(b) Requirements for E-2 Status

The hope to establish an enterprise sometime in the future is insufficient grounds for obtaining an E-2 visa.

The hope to establish an enterprise sometime in the future is insufficient grounds for obtaining an E-2 visa. The U.S. enterprise must already be established or significant steps must already have been taken to establish it. If the business is not yet operational, a business plan with legal guarantees that demonstrate a very high probability of implementation will be necessary.

Case

A well-established Canadian company wants to expand into the United States but this is only in the planning stage. The company wants to obtain E-2 status for a senior company official to move to the United States temporarily to supervise start-up of the U.S. enterprise.

Solution: The U.S. consulate should be provided with documentation that clearly shows why establishing a U.S. subsidiary is a viable and desirable corporate undertaking. A business projection prepared by an outside professional would provide valuable support for this. Coupled with documentation of the company’s Canadian financial success, this presentation should satisfy the consulate.

(1) Definition of the Term Substantial Investment

Whether the investment amount involved can be defined as being substantial depends on the nature of the enterprise.

Whether the investment amount involved can be defined as being substantial depends on the nature of the enterprise. For example, manufacturing enterprises usually require more substantial capital for successful operation than do retail stores or small import-export firms. The U.S. government decides on a case-to-case basis whether the amount of capital involved fits the definition.

As a rule of thumb, some immigration experts consider US$200,000 or more as a minimum investment amount. The Department of State both grants and denies applications where the investment is less: a recent decision held that US$50,000 was enough for a service industry. Such applications are risky, however.

The investment must be a significant proportion of the total existing or start-up business value.

Here is a very conservative guideline which virtually assures amounts will be in the proper proportion:

Total value of business or cost to start new business, compared to the minimum percentage of investment required. (Investment as a per cent of value of business.)

Less than US$500,000: 75%

$500,000-$3,000,000: 50%

More than $3,000,000: 30%

Multi-million investment by large corporations: Any % is OK

(2) Allowable Sources of Investment Funds

Investment by the Canadian company must represent a large portion of the total investment.

The investment by the Canadian company (not including outside money sources) must represent a large portion of the total investment; this portion should be more than 50%, some experts feel. Also, the total amount invested from all sources must be enough to ensure success in the industry.

If loans must be obtained to bring investment to the substantial level, such loans must be secured by personal, not corporate, assets. The investors must be shown to be personally at risk.

Case

A Canadian investor wants to enter the United States to manage a large U.S. real estate operation. This investor has various U.S. investments that do not need his full-time, active management. As is common in real estate development, he forms a new company for the purchase of the building in which the U.S. operation is located. Much of the purchase price of the individual building is financed and secured by the building itself (a corporate asset), so this does not count toward the substantial investment requirement.

Solution: Use a common U.S. parent company as the U.S. investing entity and employer. This common parent can be the owner of all of the U.S. companies. In this way, the subsidiary without the required investment can be bootstrapped by investment in the other companies.

Case

A Canadian investor does not yet have any business activity in the United States and does not want to make an investment until E-2 status has been obtained for a key employee. However, unless this employee can work in the United States and confirm that the investment is a good one, she is not willing to risk the investment funds. This is a typical Catch-22 chicken-and-egg problem.

Solution 1 . Sign a purchase offer for a U.S. business. Make the purchase offer contingent on receipt of the E-2 visa. This should be the only contingency. Place all of the investment funds in escrow, with the only release condition being receipt of the visa. It is not enough to merely enter into a purchase agreement that gives the seller the right to sue if you do not buy the business.

Solution 2 . Instead of buying an existing business, the investor might want to start up a new business in the United States. In this case, she could put her investment funds in escrow and show the funds are to be used for the purchase of real property, inventory, office construction, etc. She should also enclose a professionally prepared five-year business projection with the E-2 application.

Case

A large group of Europeans and Canadians establish a U.S. construction company. Less than 50% of the investment dollars come from Canadians. The company wants to send an experienced Canadian construction manager to the United States. The construction manager is not one of the investors.

Solution . As long as the company is majority Canadian-owned, the source of investment funds should not jeopardize the application. Since the construction manager is not an investor, he does not have to own any given percentage of the company. His funds do not have to be at risk. His employing company is Canadian-owned. The funds owned by the investing company — which is Canadian-owned — are at risk.

However, the INS would probably scrutinize this situation very carefully. Since corporate shares are not issued in the same percentage as investment contributions, there should be a valid business reason for these disparate proportions. Otherwise, the INS might suspect that a front company is being set up just for immigration purposes.

Case

The accountants of a large Canadian company report that there has been little or no Canadian investment in the company’s U.S. subsidiary and that U.S. revenues cover all U.S. expenses. Also, the operating revenues of the U.S. entity cannot be included in the amount to be claimed as a substantial investment.

Solution . The accountants have overlooked the value of inventory ordered by the Ontario parent and shipped to the U.S. subsidiary during the initial U.S. expansion stages. The value of this inventory can be included as part of the required substantial investment.

Inventory can be included as part of the required substantial investment.

Also, the parent company had guaranteed loans made to the U.S. subsidiary. The loans were not secured by any corporate assets. Since the Canadian shareholders were ultimately at risk on these loans, these loans also count in computing the substantial investment amount.

Case

An Ontario investor did not have enough cash available to show substantial investment in a California business.

Solution . This investor had owned her home for thirty years and its value had substantially increased over the mortgaged amount. The investor therefore was able to obtain a loan on the basis of the increased value of her home. She used these funds as part of the required investment, because loans secured by personal assets are eligible for this.

(3) Document Necessary to Prove Requirement

Letter from investing U.S. entity, with supporting documentation [see E-2 Application Guidelines, this section, (i) 5 d)-h), 6 b), 7-16, 18-28]

While this requirement does not state that the investment should create or maintain U.S. jobs, that implication is present. In any case, the investment should create positive net operating revenues that more than cover the salary and expenses of the visa holder. An ability to show that a number of U.S. people are, or will be, employed as a result of the investment is a definite plus.

Case

A Quebec investor has purchased a franchised small business in Florida as the first step in a U.S. investment strategy. The Florida business is seasonal, with only a few part-time workers.

An ability to show that a number of U.S. people are, or will be, employed as a result of the investment is a definite plus.

Once the business is operating successfully, the investor plans to purchase other franchise locations. In five years, the Quebec investor plans to own several locations in Florida.

Solution . In the presentation to the consulate, the investor should define the entity as a company that will own and operate several locations, rather than as one that owns only one location. By obtaining a professional business projection, both the actual investment (the first location) and a projection of increased employment levels should make a good case for the investor.

(1) Documents Necessary to Prove Requirement

For a new business:

• Letter from investing U.S. entity, with supporting documentation [see E-2 Application Guidelines, this section (i) 5 h), 9, 10, 12, 24, 25]

This requirement is the same as for an E-1 treaty trader [3.3A (b) (iv)]. The chart showing the chain of ownership-investment is different, however, as shown in Figure 3.8.