When Should I Spend My E-2 Visa Investment?
In this post, I address a common question that I hear in my practice. The question is…”when should I spend my E-2 visa investment?”
The Typical Scenario
So here is a typical scenario…My client has an idea for a business with startup costs around $100,000. They set up an LLC and apply for a bank account after obtaining their EIN. And then, I advise them to transfer their personal funds into the business account so they can spend their investment on everything that they need to launch.
After transferring the funds and making a few purchases, some clients will ask me if we are ready to apply. I respond by asking them if they have purchased everything that they need to start operations? If the answer is no, then I usually tell them that we are not quite ready to apply.
Now, my clients are eager to start running their companies in the US. And I certainly don’t like to disappoint them. But I routinely tell them that they are not ready to apply because of these two E-2 requirements…
Real and Active
In order to qualify for the E-2 visa, you must show that your business is real and active. The foreign affairs manual states…
The enterprise must be a real and active commercial or entrepreneurial undertaking, producing some service or commodity. If the investment relates to a new enterprise, then you must be convinced that it will be a real and active commercial or entrepreneurial undertaking that will produce some service or commodity if the visa is issued.
In practice this means that you are in the best position if you have already started operating or you are right on the cusp of beginning operations. If you haven’t purchased everything that is needed to run your business, then an adjudicator may not have confidence that you are creating a real and operating business.
At-Risk Investment Requirement
The second reason why I encourage my clients to spend their money before they apply is because the US foreign affairs manual states that the investment funds must be irrevocably committed. Here is what the manual says…
To be “in the process of investing” for E-2 purposes, the funds or assets to be invested must be committed to the investment, and the commitment must be real and irrevocable…
There is also some language in this section of the manual that kind of relates to the real and active requirement of the E-2 visa. The manual states…
…for the applicant to be “in the process of investing”, the applicant must be close to the start of actual business operations, not simply in the stage of signing contracts (which may be broken) or scouting for suitable locations and property. Mere intent to invest, or possession of uncommitted funds in a bank account, or even prospective investment arrangements entailing no present commitment, will not suffice.
A Problematic E-2 Visa Investment Example
Let’s say that you have started a landscaping business. You have developed a website, purchased some supplies and equipment and paid some professionals. Your last major items to purchase are the mowers, the work truck and the trailer. Since these items will be relatively expensive, you decide that you will purchase them after you get the visa. By failing to make this purchase, an adjudicator could say…”wait a minute…there is not really a business yet. We aren’t going to approve this since we are not convinced that this business will be real and active.”
Further, they could refuse the visa on the basis that you haven’t placed enough of your investment at risk in the business.
Options for Entrepreneurs Who Can’t Spend Everything Initially
Some clients will say, “I understand the requirements but it is highly impractical for me to spend the entirety of my E-2 visa investment before I apply.”
For example, what if the client is in the process of opening a coffee shop or a restaurant? They have purchased the necessary inventory, furniture and equipment. They signed a lease and construction is in progress, but it will take time to complete the project. And let’s say that the interview wait times for the relevant country are around four months. If they wait until construction is complete before they submit their application, they may end up paying for four additional months of expensive rent without being able to open the restaurant.
In that type of scenario, as long as we can show that 1) we have purchased everything else that is needed and 2)the construction will be completed by the time of the interview or shortly thereafter, it could be worthwhile to take a calculated risk by submitting the application before 100% of the construction budget has been spent.
An Exception for Huge Investments
As a general rule, if your business costs around $100,000 to establish, you should aim to spend 100% of those funds before you apply. In the foreign affairs manual, you will see this general guidance under the section that talks about the proportionality test. The proportionality test essentially says that the lower the cost of your business, the higher a percentage of investment is required. Higher cost businesses can qualify with a lower percentage of the investment committed to the business.
The example in the manual states…
…investments constituting 100 percent of the total cost would normally qualify for a business requiring a startup cost of $100,000… At the other extreme, an investment of $10 million in a $100 million business may be considered substantial, based on the sheer magnitude of the investment itself.
Now, I know what you’re thinking…the $100,000,000 example isn’t particularly helpful since it is so extreme. But, the takeaway here is that if you have a high cost business, which I consider to be around $1,000,000, then you can probably get by without spending 100% of your investment before you apply for the visa.
Conclusion
So there you have it. You will generally aim to spend as much of the startup budget as possible before you apply for the E-2 visa. However, if your overall investment is massive or you can clearly explain how additional funds will be committed by the time of the interview or shortly thereafter, you may be able to submit your application without fully committing the entirety of your startup budget.
Of course you will want to fully discuss your options with your immigration lawyer before you decide on the best course of action given your unique circumstances.
Best of luck in exploring the E-2 visa and other US immigration options!
Ben Frear, Esq.
Immigration Lawyer for Entrepreneurs