The E-2 Investor must make a Substantial Investment in a Bona Fide Business

 The first section of the relevant law, 8 C.F.R. § 214.2 (e)(2), requires proving that the investor- client has “invested or is actively in the process of investing a substantial amount of capital in a bona fide enterprise in the United States, as distinct from a relatively small amount of capital in a marginal enterprise solely for the purpose of earning a living.” This seems like such a simple concept, but there are many complications and nuances in how this law is applied in E-2 cases.

 A. The Investment

In assessing whether an investment was made, U.S. government agencies shall make that determination based upon the following factors.

  •  The capital must have already been invested or must be irrevocably committed to the business. The commitment of the funds must be real and irrevocable. The purchase of a business that is conditioned upon the issuance of the E-2 visa may still qualify as an irrevocable investment. Despite the condition, the purchase would constitute a solid commitment if the assets to be used are held in escrow for release or transfer once the condition is met. The point of the example is that to be in the process of investing the investor must have entered into an agreement and have committed funds.

  • To be “in the process of investing”, the client must be close to the start of actual business operations, not simply in the stage of signing contracts (which may be broken)or scouting for suitable locations and property. Mere intent to invest, or possession of uncommitted funds in a bank account, or even prospective investment arrangementsentailing no present commitment, will not suffice.

  • There must be an element of risk. The concept of investment connotes the placing of funds orother capital assets at risk, in the commercial sense, in the hope of generating a financial return. If the funds are not subject to partial or total loss if business fortunes reverse, then itis not an “investment” in the sense intended by the relevant immigration statute (INA 101(a)(15)(E)(ii)).

  • Source, Possession, and Control of Funds. The source of the investment may include capital assets or funds from savings, gifts, inheritance, contest winnings, loans collateralized by the investor’s own personal assets or other legitimate sources. The source ofthe funds need not be outside the United States. The source of the investment must not, however, be the result of illicit or improper activities. The client must demonstrate possession and control of the invested capital assets and funds. In other words, we will need to prove how the capital being invested was earned and demonstrate that it was lawful.

There is additional guidance on this section of the law available, but it will only be relevant invery rare cases. These involve the contribution of non-cash assets or intangibles to the U.S.business as well as covers how to categorize items like pre-paid rent. We can work through theseissues if they ever arise, but this will only occur in a very small minority of cases.

 B. Substantial Investment

There is not a specific minimum or maximum investment amount necessary to qualify for E-2 status. Obviously, a clear rule on this would be nice to see. However, the current requirement – just that the investment be “substantial” – does provide us with significant flexibility, which is a benefit.

The purpose of the requirement is to ensure to a reasonable extent that the business invested in is not speculative but is, or soon will be, a successful enterprise. The rules regarding the amount of funds committed to the commercial enterprise and the character of the funds, primarily personal or loans based on personal collateral, are intended to weed out risky undertakings and ensure that the investor is unquestionably committed to the success of the business. Consequently, you must view the proportionate amount of funds invested, as evidenced by the proportionality test, in light of the nature of the business and the projected success of the business.

There are a number of different interpretations of “Substantial.” As we said above, no set dollar figure constitutes a minimum amount of investment to be considered “substantial: for E-2 visa purposes. Investment of a substantial amount of capital for E-2 visa purposes constitutes an amount that is:

  • Substantial in a proportional sense, as determined through the application of the proportionality test outlined below;

  • Sufficient to ensure the treaty investor's financial commitment to the successful operation of the enterprise; and,

  • Of a magnitude to support the likelihood that the treaty investor will successfully develop and direct the enterprise.

The proportionality test determines whether an investment is substantial by weighing the amount of qualifying funds invested against the cost of the business. If the two figures are the same, then the investor has invested 100 percent of the needed funds in the business; such an investment is substantial. The vast majority of cases involve lesser percentages. The proportionality test can best be understood as a sort of inverted sliding scale. The lower the costof the business the higher a percentage of investment is required. On the other hand, a highly expensive business would require a lower percentage of qualifying investment. There are no bright line percentages that exist in order for an investment to be considered substantial. Thus, investments constituting 100 percent of the total cost would normally qualify for a business requiring a startup cost of$100,000, for example. At the other extreme, an investment of $10 million in a $100 million business may be considered substantial, based on just the size of the investment alone.

Discussion of certain common scenarios, which relate to the proportionality test in a broad sense, may be useful at this point of time. Generally, the cost of an established business is generally its purchase price, which is normally considered to be the fair market value. On the other hand, the cost of a newly created business is the actual cost needed to establish such a business to the point of being operational. The actual cost can usually be determined bycombining the cost of the assets the investor has already purchased with the cost estimates for theprocurement of additional assets needed to run the business. For example, cost may be established through invoices or contracts for substantial purchases of equipment and inventory; appraisals of the market value of land, buildings, equipment, and machinery; accounting audits; and records submissions to various governmental authorities.

The value (cost) of the business is clearly dependent on the nature of the enterprise. Any manufacturing business, such as an automobile manufacturer, might easily cost many millions of dollars to either purchase or establish and operate the business. At the extreme opposite side, the cost to purchase an ongoing commercial enterprise or to establish a service business, such as a consulting firm, may be relatively low. By law, as long as all the other requirements for E-2 status are met, the cost of the business per se is not independently relevant or determinative of qualification for E-2 status.

USCIS (and, at a visa interview, the Department of State) may request whatever documentationis needed to properly assess the nature and extent of commitment to a business venture. The government has previously stated that such evidence may include letters from chambers of commerce or statistics from trade associations. Unverified and unaudited financial statements based exclusively on information supplied by an applicant normally are insufficient to establish the nature and status of an enterprise.