Selling Your Business in South Florida; E2 Visa Requirements

Dolan Sales, Inc. | Fort Lauderdale, FL | June 2012

THE INFORMATION BELOW IS NOT TO BE CONSIDERED LEGAL ADVICE. SUCH INFORMATION IS INTENDED TO EDUCATE MEMBERS OF THE PUBLIC GENERALLY AND IS NOT INTENDED TO PROVIDE SOLUTIONS TO INDIVIDUAL PROBLEMS. READERS ARE CAUTIONED NOT TO ATTEMPT TO SOLVE INDIVIDUAL PROBLEMS ON THE BASIS OF INFORMATION CONTAINED HEREIN AND ARE STRONGLY ADVISED TO SEEK ADVICE FROM AN EXPERIENCED IMMIGRATION ATTORNEY REGARDING SPECIFIC CASE SITUATIONS.

E2 Visa Requirements – Overview

Foreign investors who invest a “substantial amount of capital” in a US business, and who will develop and direct the business may apply for the E2 investor visa, if their country of citizenship has the required treaty with the US. Foreign companies whose owners are nationals of a treaty country may potentially petition their employees for the E2 visa.

The investor must demonstrate that he or she has control of the enterprise by showing ownership of at least 50 percent of the business and possessing operational control through a managerial position or other means. The investor must have already invested in the US business or is actively in the process of investing in the business.

The investment must be substantial. The law does not specify a minimum dollar amount to qualify. Instead, “substantial investment” is defined as sufficient funds to ensure the investor’s financial commitment to the successful operation of the E2 enterprise and large enough to support the likelihood that the investor will successfully direct and develop the business. The investment enterprise must be more than a marginal business solely for earning the investor’s living.

The business must a real and operating enterprise. If the applicant is not the principal investor, he or she must be employed in an executive or supervisory capacity, or possess skills that are highly specialized and essential to the operations of the commercial enterprise. Ordinary skilled or unskilled workers do not qualify.

The E2 visa has a nonimmigrant intent requirement. Nonimmigrant intent means the applicant must intend to depart the United States when the E2 status terminates. However, holders of E2 visas may renew their visas indefinitely as long as they continue to own and operate their E2 enterprise or work for a qualifying E2 business in the case of an employee.

Treaty Nationality

The investor, whether an individual or business, must possess the nationality of the treaty country. The nationality of a business is determined by the nationality of the individual owners of that business.

If the investor is a foreign corporation, at least 50 percent of the corporate owners must be nationals of the treaty country. If the corporation is owned by another business, then the ownership must be traced to the point of reaching the 50 percent rule with respect to the parent organization.

The country of incorporation is irrelevant to the nationality requirement for E2 visa purposes. In cases where a corporation is sold exclusively on a stock exchange in the country of incorporation, however, one can presume that the nationality of the corporation is that of the location of the exchange. In the case of a multinational corporation whose stock is exchanged in more than one country, then the applicant must present the best evidence available to show that the business meets the nationality requirement.

Except in the case in which an enterprise is owned and controlled equally (50/50) by nationals of two treaty countries, a business for which E2 visa status is sought may have only one qualifying nationality. In the case of dual national owner(s), a choice must be made by the owners as to which nationality shall be used. The owners and all E2 visa employees of the company must possess the nationality of the single E2 visa qualifying country, and hold themselves as nationals of that country for all E2 visa purposes involving that company, regardless of whether they also possess the nationality of another E2 visa country. When a company is equally owned and controlled by nationals of two different treaty countries, employees of either nationality may obtain E2 visas to work for that company.

Investor’s Control of the E2 Enterprise

The investor must have control of the US business by owning at least 50 percent of the enterprise. An equal share of the investment in a joint venture or an equal partnership of two parties, generally does give controlling interest, if the joint venture and partner each retain full management rights and responsibilities.

This arrangement is often called “Negative Control”. With each of the two parties possessing equal responsibilities, they each have the capacity of making decisions that are binding on the other party. The US Department of State has determined that an equal partnership with more than two partners would not give any of the parties control based on ownership, as the element of control would be too remote even under the negative control theory.

Investment Visa – Making a Substantial Investment

The applicant must make a substantial investment to qualify for the E2 investment visa. However, the law does not state a minimum dollar amount. Generally, the applicant should be prepared to invest at least $50,000 US dollars in the E2 enterprise. The actual amount required will depend on the type of business the investor chooses.

A substantial investment is defined as an amount sufficient to ensure the investor’s financial commitment to the successful operation of the enterprise as measured by the proportionality test. This proportionality test compares the total amount invested in the enterprise with the cost of establishing a viable enterprise of the nature contemplated or the amount of capital needed to purchase an existing enterprise.

