To buy or to start a business – that is the question. The E-2 treaty investor visa allows citizens of certain treaty countries to obtain a visa if they buy or start an active commercial business. One question that many prospective applicants face is whether they should buy an existing business or to start a new business.
To qualify for an E-2 visa, the following general conditions must be met:
Active commercial enterprise: This means that the business must be offering a good or service, such as a nail salon or a coffee shop. It cannot be a passive investment such as investing in real estate.
Substantial investment: The regulations do not indicate a specific investment amount, though it must be substantial. Depending on the type of business, it could be as little as $50,000 – with most investments averaging at least $100,000.
At risk: The investment must be at risk. If purchasing a business, this means that the applicant must have already purchased the business or at least put the purchase price funds in escrow subject to approval of the E-2 visa.
Ownership: The applicant must own at least 50% of the U.S. Enterprise and run its day-to-day operations.
Buying an existing business versus starting a new business
Obviously, the decision to buy an existing business or to start a new one is a personal one. Some applicants prefer the turnkey aspect of buying an existing business. Presumably, it comes with a built-in clientele, furniture, equipment, inventory and even staff. Other applicants want to start their own business from the ground up – they have a vision and it can only be executed by building it from scratch.
One of the biggest advantages to buying an existing business from an E-2 visa standpoint is that the investment amount can be easily calculated and identified – namely, the purchase price of the business. If Mary buys a coffee shop in San Francisco for $150,000, the E-2 investment is $150,000. Throw in additional costs associated with the purchase, such as legal fees, insurance, etc., and you can increase that investment amount.
Another advantage to buying an existing business is the ability to put the purchase price in escrow contingent on approval of the E-2 visa. For example, Mary offers to buy a coffee shop for $150,000 contingent on approval of an E-2 visa. The seller agrees and the parties open an escrow account. Mary can place the $150,000 in the escrow account with instructions that the funds be wired to the seller once the E-2 visa is approved. This arrangement is acceptable and meets the “at risk” requirement under the E-2 regulations.
On the other side of the coin, starting a new business for E-2 purposes can require a lot more logistical planning and consideration. Unlike buying a business, there is no way to have a lump sum purchase amount that can be placed in escrow contingent on approval of an E-2 visa. If Mary wants to open her own coffee shop, she has to lease commercial space, buy equipment and fixtures, computers, insurance, tenant improvements, etc. before she can apply for the E-2 visa. The “at risk” requirement means that she cannot just earmark and put aside $150,000 in her bank account with a ‘promise’ to start the business after she gets a visa.
This leads to the “chicken and egg” effect: How can Mary get an E-2 visa before she invests the money? But why would Mary invest the money before she is assured of an E-2 visa? The answer really boils down to “Are you willing to take that risk?” Some people are certain that the amount they invest and the type of business they plan to start will no doubt meet the E-2 criteria and are willing to take that chance. A lot of my clients have done this and their E-2 visas were approved. Others are more concerned about investing tens of thousands of dollars that they cannot recoup before getting an E-2 visa. In these situations, the applicants usually look at buying an E-2 business instead.
The E-2 visa gives applicants a choice to buy an existing business or to start a new one. Applicants should evaluate all options – including their personal goals and vision. First and foremost, the applicant should ask whether the business they envision is one which requires starting from scratch. Remember, E-2 visas have been approved for both new businesses and existing ones. Just because starting a new business is logistically more complicated doesn’t mean you should rule it out.
Maximilian Law Inc. has prepared countless E-2 visa applications with a very high rate of approval. Please feel free to contact us if you are looking to buy or start a U.S. business.