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Guidance on the International Entrepreneur Rule, Who Qualifies, and More…

Two business men shaking hands

Last week we introduced the unveiling of an exciting new rule called the ‘International Entrepreneur Rule’ which will allow certain entrepreneurs the opportunity to seek ‘parole’ into the United States, based on his or her role in the startup company, provided the company can demonstrate substantial potential for rapid growth and job creation in the United States.

Eligible entrepreneurs will need to be prepared to demonstrate that their entry would create a significant public benefit in the United States, and provide ‘substantial’ and ‘demonstrated potential’ to create more jobs and business growth in the United States, and not merely provide income to the entrepreneur and his or her family members. In this post we will review the requirements, clarify definitions, and describe what evidence can be provided in support of an entrepreneur application.

If this new initiative becomes a final rule, it is estimated that up to 2,940 entrepreneurs would be eligible to apply for this new program on an annual basis. Recently, the Notice of Proposed Rule-making (NPRM) in the Federal Register has provided more guidance on exactly which entrepreneurs and start up enterprises may apply. In addition, more information has been provided regarding which investments will qualify.

As we previously reported, to be eligible entrepreneurs will need to demonstrate the following:

  • At least a 15 percent ownership interest in the startup enterprise in question;
  • That they take on an active and central role in the startup enterprise’s operations;
  • That the startup enterprise has been formed in the United States within the past three years; and
  • That the startup enterprise has proven to yield a substantial and demonstrated potential for rapid business growth and job creation as evidenced by:
  1. Having received a significant investment of capital of at least $345,000 from certain qualified U.S. investors that have a proven track record of success i.e. showing established records of successful investments;
  2. Having received significant awards or grants of at least $100,000 from federal, state, or local government entities; or
  3. By partially satisfying one or both of the above criteria, in addition to presenting other reliable and compelling evidence to show the startup entity’s substantial potential for rapid growth and job creation in the United States;

To be successful, entrepreneurs will be required to demonstrate that they meet the definition of “entrepreneur” and “startup entity.”

Which entrepreneurs qualify?

The NPRM has provided more guidance on what it means to be an “entrepreneur.” To demonstrate that you meet the definition of “entrepreneur” you must possess at least 15% ownership interest in your start-up company, and you must have a central and active role in the operations of the startup entity such that your combined knowledge, skills, and experience will assist in the growth of the business in the United States.

Which start-up companies will qualify?

To meet the definition of “start-up entity” the company 1) must be a qualifying United States business entity 2) must have been lawfully formed in the United States within 3 years before filing of the parole application under federal or state law 3) must have been conducting active lawful business since its founding and 4) demonstrate a substantial potential to increase jobs and business growth in the United States.

What is a U.S. Business Entity?

In order to meet the first requirement, the business entity must be a U.S. corporation, LLC, partnership, or other entity that has been legally organized under federal or state law. The U.S. business entity must conduct active business in the United States, and not simply have been formed as a passive investment. In order to demonstrate that the entity conducts active business, the entity must provide or endeavor to provide goods or services in the United States.

Start-up Entities that do not qualify

Start-up entities that will not qualify for this program include small businesses that have limited potential to provide jobs and create growth in the United States, created for the sole purpose of providing income to the entrepreneur and his or her family.

What counts as a qualified investment?

According to the NPRM a qualified investment is one that has been “made in good faith of lawfully derived capital that is a purchase from the start-up entity of equity or convertible debt” Proposed 8 CFR §212.19(a)(4).

Investments made by a corporation, LLC, partnership, or other entity in which the entrepreneur or his or her relatives has a direct or indirect ownership interest will not qualify. Additionally, investments made by the entrepreneur himself, his/her parent, spouse, sibling, or child will not qualify.

Who counts as a qualified investor?

A qualified investor can only be one who is either 1) a U.S. Citizen or 2) lawful permanent resident or 3) a U.S. organization operating through a legal entity that is organized under U.S. federal or state law, and is majority owned and controlled by a USC or LPR.

To qualify, the investor must within the past 5 years:

  • Have made investments 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 (ii) 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% (4 Proposed 8 CFR §212.19(a)(5)). 

Job Creation and Qualifying Jobs:

In order to demonstrate that the start-up will provide qualifying jobs to Americans, the job must be full time employment (paid, at least 35 hours per week) filled for at least one year by either a US Citizen, legal permanent resident, or person lawfully authorized to be employed in the United States. Independent contractors, start-up entrepreneurs, or relatives of the entrepreneur will not count.

What is a qualified government award or grant?

A qualified government award or grant is an award or grant given to a startup by a federal, state, or local government entity for the purpose of economic development, research and development, or job creation.

Suggested Documentation

The Supplementary Information provided in the NPRM is a useful guide which provides a list of suggested documents entrepreneurs may include in their applications as evidence of capital investment or government funding, to meet the definition of entrepreneur and start up entity as proposed by the standards in 8 CFR §212.19(b)(2)(i)(A). The list is included here for your reference:

  • Evidence of capital investments from qualified investors, or government awards or grants, other than those relied on to satisfy proposed 8 CFR §212.19(b)(2)(i)(B);
  • Letters from relevant government entities, qualified investors, or established business associations with knowledge of the entity’s research, products, or services and/or the applicant’s knowledge, skills, or experience that would advance the entity’s business;
  • Newspaper articles or other similar evidence that the applicant or entity has received significant attention or recognition;
  • Evidence that the applicant or entity has been recently invited to participate in, is currently participating in, or has graduated from one or more established and reputable start-up accelerators;
  • Evidence of significant revenue generation and growth in revenue;
  • Patent awards or other documents indicating that the entity or applicant is focused on developing new technologies or cutting-edge research;
  • Evidence that the applicant has played an active and central role in the success of prior start-up entities;

Degrees or other documentation indicating that the applicant has knowledge, skills, or experience that would significantly advance the entity’s business;

  • Payroll, bookkeeping, salary, or bank records or other documents related to jobs created prior to filing the request for parole; and
  • Any other relevant, probative, and credible evidence indicating the entity’s potential for growth and/or the applicant’s ability to advance the entity’s business in the United States.21

For purposes of documenting the required ownership interest (15% for initial parole), the applicant should provide copies of legal or financial documents, “such as formation and organizational documents, equity certificates, equity ledgers, ownership schedules, or capitalization tables…

To read more about the proposed rule and submit a comment please click here.

For legal advice please contact our office.