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EB-5 vs. E-2: A Quick Guide for Potential Foreign Investors in U.S. Franchise Companies

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Foreign investors are finding franchising as the “green” path to a life in the United States. Two different programs exist which allow for foreign investors to get a U.S. green card (EB-5) or reside in the United States while operating, and being actively involved in, a franchise location (E-2).

The first program is the EB-5 visa which is intended to provide the applicant permanent residency status, or a green card, in the United States. Foreign nationals can invest a minimum of $1,000,000 in a U.S. franchise or they can invest a minimum of $500,000 in a “targeted employment area” (TEA). The foreign-owned franchise business must create a minimum of ten (10) full time jobs for qualifying U.S. workers within two (2) years of the foreign investor’s admission into the U.S. as a conditional permanent resident.  The EB-5 visa is perfect for a passive investor seeking U.S. citizenship. For more information on the EB-5 visa, please visit the USCIS website at http://www.uscis.gov/eb-5.

The E-2 visa, however, requires that the foreign owner of the franchise location assume an active role in the management of the franchise location.  The foreign investor may hire staff to run the day-to-day operations but it is expected that the E-2 visa applicant will have a decision-making role within the organizational structure of the business.  While there is no minimum cash outlay, the requirements to qualify for the E-2 visa can be found on the USCIS website at http://www.uscis.gov/eir/visa-guide/e-2-treaty-investor/understanding-e-2-requirements.

Wasch Raines colleague and go-to immigration law attorney, Jason Finkelman, wrote a June 22, 2015, blog post on his website finkelmanlaw.com entitled Visa Options for Foreign Entrepreneurs & Investors which provides a complete summary of all of the visa options for foreign investors. With respect to the EB-5 and E-2, Finkelman wrote the following:

E-2 Treaty Investor Visa

This visa option is for business owners that wish to start a company in the U.S. and who want to actively manage and direct the operations of the business in the U.S..  In order to qualify for an E-2 Visa, you must either start or buy a business that you plan to run, and you must invest a certain amount of money in the business.  The actual investment amount depends on the type of business you start.  Additionally, the investment must create jobs (no specific number of jobs) for more than just you and/or your family.  Finally, you must be a foreign national from one of the treaty countries (see list) (note that India and China are not on this list).

EB-5 Immigrant Investor Visa 

The EB-5 immigrant visa is the only option that provides a “green card” (i.e. U.S. permanent residency) directly.  The EB-5 visa is a great visa option if you have a large amount of capital (either $500,000 or $1,000,000) that you would like to invest in a new commercial enterprise.  Generally, to get an EB-5 visa you must: (1) invest or be actively in the process of investing either $1,000,000 USD in a commercial enterprise or $500,000 USD in a targeted employment area (an area that has experienced unemployment of at least 150% of national average rate or a rural area); (2) show that the funds come from a legitimate source; (3) prove the entire amount of the investment is active or at risk (this means that you cannot just be thinking about buying a business and you have to actually put capital up that could be lost); (4) make the investment in a “new” or “existing business enterprise” (this allows you to create your own business or buy one); and (5) demonstrate that the investment directly or indirectly results in the creation of 10 full time jobs.

This is merely a quick guide for foreign investors interested in franchising but knowing the difference between the EB-5 and E-2 visas is very important.  These visa programs can also be used as a tool by franchisors looking to sell locations to foreign investors. Contact a franchise attorney with experience representing foreign investors purchasing U.S. franchise opportunities as well as nationally-branded franchisors.

About Wasch Raines LLP

Wasch Raines LLP is a business and franchise law firm providing a comprehensive range of services to emerging and established businesses and franchise companies in a variety of industries. Through its unique business model, the firm offers its clients the benefits of having a cost-efficient in-house general counsel and a full service litigation team. For more information, click here to contact us or call (561) 693-3221.

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