It is understandable why the idea of opening a franchise is enticing. Franchisees enjoy the independence of small business ownership while simultaneously enjoying the support and guidance of the franchisor. Also, they oftentimes enjoy a marketing advantage if brand recognition has already been established. 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 advantages, it is understandable why immigration lawyers are oftentimes asked if franchise businesses are good options for those who are seeking an E2 Visa. This post will highlight some issues to consider if you are considering an investment in a franchise business in order to receive an E2 Visa.
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 commercial enterprise in which they have invested a substantial sum of money. 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)).
Three Advantages of Franchise Businesses for E2 Visa Purposes
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 a real and operable commercial enterprise. 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 on the concept.
It is often times easier to show that franchise businesses are “real” due to their business history. For example, if the brand is recognized by the adjudicator, they will already have some understanding of the business and their objectives. Even if the adjudicator does not initially recognize the brand, the franchise’s marketing materials may make it easier to communicate the business concept to the adjudicator. The franchise materials can also show that there is a proven process that can be followed to ensure that the business succeeds.
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 the successful operation of the enterprise. Ordinarily, a large 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. A smaller percentage of the overall investment usually suffices when the initial investment costs are larger(ie. 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, it is likely that the franchise has preexisting data that clearly shows how much capital is required to make the business succeed. The adjudicator can take this data 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 be able to point to a proven business formula. This formula 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.
Watch Out for 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 employees at the beginning of business operations. If you are considering an investment in such a business, it will be easier to prove that the investment is not marginal. For example, a franchise restaurant will obviously need a sizable staff to carry out the day to day operations. Therefore, it is unlikely that an E2 Visa application for a franchise restaurant will fail due to marginality.
The Franchise model is worth considering if you are a foreign national who is interested in coming to the US to start a business. Franchises offer valuable guidance for first time business owners. 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 an immigration lawyer.