has passed since Congress last reformed the immigration code to promote and attract foreign-born entrepreneurship. Taking into consideration the vast changes in society during that time — everything from the quickening pace of globalization, the growth of the internet, the rise of email and smart phone technology, the advent of the sharing economy, and the spectacular ascent of India and China as global economic players — it is readily apparent that our immigration regulations have not kept up with new market realities. In fact, while the United States has been mired in a seemingly endless national discussion about unauthorized immigration, other countries around the world have been busy developing smart, effective entrepreneurial programs to attract and retain global investment and entrepreneurial risk-taking.
Under our current system there are few options for young entrepreneurs who have a good idea and plenty of energy to start a new company in the United States. For example, each year the Immigration Service awards a limited number of temporary H-1B work visas to U.S. companies who wish to employ foreign workers in positions requiring at least a Bachelor's degree. However, it is exceedingly difficult for start-up companies to utilize the H-1B program for a number of reasons. First, there are not enough H-1B visas to meet demand. Last year there were more than 233,000 applicants competing for only 85,000 H-1B visas, meaning that only approximately 36 percent of H-1B applications could be granted. As a practical matter, who can start a company and secure funding knowing that they only have a 36 percent chance of being able to stay in the United States and operate the new entity?
Second, it takes many months and thousands of dollars in legal fees and government filing fees to obtain an H-1B visa. Most startup companies simply do not have the spare cash or time to compete in the H-1B program. Finally, even if they succeed in filing an H-1B petition and it is selected for processing, startup companies have a harder time demonstrating all of the elements that must be proven for a successful H-1B application — such as adequate supervision and control by the entity over the owner/entrepreneur, a sufficient physical premises, and proof that the position requires at least a Bachelor's degree. The reality is that many promising start-up companies simply fail to get their H-1B applications approved.
As a result, many individuals who graduate from U.S. colleges and universities are unable to secure a work visa and stay in the United States. For example, each year foreign students with MBA degrees or advanced science, technology, engineering and math (STEM) degrees are forced to leave the United States when their visa status expires. They may have obtained a top-notch education in the United States and gained an entrepreneurial spirit here, but in the end many are forced to take their education, training and experience to another country because our immigration system simply lacks the flexibility and creativity to secure a legal pathway for them to remain in the United States and start a new company.
There are other entrepreneurial visa categories such as the E-1 trader visa, the E-2 investor visa and the EB-5 immigrant investor visa. However, each of these programs have their own obstacles and hurdles for small start-up operations.
Fortunately, the new proposed rule would be much more friendly to entrepreneurs while continuing to protect the overall integrity of the immigration regime. The USCIS rule change will occur at the agency level under a form of regulatory authority called parole. USCIS — and its legacy agency the Immigration and Naturalization Service (INS) — have long possessed the authority to parole individuals into the United States for equitable reasons. As such, the new rule would not create a new immigration status, per se, and therefore would not require congressional action. Successful applicants will be lawfully allowed to live and work in the United States and will be free to travel abroad and return to the United States.
The proposed rule would permit USCIS to parole qualifying immigrant entrepreneurs into the United States for up to two years if the following criteria are met:
- Immigrant entrepreneur owns at least 15 percent of the startup and has an active and central role in its operations;
- The startup was formed in the United States within the past three years; and
- The startup has received at least $345,000 from qualified U.S. investors with established records of successful investments; or has received significant awards or grants of at least $100,000 from certain federal, state or local government entities; or has partially satisfied one or both of the above criteria in addition to other reliable and compelling evidence of its substantial potential for rapid growth and job creation.
The initial two-year period of stay can be extended for an additional three years if the startup entity continues to provide a significant public benefit in the form of substantial increases in capital investment, revenue or job creation for U.S. workers. No more than three immigrant entrepreneurs per startup entity can qualify for this benefit at any given time.
Upon approval by USCIS, the immigrant entrepreneur would receive a restricted work permit authorizing employment only with the startup entity. Meanwhile, the immigrant entrepreneur's spouse, if applicable, would be eligible to apply for a separate work permit that would authorize employment with any employer in the United States.
USCIS expects about 3,000 immigrant entrepreneur applicants a year. The agency has announced a 45-day notice and comment period, after which it will consider feedback from the public before publishing the new regulation in the Federal Register. The final rule is likely to be issued before the exit of the Obama Administration in January 2017.
—By Eric D. Ledbetter, Quarles & Brady LLP
Eric Ledbetter is a partner in the Chicago office of Quarles & Brady LLP. He advises on complex business immigration matters for investors, entrepreneurs and global corporate clients. Ledbetter is a frequent writer and lecturer on business immigration topics and currently serves as chairman of the CLE Committee for the American Immigration Lawyers Association, Chicago Chapter.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.