On Dec 13 2017 by H. Ronald Klasko

Klasko’s Criteria for Analyzing an E-2 Start-Up Business

The EB-5 Reform and Integrity Act of 2022 brought many changes to the EB-5 program. For the latest information, please click here.

Readers of our blogs know that we are working with nationals of many countries that do not have bilateral investment treaties with the U.S. to obtain E-2 visas following acquisition of citizenship in Grenada, which has such a bilateral investment treaty. Many of our investor clients look to us for advice on choosing a business opportunity in the U.S. that will qualify for issuance of an E-2 treaty investor visa.

We are pleased to share the criteria that we use in analyzing potential E-2 business opportunities for our clients:

  • Amount of investment required: There are two different legal requirements that we consider in analyzing the appropriate investment amount – – substantiality and proportionality. The substantiality test requires that the amount of the foreign investor’s investment is a substantial proportion of the amount necessary for the business to be viable and profitable. The proportionality test requires us to compare the investor’s investment with the total investment in the business. The investor’s investment should be a high percentage of that amount, and especially high if the total amount of the client’s investment is not a very large amount.
  • Number of employees: There is no exact number of employees that the investment enterprise must have. However, a significant number of employees, especially U.S. employees, can be helpful in meeting a third legal requirement – – the marginality requirement. While we prefer a business that has W-2 employees, a business that employs a significant number of independent contractors may also qualify.
  • Develop and direct requirement: The investor must “develop and direct” the business. If the investor will not be the day-to-day manager of the business, we review the management contracts to make certain that the investor will be in a position to confer with, advise and oversee the day-to-day manager. If the investor does not speak English, our analysis includes provisions made for the investor to communicate with the day-to-day manager.
  • Management of the business: If the investor does not intend to actively manage the business, we need to analyze whether the business provides a manager or a management company. For example, with franchise businesses, some franchisors do – – and some don’t – – provide management services for the franchisee’s business.
  • Viability/Profitability of the business: While we do not hold ourselves out as financial or business analysts, where possible we work together with financial and business professionals to ascertain the likely viability and profitability of the business. This will be discussed in detail in the E-2 business plan. Since the investor’s E-2 status is dependent on the continuation of the business, a business that fails during the term of the E-2 visa can place the investor’s legal status in the U.S. in jeopardy. In addition, many of our clients are hoping to extend their E-2 visa following the expiration of the initial 5-year visa issuance. The continuing profitability and viability of the business is critical for that purpose.
  • Nationality requirement: A separate legal requirement is that the investor own at least 50% of the business of which he invests (unless other nationals of his country own at least 50%).
  • Real, operating commercial enterprise: Although we believe that the E-2 visa does not require that the business actually be operating when the investor obtains his E-2 visa, there are a minority of U.S. consulates that impose this requirement. Therefore, in our analysis of the E-2 business, we prefer a business that can have operations commence in advance of the investor obtaining the E-2 visa.
  • Refund to investor: Related to the previous issue, we prefer there is some mechanism for the investor to recoup most of the investment if the E-2 visa is not issued. This analysis must take into account the irrevocable nature of the investor’s investment once the E-2 visa is issued.

Although the concept of third country citizenship combined with E-2 visa applications is relatively new, preparing E-2 applications for citizens of treaty countries is not at all new for our firm. We have successfully handled thousands of E-2 applications over many years, and the criteria listed about are the product of that experience.

The material contained in this article does not constitute direct legal advice and is for informational purposes only.  An attorney-client relationship is not presumed or intended by receipt or review of this presentation.  The information provided should never replace informed counsel when specific immigration-related guidance is needed.

© 2017 Klasko Immigration Law Partners, LLP.  All rights reserved. Information may not be reproduced, displayed, modified or distributed without the express prior written permission of Klasko Immigration Law Partners, LLP.  For permission, contact dlundy@klaskolaw.com.