Such comparison constitutes the percentage of the treaty applicant’s investment in the enterprise. That percentage must compare favorably in the fashion of an inverted sliding scale starting with a high percentage of investment for a lower cost enterprise. The percentage of investment decreases at a gradual rate as the cost of the business increases. An amount of capital invested in an enterprise is merely presumed to be substantial when it meets or exceeds the percentage figures given in the following examples (given in US dollars):

• Seventy-five (75) percent investment in an enterprise costing $500,000 or less. If the cost of the enterprise is substantially lower than $500,000, eighty-five (85) percent to one hundred (100) percent investment may be required.

• Fifty (50) percent investment in an enterprise costing more than $500,000 but no more than $3,000,000.

• Thirty (30) percent in any enterprise costing more than $3,000,000.

A multi-million US dollar investment by a large foreign corporation is normally considered substantial, regardless of the examples given above.

The amount invested in the enterprise should be compared to the cost (value) of the business by assessing the percentage of the investment in relation to the cost of the business. If the two figures are the same, then the investor has invested 100 percent of the needed funds in the business. Such an investment is substantial.

The vast majority of cases involve lesser percentages. The proportionality test can best be understood as a sort of inverted sliding scale. The lower the cost of the business the higher a percentage of investment is required, whereas, a highly expensive business would require a lower percentage of qualifying investment.

There are no bright line percentages that exist in order for an investment to be considered substantial. Yet, as stated above, the lower the cost of the business the higher the percentage of qualifying investment is anticipated. Thus, investments of 100 percent would normally automatically qualify for a small business of $100,000 or less. Yet, a business of this size involving two equal partners or joint ventures may prove qualification for E2 investment visa status. At the other extreme, an investment of $10 million for a $100 million business would likely qualify for E2 visa based on the sheer magnitude of the business itself.

Source of E2 Investment Funds

The E2 investor must have possession and control of the capital and funds invested. Moreover, the investor must have acquired the funds from lawful sources such as personal savings, investment earnings, gifts, inheritance, etc. The source of funds does not have to come from outside the United States. Money obtained inside the US may be used for E2 investment. However, inheriting a business does not qualify for E2 visa.

Certain types of loans may qualify as E2 investment fund. Generally, loans secured by the investor’s personal assets, such as a second mortgage on a home, or unsecured loans, such as a loan on the investor’s personal signature, may be included in the investment.

However, loans such as mortgage debt or commercial loans secured by assets of the E2 enterprise cannot count towards the investment. For example, if the business in which the applicant is investing is used as collateral, funds from the resulting loan or mortgage do not qualify for E2 investment, even if some personal funds are used.

In sum, eligible investment funds may only include money in which the investor’s personal assets are involved, such as personal funds, other unencumbered assets, a mortgage with the investor’s personal real estate used as collateral, or some similar personal liability. A reasonable amount of cash, held in a business bank account to be used for routine business expenses, may be counted as investment funds. Thus, the investor is not required to spend all of the funds for the entire amount to count towards the total investment.

The funds and assets to be invested must be committed to the investment, and the commitment must be real and irrevocable. For example, the purchase of a business which qualifies for E2 status in every respect may be conditioned upon the issuance of the visa. Despite the condition, this would constitute a solid commitment if the assets to be used for the purchase are held in escrow for release or transfer only on the condition being met.

In addition, the business must have started operating or be close to the start of actual business operations, not simply in the stage of signing contracts 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, do not satisfy the E2 visa requirements.

Real and Active Commercial Enterprise

The E2 business must be a real and active commercial or entrepreneurial undertaking, producing some service or commodity. The business must have all the necessary licenses and permits as required by the government for the particular type of business.

The enterprise cannot be a paper organization or an idle speculative investment held for potential appreciation in value, such as undeveloped land or stocks held by an investor without the intent to direct the enterprise. The investment must be a commercial enterprise. Thus, it must be for profit, eliminating nonprofit organizations from consideration

Minimum Business Size: Enterprise Must Not be Marginal

The law does not specify a minimum business size to qualify for the E2 investor visa. The law requires that the investor must not be investing in a marginal enterprise solely for the purpose of earning a living. An applicant is not entitled to E2 visa, if the investment, even if substantial, will return only enough income to provide a living for the applicant and family. There are various ways to help determine whether an investment is marginal, in the sense of only providing a livelihood for the investor.

To determine whether a business is considered marginal, first, look to the income from the investment. If the income derived from the business exceeds what is necessary to support the investor and his or her family, then the business is sufficiently large.

If the above test is not satisfied, then it becomes necessary to consider other factors. One can look to the economic impact of the business. The business must have the capacity, present or future, to make a significant economic contribution such as employing US workers. The projected future capacity should generally be realizable within five years from the date the investor commences normal business operations. Applicants need to submit a reliable business plan to verify the capacity to realize a profit within a maximum five years.

