“Entrepreneur” H1B Petitions: A New Option for Start-Up Companies?

Over the past several decades, foreign nationals have been the founders of some of the most successful companies in the United States. Despite the well-documented immigrant entrepreneurial drive, however, U.S. immigration law is often not particularly welcoming to foreign nationals who wish to start their own companies. Some of the recent efforts of the U.S. Citizenship and Immigration Services (USCIS) to facilitate the use of the H1B category in the entrepreneurial context and our recent experiences in this area are discussed here for our readers.

Employer-Employee Model Conflict in H1B for Entrepreneurs

Most employment-based immigration options are based on a traditional employment model. In this model, there is a well-defined employer and an employee whose services are being sought. In the context of many start-up businesses, the relationships are often less clearly defined. The employee who requires an immigration benefit may also be the majority owner of the company. The conflict between economic reality and U.S. immigration law is particularly acute in the H1B category. The H1B is the most common nonimmigrant employment category for professional positions. But to receive H1B classification, an individual needs a petitioning employer or sponsor. As a result, it has long been difficult to secure approval of an H1B petition for an employee who is also the company’s majority owner.

Neufeld January 2010 Memorandum Creates Barrier

The employee / owner type of H1B filing became even more challenging after the January 8, 2010 Neufeld memo. This memo changed the face of H1B filings and created enormous difficulty, particularly for many IT consulting companies. The Neufeld memo addresses the employer-employee relationships in the H1B context. The memo explains that H1B employers must specifically establish the existence of such relationships, and must establish the employer’s right to control the employee in order to gain approval of the H1B petition.

The issue of the employer’s right to control the employee is precisely what is problematic in the entrepreneurial company scenario. Under the Neufeld memo’s restrictive interpretation, it had seemed almost impossible to demonstrate an employer-employee relationship, if the H1B petition beneficiary was also the company’s majority owner.

Hope for Overcoming Barrier

In response to criticism that the government was discouraging potential entrepreneurs in a weak economy, the USCIS published a document which suggested a potential solution. The question-and-answer piece published in August 2011 offers some hope for utilization of the H1B category for entrepreneurs. The USCIS states in that document that it is willing to accept the existence of an H1B employer-employee relationship, even if the prospective H1B employee owns a majority share of the company, as long as it can also be shown that there is some external check on the employee’s authority.

Independent Board of Directors

The USCIS referenced an independent board of directors as an example. The USCIS Q&A states that, “… if the petitioner provides evidence that there is a separate Board of Directors which has the ability to hire, fire, pay, supervise or otherwise control the beneficiary’s employment, the petitioner may be able to establish an employer-employee relationship with the beneficiary.”

Other Indicia of Independence for Entrepreneur to Obtain H1B Approval

More recently, the USCIS created a web portal, Entrepreneurial Pathways. This further reinforces the concept of documenting a separation between a company and its owner to establish an employer-employee relationship.

The USCIS suggests that, in addition to an independent board of directors, it may be sufficient to show that there are preferred shareholders, investors, or other factors to demonstrate that the company controls the terms and conditions of the entrepreneur’s employment. The existence of this proof may be sufficient to establish a distinction between the entrepreneur’s ownership interest in the company and the right to control his/her employment.

Application of USCIS Policy to Cases: Murthy Successes

After the publication of the August 2011 USCIS guidance on entrepreneur H1B petitions, it was unclear whether USCIS service centers were implementing the guidance as intended. Over the past several months, however, Murthy attorneys have successfully filed a number of H1B petitions in the entrepreneur scenario. In these cases, the foreign national beneficiaries of the H1B petitions were also president or general manager of the petitioning companies, as well as holding ownership of a majority of these companies’ shares.

We submitted these H1B petitions with documentation of the existence of boards of directors with the legal authority to control the terms of the employment of the respective beneficiaries. The cases were supported by documentation, including corporate minutes, showing that the boards of directors had authority over the entrepreneurial owners / employees. Our cases are supported by a legal memorandum that includes the USCIS press release.

These cases have been successful because the Murthy Law Firm was able to show that there was a legitimate employer-employee relationship, based on the existence of external controls on the H1B employees’ actions, even though the employees in these cases held majority ownership of their companies. In the absence of boards of directors or similar legal structure, the success of these cases would have been far less certain. This is an important factor for entrepreneurs to consider when planning their business ventures. It is vitally important to design one’s business with any future immigration applications in mind.

Potential Risk of Unauthorized Employment

This type of entrepreneur H1B is now a possibility for start-up entrepreneurial companies, and provides an option for company founders that might not have been previously available. This does not mean that all problems and issues have been resolved with this category. For anyone who has started a company in the United States without obtaining either an entrepreneurial H1B approval or holding an employment authorization document (EAD), there may be concerns as to whether the efforts in establishing such operations could be viewed as unauthorized employment.

Long Term Considerations for Entrepreneurs

It is important to consider long-term options, as in PERM labor certification sponsorship for permanent resident (green card) purposes, the existence of an ownership interest in the sponsoring company is often an insurmountable obstacle with the U.S. Department of Labor. Therefore, while H1B classification might permit an entrepreneur to start and develop his/her business, the entrepreneur might need to pursue another option in order to remain in the United States on a permanent basis.

Conclusion

The USCIS is making efforts to facilitate entrepreneurial immigration options. However, as explained in this article, the use of the H1B category in this context is subject to restrictions. Attorneys at the Murthy Law Firm are available to discuss these options and assist with the development of appropriate strategies. Contact us by using the red tab at the upper right margin of any page on MurthyDotCom.

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