H-1B Co-founder & Delaware C Corp Ownership - Legal Guide

Welcome to another installment of “Dear Sophie,” the advice column dedicated to addressing immigration questions relevant to those working within the technology sector.

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Dear Sophie:

Our venture capital firm and we are collaborating with co-founders who have a 50/50 ownership split in their startup – we’ll refer to it as NewCo. We are currently evaluating pre-seed investment terms. One founder possesses a green card and is already employed by the company. The other founder is from India and currently holds an H-1B visa while working at a prominent technology firm.

Is it permissible for the H-1B visa holder to lead this company? What is the anticipated timeframe for resolving all necessary arrangements? We aim for them to be fully operational immediately following our investment.

—Diligent in Daly City

Hello, Diligent!

Thank you for reaching out with your questions. It’s consistently inspiring to witness the emergence of innovative companies, and this year has particularly highlighted the power of ingenuity born from necessity. The most straightforward approach involves the green card holder assuming the roles of president and CEO, while the H-1B visa holder takes on an employment position in a specialized technical field, enabling a transfer of their H-1B visa from their current employer to the new startup. However, several potential immigration considerations should be noted. I recently discussed due diligence in immigrant-founded startups in a podcast; you may find it helpful.

Fortunately, we can facilitate the transfer of the H-1B founder’s work authorization to NewCo, even given its status as a small, pre-revenue entity. Assuming NewCo has a well-defined business plan, and if you proceed with the investment, allowing the company to meet the H-1B prevailing wage requirements, we can generally secure the H-1B transfer for the founder within approximately 2-3 months.

The proposed equity distribution between the founders is an important factor. The simplest scenario is if the H-1B visa holder’s ownership stake remains below 50% of the company. If a majority ownership is required, some structural adjustments can be implemented with the assistance of a corporate attorney to ensure H-1B eligibility, though this will add complexity.

This is due to the requirement, for H-1B qualification – whether it’s a transfer, initial petition, or extension – that the sponsoring employer must demonstrate a genuine employer-employee relationship with the H-1B beneficiary. This necessitates the employer’s ability to hire, supervise, and terminate the H-1B beneficiary, and prevents the beneficiary from holding a controlling interest in the sponsoring company. For further information, please refer to my podcast on H-1B Transfers for Startup Founders.

The co-founder with the green card would likely need to be officially designated as the individual with the authority to hire, supervise, and terminate the co-founder on the H-1B visa on the necessary immigration documentation. As always, I strongly recommend collaborating with a seasoned startup immigration attorney who can build a compelling legal case for the H-1B and efficiently manage the transfer process.

It’s crucial to remember that the H-1B co-founder can only legally work for the employer that sponsored their H-1B. It appears the co-founder is not currently authorized to work for the startup, even on a voluntary basis, and doing so could jeopardize their U.S. status and their current employment at the large tech company. The H-1B co-founder’s work at the startup can only commence after U.S. Citizenship and Immigration Services (USCIS) approves NewCo’s H-1B petition.

Regarding the timeline, it’s feasible to onboard the H-1B founder within a few weeks of filing the H-1B transfer petition, but waiting for approval – typically within 6-12 weeks, depending on the chosen immigration strategy – is more prudent. Preparatory steps for the H-1B transfer can be undertaken concurrently with the incorporation and funding procedures.

Several foundational elements must be addressed: NewCo needs to establish a legal entity. (Do your portfolio companies typically incorporate as Delaware corporations? Some investors prefer this.) The founder with a green card must then extend a job offer to the H-1B co-founder, with compensation meeting at least the “prevailing wage” for the position and location (consider this the minimum wage for H-1B holders, and recognize it’s often higher than the salary founders might otherwise accept due to their equity).

To initiate the H-1B transfer, NewCo must have its Federal Employer Identification Number (FEIN) verified by the U.S. Department of Labor’s Office of Foreign Labor Certification, a process that usually takes about a week. Subsequently, the company must file a Labor Condition Application (LCA) with the Labor Department, which typically receives a decision within approximately 10 days.

NewCo does not require funding before submitting the LCA, as no supporting documentation is needed at that stage. However, funds must be available in the company’s bank account before submitting the H-1B petition to USCIS. The H-1B petition requires demonstrating sufficient funds to cover the beneficiary’s salary and operational expenses for the petition’s duration, generally three years. Having at least $100,000-$300,000 in runway before filing is advantageous.

Once the LCA is approved, the startup should submit the H-1B petition to USCIS, utilizing premium processing, which obligates USCIS to render a decision within 15 calendar days of receipt. The premium processing fee has recently increased to $2,500.

USCIS had initially planned to extend the premium processing timeframe to 15 business days and raise the fee to $1,440 on October 2, 2020. However, these changes, along with broader immigration fee increases, were suspended by a federal judge due to a lawsuit challenging the new fees.

For more detailed information, explore the Dear Sophie columns on transferring an H-1B to a startup and crafting a robust H-1B petition.

Keep in mind that the startup’s long-term ability to sponsor the H-1B co-founder for a green card could be affected by the co-founder’s equity stake. Pursuing an EB-1A extraordinary ability green card or an EB-2 NIW (National Interest Waiver) exceptional ability green card may be the most effective path. If the H-1B co-founder chooses to self-petition for a green card, they must file the petition before completing their sixth year on an H-1B to remain eligible for H-1B extensions while awaiting the green card decision, which could still take several years.

I delve into the requirements for qualifying for an EB-1A or EB-2 NIW, as well as the components of a strong petition, in our upcoming Extraordinary Ability Bootcamp. Register for the Bootcamp. Use code DEARSOPHIE for 20% off.

Wishing you continued success!

S

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Sophie’s podcast, Immigration Law for Tech Startups, is available on all major podcast platforms. She is currently accepting applications for potential guests!