In this article, we explore investing in a franchise as a way to obtain a E-2 visa for the United States. A franchise agreement is a contract between a company known as the ‘franchisor’ on the one hand, and a company or individual known as the ‘franchisee’ on the other hand, whereby the franchisor grants the franchisee the right to sell its products and/or services using the franchisor’s brand, structure, know-how and method of operation.
The franchisee is allowed to conduct business under the brand of the franchisor upon payment of a fee, known as a ‘royalty’. The royalty generally constitutes a fixed sum or a percentage of the franchisee’s revenues. The franchisee, also, is required to pay an entry fee when signing the franchise agreement.
The franchisor usually exercises significant control over the franchisee’s business management. This is because a poorly managed franchise may have a negative impact on the overall reputability and goodwill of the franchisor’s brand. Therefore, it is understandable that the franchisor tends to retain a higher degree of control on its franchisees as opposed to other kinds of business relationships (e.g. licensor and licensee).
One major upside of acquiring a franchise is that you don’t need to reinvent the wheel: the franchisor will provide you with everything you need, such as the idea, the concept, the structure and the method of operation. Furthermore, expertise in that specific industry is not required: the franchisee, most of the times, is only required to undergo training courses offered by the franchisor.
Also, it is important that there is a uniformity of appearance amongst the units that make up the franchise. This means that the franchisee will have very little discretion as to, for instance, choosing the décor of the store or the employees’ uniforms, as all these aspects have to strictly comply with the guidelines set forth by the franchisor.
The franchise formula is very popular in the United States. It definitely is the goal of quite every entrepreneur to create a viable business and develop it nationwide through a franchise. Businesses usually take advantage of the United States’ vast territory, large population and cultural similarities: if a product or service performs well on the West Coast, chances are it will perform just as well on the East Coast. As a result, the possibilities of developing a franchise business in the United States are virtually unlimited and if you really want to invest and work in your own business in the United States there are so many franchises to choose from.
Investing in a franchise is a convenient and practical way to obtain a E-2 visa for the United States of America. For an overview of the requirements and characteristics of the E-2 visa for the United States, read our article: Immigration to USA, E-1 visa and E-2 visa. Always keep in mind that not all the countries have the E-2 visa option available for their nationals. For a list of the Treaty Countries which nationals may apply for a E-2 visa for the United States of America, click here.
The good news for those who seek opportunities to invest and work legally in the United States, is that the purchase of a franchise qualifies as a valid investment for the purpose of obtaining the E-2 USA visa.
An undisputed advantage of purchasing a franchise is that the cost of starting the business – e.g. the entity of the investment for E-2 visa purposes – is considerably lower than the cost of starting the same business from scratch. This provides lots of opportunities to make investments that qualify for E-2 visa, which might have been not accessible otherwise due to budget restrictions.
Typically, the consulate in charge of reviewing the application will evaluate whether the investment is substantial, e.g. of a magnitude to support the likelihood that the treaty investor will successfully develop and direct the enterprise (also known as the “proportionality test”). Also, the consulate has to make sure that not only will the proposed enterprise provide a living for its owners, but also, and most importantly, that it will contribute to the creation of employment and business opportunities for Americans companies and individuals (marginality requirement).
The evaluation of the above requirements is usually not as rigorous when the purchase of a franchise is involved, because:
1) The business structure of the franchise is already tested and has proven to work;
2) The purchase price is usually the same for all franchisees. Such price is non-negotiable and has proven to be an investment that meets the proportionality and marginality requirements.
When applying for E-2 visa through an enterprise that is not part of a franchise, the applicant is required to show expertise in a given industry. In a franchise, however, the expertise requirement is not strictly enforced because the franchisor provides the franchisee with the required know how.
Possible challenges in obtaining E-2 visa through a franchise investment
Control by the franchisor
When applying for a E-2 visa in connection with a new business, the beneficiary must demonstrate that he or she will be able to exert a certain degree of control over the business. This requirement is typically met by acquiring at least 50% of a company. However, in the case of a franchise, the U.S. Consulate may object that the degree of control exercised by the franchisor over the franchise business is too high. Responding to this kind of objections may cause delays in the process and may eventually result in the disapproval of the application. For this reason, it is best to have an immigration attorney review the franchise agreement prior to closing the deal.
