Dear Sophie: Can an H-1B co-founder own a Delaware C Corp?

Here’s another edition of “Dear Sophie,” the advice column that answers immigration-related questions about working at technology companies.

“Your questions are vital to the spread of knowledge that allows people all over the world to rise above borders and pursue their dreams,” says Sophie Alcorn, a Silicon Valley immigration attorney. “Whether you’re in people ops, a founder or seeking a job in Silicon Valley, I would love to answer your questions in my next column.”

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Dear Sophie:

My VC partner and I are working with 50/50 co-founders on their startup — let’s call it NewCo. We’re exploring pre-seed terms. One founder is on a green card and already works there. The other founder is from India and is working on an H-1B at a large tech company.

Can the H-1B co-founder lead this company? What’s the timing to get everything squared away? If we make the investment we want them to hit the ground running.

—Diligent in Daly City

Hello, Diligent!

Thanks for your questions. It’s always very exciting for me to hear about new companies launching and this has been the year for creativity as necessity is the mother of invention. The easiest path is for the founder with a green card to be president and CEO, and for the H-1B co-founder to be an employee working in a specialized technical role to qualify for an H-1B transfer from the current employer to the new startup. However, there are a few potential immigration issues to be aware of. Check out my recent podcast about due diligence in immigrant-founded startups.

The good news is that we can get the H-1B founder’s work transferred to NewCo, even though it’s a small, pre-revenue company. Presumably NewCo has a strong business plan. If you can make the investment so the company has the ability to pay the H-1B prevailing wage, we can usually effectuate the H-1B transfer for the founder in about 2-3 months.

It’s important to be aware of the proposed equity split between the founders. Simplest is if the founder on H-1B will own less than 50% of the company. If this individual must own the majority, some structural work can be done with a corporate attorney to set things up to qualify for an H-1B, but it’s more complicated.

This is because to qualify for an H-1B — whether it’s a transfer, initial petition or extension — the sponsoring employer must demonstrate that an employer-employee relationship exists between the company and the H-1B beneficiary. That means the employer must have the ability to hire, supervise and fire the H-1B beneficiary, and the H-1B beneficiary cannot own a controlling stake in the sponsoring company. For additional context, check out my podcast on H-1B Transfers for Startup Founders.

The co-founder who has the green card would probably need to be designated as the person who will have the authority to hire, supervise and fire the co-founder on the H-1B visa on the immigration forms. As always, I recommend working with an experienced startup immigration attorney who can present a strong legal argument for the H-1B as well as efficiently streamline the H-1B transfer process.

Please remember that the H-1B co-founder can only legally work for the employer who sponsored the H-1B. It sounds like the co-founder is not currently authorized to work at the startup, even without pay, and doing so could jeopardize their ability to remain in the United States as well as their current employment at the large tech company. The H-1B co-founder will only be able to work for the startup once U.S. Citizenship and Immigration Services (USCIS) approves NewCo’s H-1B petition.

Regarding timing, it’s possible to onboard the H-1B founder in as little as a few weeks once the H-1B transfer petition is filed, but it would be more secure to wait for an approval, which can happen in about 6-12 weeks depending on how the company chooses to move forward with immigration counsel. It’s possible to complete some of the H-1B transfer prep in parallel with the incorporation and funding processes.

The basics need to be taken care of: NewCo would need a legal entity. (Do you require your portfolio companies to incorporate as a Delaware corporation? Some investors do.) We need the founder with a green card to then offer to the H-1B co-founder a job. And the terms need to include a salary of at least the “prevailing wage” for the position and location of the position (think of it as minimum wage for H-1Bs, and be aware that this is often higher than market rate for founders who under other circumstances would be willing to accept a lower salary because of their equity.)

To initiate the H-1B transfer process, NewCo would need to get its Federal Employer Identification Number (FEIN) verified by the U.S. Department of Labor’s Office of Foreign Labor Certification, which takes about a week. Then, the company would need to file a Labor Condition Application (LCA) with the Labor Department. Typically, the Labor Department takes about 10 days to make a decision on an LCA.

NewCo does not need to be funded before the LCA is submitted since no evidence is required with the LCA. However, the funds will need to be deposited in the company’s bank account before the H-1B petition is submitted to USCIS. In the H-1B petition, NewCo will need to show that it has enough in the bank to pay for the H-1B beneficiary’s salary and operations for the duration of the H-1B, usually three years. It’s wonderful if the startup has at least $100,000-$300,000 of runway before filing.

Once the LCA is approved, the startup should submit the H-1B petition for the co-founder to USCIS using premium processing, which requires USCIS to make a decision on a case within 15 calendar days of receiving it. The premium processing fee did go up recently to $2,500.

USCIS was originally scheduled to extend the premium processing time to 15 business days and increase the premium processing fee to $1,440 on Oct. 2, 2020. However, those changes along with increases to most immigration fees were put on hold by a federal judge in a lawsuit challenging the new fees.

Check out the Dear Sophie columns on transferring an H-1B to a startup and how to craft a strong H-1B petition for more details about the H-1B process.

Keep in mind that the startup’s ability to sponsor the H-1B co-founder for a green card longer term might be jeopardized depending on how much equity the co-founder holds. The best course may be for the co-founder to build up their achievements to receive an EB-1A extraordinary ability green card or an EB-2 NIW (National Interest Waiver) exceptional ability green card. If the H-1B co-founder decides to self-petition for a green card, they must submit a green card petition before entering their sixth year on an H-1B to be eligible for H-1B extensions while awaiting the ultimate green card decision, which could still take many years after that.

I discuss in detail what individuals need to do to qualify for an EB-1A or EB-2 NIW as well as what’s needed to submit a strong EB-1A or EB-2 NIW petition in our upcoming Extraordinary Ability Bootcamp. Register for the Bootcamp. Use code DEARSOPHIE for 20% off.

Wishing you every success!

S

Have a question? Ask it here. We reserve the right to edit your submission for clarity and/or space. The information provided in “Dear Sophie” is general information and not legal advice. For more information on the limitations of “Dear Sophie,” please view our full disclaimer here. You can contact Sophie directly at Alcorn Immigration Law.

Sophie’s podcast, Immigration Law for Tech Startups, is available on all major podcast platforms. If you’d like to be a guest, she’s accepting applications!

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