Ask Sophie: Does the H-1B visa require founders to give up equity and control?

Sophie Alcorn, attorney, author and founder of Alcorn Immigration Law in Silicon Valley, California, is an award-winning Certified Specialist Attorney in Immigration and Nationality Law by the State Bar Board of Legal Specialization. Sophie is passionate about transcending borders, expanding opportunity, and connecting the world by practicing compassionate, visionary, and expert immigration law. Connect with Sophie on LinkedIn and Twitter.

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Dear Sophie,

I’m currently in the U.S. working for my employer on an H-1B. I’ve been wanting to start my own company, but I’ve been working on boosting my accomplishments for the O-1A because I’ve read in your past columns over the years that transferring an H-1B to a startup comes with a lot of downsides for startup founders, including giving up control and equity. How has that now changed?

— Future Founder

Hey Future!

The future is now! I appreciate your entrepreneurial spirit and your great question! In October, the U.S. Department of Homeland Security (DHS) published a new proposed rule that removed the downsides of the H-1B specialty occupation visa for startup founders that you mentioned.

“If more entrepreneurs are able to obtain H-1B status to develop their business enterprise,” the proposed rule states, “the United States could benefit from the creation of jobs, new industries, and new opportunities.”

After reading this column, I urge you and others to make your voice heard about the rule. The DHS is accepting public comments on the rule through December 22, 2023. After the comment period closes, the DHS will go through the comments, possibly make changes to the rule based on the comments, and then issue a final rule and effective date, which I’m anticipating will be in place in time for the next H-1B lottery in March. You can submit a comment at the top of the proposed rule by selecting the “SUBMIT A FORMAL COMMENT” link.

Comments must be made in English. However, business owners and non-citizens are eligible to comment. You can even file a comment anonymously!

Retain control and equity

As you know, an employer sponsor must file an H-1B petition on behalf of an employee as is the case with all work visas. There’s no self-sponsorship available for work visas, and your H-1B is tied to the employer who sponsored you and the job and location specified in the petition.

The clarification in the DHS’ proposed rule provides more flexibility to founders by already eliminating the need to reduce their majority stake in their startup and the freedom to grow their startup without limitations on their ability to do so (without the need for a future regulation on this point).

One of the H-1B legal requirements includes demonstrating that an employer-employee relationship exists between the company sponsoring the individual for an H-1B and the prospective H-1B holder. To meet this requirement, the previous common wisdom for startup immigration attorneys was to advise startup founder clients to find a co-founder, board member — or two — who can hire them, supervise them, hold them accountable for poor job performance, and fire them. In addition, we previously found through my experience working with hundreds of clients that an employer-employee relationship was easier to prove to immigration officials if the H-1B candidate startup founders personally owned less than 50% of their startup.

However, the great thing now is that the proposed rule confirms that even without regulatory changes, founders who hold more than half of the equity in their startup can still qualify for an H-1B or transfer their H-1B to their startup without relinquishing control of their startup to a co-founder or board.

Now, to prove an employer-employee relationship exists with their startup, founders just need to submit the required Labor Condition Application approval from the U.S. Department of Labor and an employment agreement or an offer letter from their startup!

Pursue the H-1B and O-1A in parallel

Despite all the improvements to the annual H-1B cap-subject process that would result if the proposed rule is finalized, getting a cap-subject H-1B visa remains a challenge. The lottery is held only once a year. Moreover, the number of H-1B registrants increases every year while the number of available H-1Bs has remained the same at 85,000 since 2005, the last time Congress changed the annual limit. Sad fact: The number of H-1B visas available in fiscal years 2001, 2002, and 2003 was 195,000, more than double the number available now.

As long as the H-1B registration fee remains low (it currently costs only $10), I recommend having your startup register you in the H-1B lottery in March while you continue strengthening your qualifications for the O-1A extraordinary ability visa. If you do get selected in the H-1B lottery in March, you may benefit from a new stateside visa renewal pilot program, which the U.S. Department of State plans to begin by the end of this year. This will allow H-1B holders to renew their H-1B visa and get it placed in their passport within the United States. Stay tuned! I will bring you the latest when the State Department issues more details on the pilot program.

Because the O-1A criteria are nearly identical to the EB-1A extraordinary ability green card criteria, pursuing the EB-1A, which is typically the fastest employment-based green card to get, is within reach!

Weigh in as a startup founder!

A downside of the proposed regulation is that startup founders would get an initial stay on the H-1B of only 18 months, and the first extension of the H-1B would also be good for only another 18 months. After that, a founder’s H-1B could be renewed for three years. Currently, the H-1B visa is valid for an initial three-year period and can be renewed for another three years regardless of whether the H-1B visa holder is a startup founder or not.

In your comment to the DHS on the proposed rule, make sure the DHS knows that the shorter initial stay and renewal for startup founders needlessly burdens startups with the added cost and time commitment of filing an additional H-1B renewal when instead, those startups could be focusing on their business.

You’ve got this!

— Sophie

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