Typically, marginality does not cause issues in the case of a franchise. However, when purchasing a franchise you should make sure that it is suitable to create employment opportunities for additional workers (mostly americans) other than the applicants.
Contingencies in the franchise agreement.
Foreign applicants seeking to obtain a E-2 visa through the purchase of a franchise are advised to include a specific contingency in the franchise agreement, whereby if the E-2 visa application gets disapproved, the franchise agreement will be terminated. However, many franchisors do not accept this contingency and therefore refuse to do business with foreigners unless they hold a US passport or a Green Card.
The contingency may also create issues with the U.S. consulate in charge of reviewing the E-2 visa application. The reason is as follows: one of the requirements for a successful E-2 visa application is that the investment in the US business must be put “irrevocably at risk”. This means that the funds deposited in the US company’s bank account and invested in the business cannot be recovered should the enterprise fail. Therefore, in case of a contingency which conditions the franchise agreement upon the obtainment of a E-2 visa, the funds invested in the business may not be considered “irrevocably at risk”.
To overcome this obstacle, it is better to enter into an escrow agreement, which provides for the funds to be deposited into a US attorney’s escrow account. Pursuant to the escrow agreement, the lawyer, known as the “escrow agent”, shall disburse the funds to the franchisor should the E-2 visa be adjudicated. This way, once the funds hit the escrow account, the franchisee can no longer exert control over the funds, which may be returned to the franchisee only in the event the visa application gets disapproved.
For further information on obtaining the E-2 visa through purchase of a franchise, or if you would like to speak to one of our attorneys, kindly fill out our contact form here.
This article is a quick guide to starting a restaurant or a bar business in New York, that reviews the most important legal and bureaucratic aspects of this process. Once you have developed your concept, found the desired location and drafted your business plan, you can move on to dealing with the technicalities associated with restaurant business or similar in New York. This article can also be useful advice to start a restaurant or bar elsewhere in the United States.
Corporation or Limited Liability Company (LLC)
Forming a business entity under the American laws is the first step towards starting a restaurant business in New York and United States. Conducting a business as a legal entity allows its shareholders or members to protect their investment and keep it separate from their personal assets. Thus, the company’s creditors may only go after the company’s assets and the shareholders’ personal assets will be shielded against their claims or actions.
Forming an entity under the American laws is also essential to enter most of the commercial agreements required to get the business started, such as, for instance, lease agreements, assets purchase agreements and various insurance policies. The best suited legal entities to operate a restaurant or similar are the corporation and the limited liability company. For further information regarding the differences between these two types of entities read our article: U.S. Business entities. LLC vs. Corporation.
Employer Identification Number and Sales Tax Certificate
Once the company is formed, the first step is to obtain the Employer Identification Number (EIN) and the Sales Tax Certificate. The EIN, somehow similar to the european VAT number, allows the United States tax authority (Internal Revenue Service – IRS) to identify a business for tax payment purposes.
The Sales Tax Certificate is the permit to collect the sales tax from customers on certain transactions. The sales tax must be paid to the State approx. every four months. The sales tax only applies to certain types of purchase, including meals consumed in a restaurant.
Currently, in the state of New York the sales tax is approximately set at 9% of the transaction value. EIN and Sales Tax Certificate are a prerequisite to obtaining the majority of the administrative permits and licenses necessary to operate a restaurant in the United States, including food establishment permits and liquor licenses.
Location & Commercial Lease
If you are planning on starting a brand new restaurant in New York or in the rest of the United States, it is highly recommended to hire a real estate broker specialized in commercial spaces for lease. The broker will select a wide range of options in line with your needs and budget. Once the right location has been found and an offer has been placed, the landlord will perform the due diligence on the financial standing of the prospective tenant, as well as on the tenant’s business experience in the food and hospitality industry.
A landlord, indeed, will not be inclined to start a long-term business relationship with a tenant who doesn’t show sufficient financial standings and experience in this field. Commercial lease agreements in the United States, and especially in New York, are lengthy documents (approx. 60 to 100 pages including attachments) containing lots of technicalities that require the attention of a specialized attorney. Lease agreements are always subject to intense negotiations before the parties can close the deal. For more details on this topic, see our post Affitti Commerciali negli Stati Uniti.
