Business Profitability & Employee Requirements
The American enterprise must be more than a marginal one.
An E-2 investor must demonstrate that the investment enterprise is more than a marginal one, which means that the business will provide sufficient income required to support the applicant investor and family. More applications are refused because the investment is considered marginal than based on the amount of the investment. In evaluating whether the business meets this requirement, the Embassy consular officer reviews both the owner's income from the business, and the impact of the business on the local economy, usually through the creation of jobs.
How Profitable does the Business Have to Be?
To assess whether a business is marginal, the profits must be reviewed. If it provides more than enough income for the investor and family, then it will meet this requirement. The factors included in determining whether a business is more than marginal could depend on the location within the U.S. where the business will be operated and the size of the investor’s family. For example, an average family income in Florida is currently well over $60,000, so a business income figure significantly higher than this is advisable.
All E-2 registration applications would need to include a detailed business plan which sets out the company’s financial projections for the next five years. The business plan is very important because a highly detailed and professional plan demonstrates to the Consular Officer the credibility of the investor and the business enterprise.
For an existing business a visa applicant would be expected to provide recent business or corporate tax returns, which will show the annual profit generated. If the business has not been particularly profitable one year, the Embassy may consider other pertinent factors, e.g. a one time legal bill that year, or the fact that the owners also drew salaries in addition to the profits shown.
It is very important for a prospective investor to review the company’s U.S. business tax return and recent accounts. E-2 visa applicants need enough information to determine whether this business will be a good investment, and if it is likely to meet the requirements of E-2 registration. An E-2 visa application will be assessed to a large extent on this information. Sellers do not always declare all their income and skillful accountants can find ways to limit the seller's tax liability by reducing profits shown. This can present a problem for an E-2 visa application. A business tax return, therefore, showing good owner income from the business, is an excellent starting point but may not tell the whole story.
Investors should be particularly vigilant when it comes to assessing financial information, particularly those who are not experienced in running a business. Investors should talk to the business’ accountant, and engage an independent U.S. accountant to perform "due diligence" on the business’ financial records. Opting not to do so may prove a false economy in the long run.
How many Employees?
The regulations do not require that an E-2 business employ a certain number of employees. The E-2 investor must be going to the U.S. to develop and direct the business through its employees, and should not be the sole provider of the services offered by the business. In addition, contributing to the local economy through the employment of American workers is an important factor in determining whether the business is a marginal one.
Certain businesses, because of their seasonal nature or other factors, e.g. property management or construction companies, use subcontractors, which can usually be considered legitimate employment for E-2 purposes. The general rule is the more workers, the better. While there are no hard and fast rules, at least two to three full-time employees is recommended. If an investor is purchasing an existing business, it is advisable to check whether the employee wages are fully documented, in order to provide official paperwork to back up the number of employees the company is or will be employing in the E-2 registration application.
Profitability and the capacity of the business to create employment for U.S. workers are therefore both evaluated to assess whether the marginality requirements are met. Particular strengths in one area can offset adverse factors in another. For example, if the business has many employees, that can be helpful if profits are low.
Before assigning a purchase contract or starting to develop a business in America, the U.S. immigration attorneys at Hodkinson Law Group are available to discuss the recommended financial measures to ensure the business will meet the marginality requirements.