Spouse and Children of the E2 Investor

The spouse and children of the E2 investor may obtain E2 visas for dependent family members to reside in the US. These family members may apply at the same time as the E2 investor or after the investor has been issued the E2 visa. Children must be under 21 years old to qualify for the dependent E2 visa.

The spouse may apply for a work permit with the USCIS after arriving in the US. This work permit, called “Employment Authorization Card” is an open market work authorization and offers the spouse great employment flexibility and convenience. Generally speaking, the spouse may work for any employer and in any job in the US, except certain government related jobs that require US citizenship. The spouse may work for the E2 investor’s business or find a job with another employer. The spouse may also start his or her own business using the work permit. The employment may be full-time or part-time. The USCIS usually takes approximately two to three months to issue the work permit.

In addition, the spouse and children may attend school under the E2 visa for family members. The children are allowed to enroll in either public or private schools. Keep in mind that upon reaching 21 years old, the child is no longer eligible for the dependant E2 visa status and must have his or her own visa in order to continue residing or studying in the US. Frequently, children who age-out apply for the F1 student visa in order to finish their college or university education in the US.

E2 Visa for Foreign Employees

Generally, if the applicant is not the principal investor, he or she must be employed in an executive or supervisory capacity, or possess skills that are highly specialized and essential to the operations of the commercial enterprise. Ordinary skilled or unskilled workers do not qualify.

INVESTOR MUST PERSONALLY OPERATE BUSINESS IN ORDER TO BRING FOREIGN EMPLOYEES TO US ON E2 VISA

If the majority owner of the E2 enterprise wishes to enter the United States as an investor, or send an employee to the United States, the owner must demonstrate that he or she personally develops and directs the enterprise. Likewise, if a foreign corporation owns at least 50 percent of a US enterprise, and wishes its employee to enter the US as an employee of the parent corporation, or as an employee of the US subsidiary company, the foreign corporation must demonstrate it develops and directs the US company.

In instances in which treaty country ownership may be too diffuse to permit one individual or company to demonstrate the ability to direct and develop the US enterprise, the owners of treaty country nationality must:

1. Show that together they own 50 percent of the US enterprise; and

2. Must demonstrate, that at least collectively, they have the ability to develop and direct the US enterprise.

In these cases an owner may not receive an E2 visa as the “investor”. Rather, all E2 visa recipients must be shown to be an employee of the US enterprise coming to the US to fulfill the duties of an executive, supervisor, or essentially skilled employee.

GENERAL EMPLOYEE REQUIREMENTS

In order to qualify to bring an employee into the United States, the prospective US employer must be maintaining E2 status. In order to qualify to bring an employee into the United States, several criteria must be met:

1. The prospective employer must meet the nationality requirement, i.e., if an individual, the nationality of the treaty country or, if a corporation or other business organization, at least 50 percent of the ownership must have the nationality of the treaty country. Note that a permanent resident alien does not qualify to bring in employees under the E2 visa program. Moreover, shares of a corporation or other business organization owned by permanent resident aliens cannot be considered in determining majority ownership by nationals of the treaty country to qualify the company for bringing in alien employees under the E2 visa;

2. The employer and the employee must have the same nationality; and

3. The employer, if not resident abroad, must be maintaining E2 visa status in the United States.

EXECUTIVE AND SUPERVISORY EMPLOYEES

In evaluating whether the employee qualifies as an executive or supervisory personnel, the following factors are considered:

1. The title of the position to which the applicant is destined, its place in the firm’s organizational structure, the duties of the position, the degree to which the applicant will have ultimate control and responsibility for the firm’s overall operations or a major component thereof, the number and skill levels of the employees the applicant will supervise, the level of pay, and whether the applicant possesses qualifying executive or supervisory experience;

2. Whether the executive or supervisory element of the position is a principal and primary function and not an incidental or collateral function. For example, if the position principally requires management skills or entails key supervisory responsibility for a
large portion of a firm’s operations and only incidentally involves routine substantive staff work, an E classification would generally be appropriate. Conversely, if the position chiefly involves routine work and secondarily entails supervision of low-level employees,
the position could not be termed executive or supervisory; and

3. The weight to be accorded a given factor, which may vary from case to case. For example, the position title of “vice president” or “manager” might be of use in assessing the supervisory nature of a position if the applicant were coming to a major operation having numerous employees. However, if the applicant were coming to a small two-person office, such a title in and of itself would be of little significance.

ESSENTIAL OR SPECIAL SKILLED EMPLOYEES

In addition, the law provides E2 visa classification for employees who have special qualifications that make the service to be rendered essential to the efficient operation of the enterprise. The employee must, therefore, possess specialized skills and, similarly, such skills must be needed by the enterprise. The burden of proof to establish that the applicant has special qualifications essential to the effectiveness of the firm’s United States operations is on the company and the applicant.