Purchasing an Existing Business:
Another option is to purchase an existing restaurant, as opposed to building it from scratch. First thing is to determine whether your company is allowed to take over the lease agreement in place between the landlord and the legal entity from which the business will be purchased. Assigning the lease agreement to a new tenant is always subject to landlord’s prior approval.
If the prospective tenant does not show adequate financial standing or sufficient experience in the hospitality industry, the landlord will most likely disapprove the assignment. If the landlord’s consent to the assignment is obtained, the current tenant and the prospective one may move forward with the sale of the business: the most commonly used legal instrument to achieve this result is the Asset Purchase Agreement, a contract whereby the buyer only purchases the assets, but not the liabilities, of the business up for sale.
Restructuring the Premises
In most cases, some construction and remodeling activities will be required before opening the premises for business. Hiring an architect at this stage is crucial. The architect will design the premises according to your specifications and will submit the renovation plans to the Department of Building and other city departments for approval. Once this step is completed, the General Contractor will take care of the actual build-out of the space.
Like everywhere else in the world, the relationship between the business owner and the General Contractor is never an easy one. Therefore, it is of the utmost importance that this relationship be regulated by a written contract. The most commonly used version of the agreement between the business owner and the General Contractor in the United States is provided by The American Institute of Architects (AIA). The owner should protect its own interests including in the agreement a liquidate damage clause in the event the delivery of the space ready for business gets postponed as a consequence of delays imputable to the General Contractor. Such provision allows the business owner to get a monetary compensation that will offset the losses resulting from a delayed opening.
Food Service Establishment Permit
Before opening your restaurant to the public, a Food Service Establishment Permit is required. Such permit is issued by the Department of Health (DoH) of the city of New York. Initially, the DoH will conduct a preliminary inspection of the premises, in which any violations of the food safety regulations will be reported and corrected at no charge for the owner. At this point, the Food Service Establishment Permit will be issued and the food may be served at the premises.
Later on, without any prior notice, the DoH will conduct a new inspection in order to assign a “grade” to the restaurant based on its hygienic conditions and compliance with food safety regulations. Grades range from the letter “A” (perfectly in compliance with law) to the letter “C” (which means that one or more violations to the said rules have been found). The grade must be displayed on the storefront for the customers to see it. The DoH conducts periodic inspections, generally on an annual basis, in order to confirm or change the grade previously assigned.
The DoH requires that at least one employee in possession of the Food Protection Certificate be attending the restaurant operations at all times. A good rule of thumb, for obvious reasons, is to have at least two or three employees in possession of such certification.
NYC Liquor License
Obtaining a permit to sell alcohol (commonly referred to as liquor license) in the state of New York is a quite complex and time-consuming process. The authority in charge to issue new liquor licenses in New York is the New York State Liquor Authority (NYSLA) The ABC Law (Alcohol Beverage Control Law) governs the liquor license process and sets forth the general policies of the State of New York with respect to the sale of alcohol. The first step toward obtaining a liquor license for your restaurant or bar in New York is, in most cases, to appear before the local Community Board, which will review your application and issue a non-binding opinion of denial or approval to be later submitted to the NYSLA for the final decision. Community Boards in New York City may be more or less inclined to issue a favorable recommendation depending on the area of the city in which the restaurant or bar is set to operate.
In the State of New York, unlike other states, the number of liquor licenses that may be issued is not contingent upon the number of people residing in a given area, instead the matter is regulated by another set of rules, such as the 500 Foot Rule, according to which, typically, no more than three on-premise full liquor licenses (those that allow to sell spirits in addition to beer & wine) are permitted within 500 feet of each other. The restriction dictated by the 500 Foot Rule, however, is not absolute and may be overcome by showing, at a special hearing referred to as the 500 foot hearing, a specific public interest that may allow more than 3 premises in possession of a full liquor license to coexist within 500 feet of each other.
Being represented by a liquor license attorney throughout this entire process can make the difference between the approval and the rejection of your application. For further details on liquor license application please read through our articles: New York Liquor License FAQs – Part 1 and New York Liquor License FAQs – Part 2.
You can enter the United States on a ESTA or on a B-1 visa to carry out the activities required prior to the starting your restaurant business, such as researching the location for your restaurant, attending meetings with brokers, attorneys and other professionals, negotiating and executing commercial agreements. However, if your intention later on is to move to the United States and work in your restaurant, a non immigrant visa such as the E-2 visa will be required.
