Should You Start an E2 Visa Franchise Business? - Frear Law
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SHOULD YOU START AN E2 VISA FRANCHISE BUSINESS?

It is understandable why the idea of opening an E2 Visa franchise business is enticing.

Franchisees enjoy the independence of small business ownership while simultaneously having support and guidance from the franchisor.

Also, they typically enjoy a marketing advantage if brand recognition has already been established—or if the franchisor has developed a proven marketing plan. As any startup founder can attest, it takes loads of time, effort, creativity and hustle to establish a brand that is recognizable to your target customer. Starting a franchise that is already solidified as an established brand takes trial and error out of the process.

The support of the franchise, brand recognition and working under a validated business model can pave the way to a successful business.

Given these well known advantages, immigration lawyers are oftentimes asked if an E2 franchise business is a good option.

The short answer is…YES!

The franchise model works remarkably well for those who are interested in the E2 visa.

This post discusses the advantages of starting an E2 Visa franchise business and highlights a few issues that can cause problems.

The E2 Visa: A Brief Overview

The E2 visa is a fantastic option for those who want to start a business in the US. The visa allows foreign nationals of certain countries to move to the United States to manage and control a business in which they have invested.

There are a number of technical requirements that the investor must satisfy before the E2 Visa will be approved. The requirements include:

  • Requisite treaty exists between the US and the investor’s country(see 9 FAM 402.9-4(A) and 402.9-10);

  • The individual investor must possess the nationality of the treaty country (see 9 FAM 402.9-4(B));

  • The applicant has invested or is actively in the process of investing (see 9 FAM 402.9-6(B));

  • The investment has been committed to a real and operating commercial enterprise (see 9 FAM 402.9-6(D));

  • Applicant’s investment in the commercial enterprise is substantial (see 9 FAM 402.9-6(E));

  • Investment is more than a marginal one solely for earning a living (see 9 FAM 402.9-6(F));

  • Applicant is in a position to “develop and direct” the enterprise (see 9 FAM 402.9-6(G));

  • Applicant intends to depart the US at the end of E2 status (see 9 FAM 402.9-4(C)).

https://fam.state.gov/fam/09FAM/09FAM040209.html

Three Advantages of The E2 Visa Franchise Business

No. 1: Franchise Businesses are more likely to be considered “real.”

Before you can obtain an E2 visa, you have to convince the adjudicator that the business in which you have invested is real and operable. This requires you to have more than an idea and money sitting idly in a US bank account. Instead, you must have a clear concept and a solid plan for executing. 

This is easier to show for franchise businesses due to the franchisor’s history. For example, if the brand is recognized by the adjudicator, they will already have some understanding of the business. Even if the adjudicator is unfamiliar with the brand, they will usually appreciate the franchisor’s promotional and marketing materials that explain the business concept. 

No. 2: Showing a “Substantial” Investment can be Easier with a Franchise

In order to obtain E2 visa approval, you have to demonstrate that the investment is substantial. Substantial in this context means that the investment is large enough to ensure success.

Ordinarily, a larger percentage of the start up costs will be required for a business that requires less initial capital. For example, if the amount required to make the business succeed is $100,000 or less, the required investment is probably going to be $100,000(or close to that amount). A smaller percentage of the overall investment usually suffices when the initial investment costs are larger(for example, a $1,000,000 investment may suffice if the total investment required to make the business succeed is 4,000,000).

When you start a business that is not a franchise, you will have to go through a process to find the investment amount that is needed to make the business work. If you invest in a franchise business, the franchisor will have data that clearly shows how much money is needed to make the business succeed. The adjudicator can take this information and compare it to the actual investment that you have made in your business to determine if it is “substantial.”

No. 3: It is Easier to Show that the Investor is in a Position to “Develop and Direct” the Business

For many, franchise ownership is a second career. There are hundreds of people who explore franchise options after growing disillusioned and frustrated by climbing the corporate ladder. The men and women in this group are often well educated and extremely talented. However, they are at a slight disadvantage if they have never owned or operated their own business. 

In order for those with no entrepreneurial experience to successfully apply for the E2 Visa, it is helpful to invest in a proven business model. This investment combined with corporate experience and education will increase your odds that the adjudicator will find that you have what it takes to “develop and direct” the business even if you lack experience as an owner.

Potential Problems With the E2 Visa Franchise Route

 Marginality

Many E2 visa applications fail because the adjudicator determines that the business will solely support the applicant and his or her family. Prospective E2 visa applicants should be aware of this reality and take precautions when they invest in a franchise that can be operated successfully by one person. For such franchises, it is important to show a plan for growing the business to a size that will necessitate the hiring of workers. 

Other franchise businesses require emploployees at the begining of operations. In such situations, it is easier to prove that the business is not marginal. For example, a franchise restaurant will obviously need a staff before opening. Such a business would not need to worry much about marginality.

Training Delayed Until Visa Issuance

Many franchisors will require franchisees to go through a comprehensive training program before they open their business. This is a great policy since it increases the odds of the franchisee’s success. However, there could be a problem associated with this requirement. If the franchisor does not allow the franchisee to attend the training until after the visa is issued—due to trade secret issues—then an adjudicator could find that there is not a real operable business yet since the required training has not been completed.

To prevent this problem from arising, the franchisee could try to get special permission to attend the training before visa issuance. Alternatively, they could spend additional money on the business(to demonstrate commitment) and include a letter from the franchisor that clearly states that the training is not available before the E2 is granted.

Control Issues—Directing and Developing the Business

Control is typically not an issue that prevents a franchise owner from obtaining the E2 visa. Even if the franchisor has certain operating standards, the franchisee will usually be able to show that they are controlling the business(which is required for the E2 visa). However, there are certain franchises that will not be acceptable for E2 purposes due to the control that the franchisor exercises.

Chick-fil-A is the classic example of a franchise that would not work for the E2 visa. People who run Chick-fil-A restaurants are considered “operators” not franchisees. They do not own or receive any equity in the business. Since they do not control the business, Chick-fila-A investor “operators” would not qualify for an E2 visa.

While Chick-fil-A model is atypical, franchisees should nonetheless be aware of the control issue. If a franchisor wants to exert too much control over the operations, the adjudicator could deny an application on the basis that the investor will not be directing and developing the business.

Conclusion

Opening a franchise is a great option for foreign national investors who want to come to the US to start a business.

Franchisors offer valuable guidance to help first time business owners succeed. As an added bonus there are some inherent  advantages that franchises enjoy that may make it easier to obtain an E2 Visa.

To fully understand these advantages as well as the pitfalls that can occur during the visa process, please reach out to a knowledgable business immigration lawyer.

If you have any questions for me, please feel free to reach me at ben@frearlaw.com.