The applicant bears the burden of establishing at the time of application not only the need for the skills that he or she offers but, also, the length of time that such skills will be needed. In general, the E2 classification is intended for specialists and not for ordinary skilled workers. There are, however, exceptions to this generalization. Some skills may be essential for as long as the business is operating. Others, however, may be necessary for a shorter time, such as in start-up cases.

Although there is a broad spectrum between the extremes set forth below, consular officers may draw some perspective on this issue from these examples:

1. Long-term need – The employer may show a need for the skills on an on-going basis when the employee(s) will be engaged in functions such as continuous development of product improvement, quality control, or provision of a service otherwise unavailable.

2. Short-term need – The employer may need the skills for only a relatively short (e.g., one or two years) period of time when the purpose of the employee(s) relate to start-up operations (of either the business or a new activity by the business) or to training and
supervision of technicians employed in manufacturing, maintenance and repair functions.

Once the business has established the need for the specialized skills, the experience and training necessary to achieve such skills must be analyzed to recognize the special qualities of the skills in question. The question of duration of need will cause variances among the kinds of skills involved. Not least, the visa applicant must prove that he or she possesses these skills, by demonstrating the requisite training and/or experience.

In assessing the specialized skills and their essentiality, the following factors are considered:

1. Degree of proven expertise of the alien in the area of specialization;
2. The uniqueness of the specific skills;
3. The function of the job to which the alien is destined; and
4. The salary such special expertise can command.

The claimed duration of essentiality depends largely on the period of training needed to perform the contemplated duties and, in some cases, the length of experience and training with the firm.

The availability of US workers provides another factor in assessing the degree of specialization the applicant possesses and the essentiality of this skilled worker to the successful operation of the business. This consideration is not a labor certification test, but a measure of the degree of specialization of the skills in question and the need for such. For example, a TV technician coming to train US workers in new TV technology not generally available in the U.S. market probably would qualify for a visa.

If the essential skills question cannot be resolved on the basis of initial documentation, the consular officer might ask the firm to provide statements from such sources as chambers of commerce, labor organizations, industry trade sources, or state employment services as to the unavailability of US workers in the skill areas concerned.

The criteria above are used to assessed whether the employee is essential for the efficient operation of enterprise for an indefinite period or for a shorter period. It might be determined that some skills are essential for as long as the business is operating. There may be little problem in assessing the need for the employee in the United States in the short term, such as start-up cases. Long-term employment presents a different issue, in that what is highly specialized and unique today might not be in a few years. It is anticipated that suchchanges would more likely occur in industries of rapid development, such as any computer-related industry. Although this may not be fully determinable at the time of initial application, the consular officer should monitor this at the time of any application for re-issuance. The alien at that time will bear the burden of establishing that his or her specialized skills are still needed and that the applicant still possesses such skills.

Essential employees possess skills which differentiate them from ordinarily skilled laborers. If an alien establishes that he or she has special qualifications and is essential for the efficient operation of the E2 enterprise for the long term, the training of United States workers for as replacement workers is not required.

In some cases, ordinarily skilled workers can qualify as essential employees, and almost always this involves workers needed for start-up or training purposes. A new business or an established business expanding into a new field in the United States might need employees who are ordinarily skilled workers for a short period of time. Such employees derive their essentiality from their familiarity with the overseas operations rather than the nature of their skills. The specialization of skills lies in the knowledge of the peculiarities of the operation of the employer’s enterprise rather than in the rote skill held by the applicant. To avoid problems with subsequent applications, consular officers might find, at the time of the original application, that it is best to set a time frame within which the business must replace such foreign workers with locally hired employees.

There is no requirement that an essential employee have any previous employment with the enterprise in question. The only time when such previous employment is a factor is when the needed skills can only be obtained by that employment. The focus of essentiality is on the business needs for the essential skills and of the alien’s possession of such. Firms may need skills to operate their business, even though they do not have employees with such skills currently on their employment rolls.

E2 Application Procedures

If the investor or employee is inside the US, he or she may apply directly to the US Citizenship and Immigration Services (USCIS, formerly INS) for a change of status, extension of stay, or change of employment without leaving the country.

The E2 category does not require a petition for employment, if the investor is outside of the US. This means the investor or employee may apply for the E2 visa on his or her own behalf directly to a US Embassy or Consulate abroad. The E2 visa may be issued for up to 5-year validity period and may be renewed indefinitely, as long as the applicant continues to satisfy the visa requirements. The actual length of the visa depends on the treaty between the US and the applicant’s country and the consular officer’s discretion.

You should understand that a change of status is not a visa. Once the person leaves the United States, he or she must apply for an E2 visa at a US consular office before returning to the United States. Only a consular office may issue a visa. The USCIS cannot issue a visa.

Dolan Sales, Inc. | Robert M. Dolan, Licensed Real Estate Broker

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