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Franchises & Immigration Visas: What You Need to Know

by on General

Are you a foreign investor with aspirations of owning a franchise in the United States? Or a franchise owner deliberating a franchise sale to a foreign national? Immigrants looking to enter the United States and invest in a U.S. business often need to jump many hurdles, including the big one of obtaining a visa. If you answered ‘yes’ to either question above, the E-2 visa and the EB-5 visa are both worth considering. We’ll discuss each in depth below.

What is an E-2 Visa?

If your home country maintains an E-2 Visa treaty with the United States, you may be able to enter the country to own and operate a franchise as long as you meet the following requirements:

  • Capital Investment Requirement. There is no legally established specific amount, but the investment can’t be marginal. Generally speaking, it shouldn’t be less than $120,000. The investment also must create jobs and go to a company to develop and operate a business that aims to make substantial returns within the first five years from the date the E-2 visa begins. It’s also important to note that the stock market or passive investments in real estate won’t cut it for the E-2 visa.
  • Business Requirement. The franchise must be a bona fide enterprise that retains profits for goods or services. It must be operating, or at least about to be operating.
  • Operations Requirement. E-2 visa holders must actively work in the business. They cannot be passive, requirements specify work completed must be in the activity for which the E-2 visa was intended at the time it was granted, and E-2 visa holders must prove their direct involvement and 50% (or more) ownership or operational control through a managerial role or other corporate position. That’s not to say the foreign investor can’t hire staff to run the day-to-day operations. That would be impractical if a franchisee ran multiple locations—it just means that the E-2 visa holder must have a decision-making role, maintain equity ownership, and be in control of the business. This requirement is usually easy to meet. Let’s face it—if you’ve invested money into a franchise, you’ll want to jump right in and make it as profitable as possible.

Another critical point to emphasize regarding the E-2 visa, is the timeline. First, an investor finds the franchise opportunity. Then, before the application can even be submitted, the investor must complete a number of tasks. These may include securing a lease, signing contracts and franchise documents, purchasing equipment, or even incorporating the business. And the investment is required, regardless of not knowing whether the E-2 visa will be granted or not. Once the E-2 visa application is granted, the investor may immigrate to the United States to own and operate the franchise. As long as the qualified investment continues, the E-2 visa can be indefinitely renewed.

What is an EB-5 Visa?

Unlike the E-2 visa, the EB-5 visa sets a franchisee (and his/her spouse and children) on the path to permanent residence (i.e. a Green Card, which allows one to lawfully and permanently live and work in the U.S.). The purpose of the EB-5 visa is to stimulate the economy by increasing capital investments and producing more jobs. To obtain an EB-5 Visa, specific requirements must be met, including a capital investment in the franchise and the creation of at least ten full-time jobs.

  • Capital Requirement. The USCIS defines capital as: “cash, equipment, inventory, other tangible property, cash equivalents, and the indebtedness secured by assets owned by the immigrant investor, provided the immigrant investor is personally and primarily liable and that the assets of the new commercial enterprise upon which the petition is based are not used to secure any of the indebtedness.

Also, unlike the E-2 visa, the required capital for the EB-5 visa is specific: Per the USCIS Policy Manual, “capital must be at least $1,000,000, or $500,000 if investing in a targeted employment area for petitions filed before November 21, 2019. For petitions filed on or after November 21, 2019, those amounts are $1,800,000 or $900,000 respectively, and automatically increase October 1, 2024, and every 5 years thereafter.”

  • Job Creation Requirement. EB-5 visa holders must create at least ten full-time jobs over a five-year period. Not all businesses need ten full-time employees, so this is a requirement to be wary of.

Similar to the E-2 visa, the franchisee must find a franchise opportunity and invest in that franchise opportunity before moving forward with the application. This includes securing a lease, signing the franchise agreement, and developing a business plan to prove the validity of the franchise.

E-2 and EB-5 Visa Challenges to Consider

Visa applications add complexity to already complex franchise laws. It’s important to understand the nuances of franchise law in addition to fully understand the visa process and requirements.

Common challenges and considerations

Licensing and regulations may differ from country to country, especially in certain industries. Some states are less restrictive, but states like California and Florida have strict licensing laws. Make sure your industry doesn’t require special licenses that a franchisee might not possess.

Contingencies

When drafting legal documents, like a franchise agreement, it is common to include language regarding the approval of the visa application. For example, you may want to make the franchise sale dependent on the condition that the franchisee does, in fact, receive the immigration visa. Due to the complexity of the legal documents, it’s advised to work with an experienced franchise attorney when drafting franchise documents.

A Long Time!

There can be a long time between the investment and the visa, and in some cases, it can take up to 6 months. Everyone should be well aware of the fact that generating income once the franchise agreement has been signed and investment has been paid – might take a little while. And if your visa is denied, you’ll need to modify your application and resubmit for approval a second time, delaying the process even further.

Work with an Experienced Franchise Lawyer

If you want to learn more about setting up a franchise with franchisees seeking E-2 and EB-5 visas, consult with an experienced franchise lawyer. It’s important to know options, the specific requirements, benefits, and challenges for both the E-2 and EB-5 visas. We’re here to help. Contact us to schedule a consultation.