This visa may be issued to those who make a substantial investment in a commercial enterprise in the United States. Also, the E-2 visa may be granted to citizens of those countries, such as Italy, that maintain specific commercial treaties with the United States. The investment made in the American commercial enterprise must be “substantial”. It should also be proportionate and sufficient to support the type of business that you are willing to conduct.
While there is no minimum investment threshold, it’s unlikely that an E-2 visa application will be approved unless the investment is equal to or in excess of $80,000 – $100,000. Beneficiaries of the E-2 visa can be both the investors and their employees, provided the employees have the same nationality as the investor and are hired to cover executive or managerial positions.
The E-2 visa has a duration of 5 years, but can be extended without limitations as long as the initial conditions continue to exist. The spouse and minor children may accompany the E-2 visa holder and reside legally in the United States. The spouse may be authorized to work wherever he / she wishes, while the children may only attend school. For more information regarding the E-2 visa and other visas available to reside and work legally in the US, please read our article Immigration to USA. E-1 Visa and E-2 Visa.
Hiring Employees in the United States
The employment relationship in the United States is strictly “at will”. This means that the law allows the employer to discharge an employee (and, similarly, an employee to resign) without cause or prior notice. As a result, hiring and discharging restaurant staff in New York and in the United States is a relatively simple operation. As it’s equally simple for employees to resign without notice, having replacement staff always ready when needed is essential to maintain an unchanged level of workforce.
For 2019 the minimum hourly basic pay of a waiter in New York City is set at $14.50, of which $4.50 may come from tips. Overtime work must be paid 1.5 times the basic hourly rate excluding tips. Tipping does not constitute a legal obligation for the customers, but restaurant owners and employees typically expect the customers to tip 15-20% on the price of the meal.
Registering Your Trademark
Before developing the trademark that will identify your restaurant business in the United States, it’s highly recommended to conduct a preliminary research for trademark clearance purposes to prevent conflicts and confusion with other existing similar marks in the near future. In the United States it’s absolutely common, even for small to medium businesses, to protect their own trademarks filing an application for registration with the United States Patent and Trademark Office (USPTO).
Registering a trademark is not strictly required in order to obtain legal protection against third party infringements (a trademark in the United States is protected by the mere fact of using it in commerce before anyone else does) but it is extremely recommended to enjoy the extended legal protection afforded by the registration with the USPTO. For a general overview of the trademark registration process in the United States see our article on the topic: How to Register a Trademark in the United States.
Email us if you need assistance with starting your restaurant business in New York or with your liquor license application and other legal services for your restaurant or bar. Please fill out the form below and we will contact you as soon as possible.
E-1 and E-2 Visas are non-immigrant visas available to citizens from countries that maintain a friendship treaty or a treaty of commerce and navigation with the United States. A list of treaty countries is held by the US Department of State, and the nationals of certain countries may be eligible for either E-1 or E-2 visa status, or both.
E-1 TREATY TRADER VISA
E-1 visas allow a national of a treaty country (treaty trader) to work and reside in the United States when engaging in international trade with his / her country of origin.
E-1 visa status may be granted if:
- The treaty trader is a national of a treaty country
- The treaty trader carries on “principal” trade with his / her country of origin
- The trade must be “substantial”
For individuals, it’s easy to prove they are a national of a treaty country by enclosing a copy of the individual’s passport to the visa application. However, business is generally conducted under the umbrella of a corporation or a limited liability company. Because of this, it becomes essential to understand how the nationality requirement works in case of a business entity.
E visa regulations state that a business entity, although created in the United States, is deemed to be a national of a treaty country if at least 50% of its ultimate individual members or shareholders are nationals of such country. The applicants are required to prove they are a national of a treaty country and can do so by locating the ultimate individual shareholders at the very end of the company’s chain of ownership and providing the US Consulate with evidence of their citizenship.
For example, if the trader is a US entity wholly owned by a UK company, with at least 50% Italian ultimate individual shareholders, the US entity will be deemed to hold Italian nationality. The Italian shareholders (or their Italian employees) will be eligible to obtain an E-1 visa as long as the U.S. entity is engaged in principal and substantial trade with Italy.
E-1 Visa Trade requirements
Definition of Trade: An exchange of goods or services for a profit. It may include commercial goods, services, insurance and banking, data exchange, consulting services, tourism and much more.
