Experience Business Lawyer, Abdulrasheed Ijaodola has listed a set of business considerations for African startups expanding into and operating in the United States, particularly in Delaware.
He noted that while Delaware is a favored jurisdiction due to its straightforward process, many founders skip professional advice, resulting in costly errors.
According to him, founders often need to be present in the U.S. to engage with investors and tap into the U.S. market. However, securing the appropriate visa has been a major challenge. The Department of Homeland Security’s new International Entrepreneur Parole (IEP) program aims to address this issue by allowing startup founders and their spouses to work in the U.S. for up to five years.
He explained that the IEP program targets entrepreneurs whose startups show potential for rapid growth and job creation. Eligible startups must have been formed within the last five years and demonstrate significant economic impact. He added that up to three founders per startup can apply, each holding at least a 10 per cent ownership stake (which can be reduced to no less than 5 per cent after approval). These founders must play a central role in the business’s operations and growth.
“Funding is a crucial aspect of the IEP program. Startups need substantial funding within 18 months preceding the application, with at least $264,147 from qualified America investors. Qualified investors are typically America citizens or lawful permanent residents with a track record of investing in early-stage companies. Alternatively, startups can qualify with at least $105,659 in government grants or awards from entities supporting entrepreneurship,” he said.
Ijaodola emphasised the need for a comprehensive application to USCIS, including evidence of the startup’s formation, the entrepreneur’s ownership stake and role, and documentation of the required funding. The review process involves assessing the startup’s scalability, economic impact, and job creation potential.
He added other critical considerations for African startups incorporating in America as exchange and contribution of Equity: He advised that startups reorganising into the United States should ensure that the exchange and contribution of equity is properly done, especially through a tax-free exchange and contribution of equity compliant with America tax laws.
He also highlighted the 83(b) election, a United States tax provision that allows recipients of equity subject to vesting to elect to pay income tax on the equity’s fair market value at the time of grant rather than at vesting. He stressed that the election can save significant taxes and must be made within 30 days of the grant date.
According to him, every equity issuance in the United States must be registered with the SEC unless an exception applies.
An exception applies for equity issuances pursuant to written compensation plans but many African startups overlook setting up such plans, risking non-compliance with securities laws. He recommendedĺ establishing an incentive compensation plan immediately after incorporation.
He noted that this act, effective on January 1, 2024, requires certain entities to report their beneficial owners and company applicants. Newly formed entities must comply within 90 days, while existing entities have until December 31, 2024. He warned that non-compliance can lead to civil and criminal penalties.
Ijaodola stated the importance of understanding fiduciary duties, which require corporate directors, trustees, and officers to act in the company’s and minority shareholders’ best interests. He advised that adherence to these duties are crucial to avoid legal issues.
