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.
Purchasing a franchise is a qualifying investment for E-2 Visa purposes.
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.
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