Substantial Trade: Trade is required to be continuous (i.e. consisting of numerous transactions over a certain period of time) and of a certain monetary value. No minimum value requirement is set for each transaction. The volume should not be insignificant and the more that can be shown, the better.
Principal Trade: Trade conducted with the treaty country should account for at least 50% of the total revenues deriving from international commerce. Revenues from trade within the United States should not be taken into consideration in order to calculate such 50%.
E-1 Visa Treaty Trader’s Employees Requirements
E-1 visa status may be granted if:
- The employee holds the same nationality as the treaty trader
- The employee is employed in an executive or managerial position or in a position that requires special skills or qualifications
Status of a E-1 Treaty Trader and Its Employees
A Treaty Trader or a Treaty Trader’s employee may work exclusively for the trading company or its parent or subsidiary company. The relationship between parent and subsidiary company should be well established.
E-1 Visa Duration and Length of Stay
E-1 Visa has a 5 year duration and may be renewed indefinitely as long as the above described requirements, as to nationality of the company and international trade, are still being met. The initial period of stay is a maximum of 2 years. The stay may be automatically extended for periods of up to 2 years by departing and returning to the United States.
E-1 Visa Holder Family Members
Treaty traders and their employees may be followed by their family members, i.e. spouses or underage children. The spouse of an E-1 may obtain authorization to work in the United States without limitations by filing form I-765, while the children may only be enrolled in school. Typically, family members are granted the same period of stay as the treaty trader or their employees.
E-2 visas allow a national of a treaty country (treaty investor) to work and reside in the United States upon a substantial investment of capital in a United States business enterprise.
Eligibility for the E-2 visa may be granted if:
- The treaty investor is a national of a treaty country
- The treaty investor has made a substantial investment of capital in a legitimate U.S. business enterprise
With respect to the nationality requirements for E-2 Visa individual beneficiaries and companies, same rules as outlined for the E-1 Visa apply here.
The Investment Required to Support a E-2 Visa Application
Definition of Investment: The E-2 treaty investor should contribute capital or other assets to a U.S. business entity engaged in a commercial activity with the goal of generating a profit. Such investment should be put irrevocably at risk, meaning that the investor should not be able to recover the investment if the business is not successful.
Substantial Investment: The amount of capital invested by the E-2 Visa beneficiary should be sufficient to fund and sustain the type of business the E-2 treaty investor is seeking to operate. It should be proportioned to the business project the investor intends to pursue. There is no minimum amount set for the investment, but applications for E-2 visa status will most likely be disapproved if the invested amount is less than $80,000 – $100,000.
Source of funds: The funds or assets that constitute the investment must not derive from criminal activities. The E-2 visa application requires proving the legitimate source of funds by enclosing foreign bank statements of the funds and their transfer to the US enterprise.
No Marginal Enterprises
The US enterprise can’t be marginal. An enterprise is deemed to be marginal if it has the capacity to generate income to solely ensure the living of the beneficiary and his / her dependents. It may not be considered marginal if it’s capable of significantly impacting the American economy. Some examples of impact are: generating new employment opportunities, paying taxes, and providing a source of income for other related business entities.
Requirements for E-2 Treaty Investor’s Employees
Treaty investor eligibility for the E-2 visa status may occur if:
- The employee holds the same nationality as the treaty trader
- The employee is employed in an executive or managerial position or in a position that requires special skills or qualifications
Status of Treaty Investor and Its Employees
A Treaty Investor or a Treaty Investor’s employee may work exclusively for the trading company or its parent or subsidiary company. The relationship between the parent and the subsidiary company should be well established.
E-2 Visa Duration and Length of Stay
E-2 Visas have a 5 year duration and may be renewed indefinitely as long as the above described requirements, as to nationality of the company and investment, are still being met. The initial period of stay is a maximum of 2 years. The stay can be automatically extended for periods of up to 2 years by departing and returning to the United States.
E-2 Visa Holder’s Family Members
E-2 Treaty investors and their employees may be followed by their family members, i.e. spouses or underage children. The spouse of an E-2 may obtain authorization to work in the United States without limitations by filing form I-765, while the children may only be enrolled in school. Typically, family members are granted the same period of stay as the treaty investor or their employees.