The EB-5 Visa and Franchises
The EB-5 Immigrant Investor visa is intended for foreign nationals who invest $500,000 or $1,000,000 dollars (depending on the location of the business) in a new business in the United States. There are many different ways that an alien can invest his/her money and time in a new US business, and one of those ways is through a opening a franchise.
By opening a franchise an investor receives legal permission to use the brand, trademark, and product line or service of an already established company to open new locations which follow the business model of the franchisor. Some common examples of franchises are McDonald’s and Subway. In exchange for a fee (including an initial franchise fee, advertisement fee and a continuing percentage share of revenue) an investor can establish and operate a business of a well known brand.
For aliens who want to invest directly, without using a regional center, but who do not have extensive prior business experience, a franchise can be a helpful way to establish a business and invest in the United States while pursuing permanent resident status. As long as an alien makes the required investment amount from lawfully obtained funds and creates at least 10 full-time employment positions, a franchise may qualify for an EB-5 visa.
For an investment to qualify for an EB-5 visa the alien investor’s business must create 10 full-time employment positions. For aliens looking to open restaurant or labor intensive service franchises (such as commercial cleaning companies) it will not be hard to meet the employment creation requirement by opening just one franchise. However, not all franchise businesses will require 10 or more full-time employees to function properly. So, depending on the size of the franchise being invested in, an alien may have to open up multiple locations in order to create at least 10 new jobs. An investor should keep this in mind while exploring franchise opportunities and franchise costs.
The USCIS distinguishes between two main types of employment creation investments: those for new businesses and those for old businesses. It should be noted that opening a new franchise business qualifies as creating a “new business” for EB-5 purposes. Even though the franchising company has already been established, aliens who open new locations as franchisees will be considered to have opened a new business.
However, if an alien purchases an already established franchise business and intends to use this investment as the basis for an EB-5 green card, the already established franchise business that was purchased will not count as a “new” business. The difference is that in this situation an alien investor is purchasing a franchise business from an individual who has already opened for business and not from the franchisor in order to open a location that did not exist before. If an alien purchases an already established franchise he/she will have to increase the number of employees by 10. This means that in order to receive a green card due to investment in an already established business, the business will have to hire ten more employees.
To reiterate, opening a franchise as a result of a contractual agreement between the investing alien and the franchisor will count as a new business. In this situation an alien only needs to invest $500,000 or $1,000,000 (depending on where the franchise operates) and create 10 full time employment positions to receive a green card for his/her investment. The franchise business is independently owned and not owned by the franchisor. This means that, despite using the brand name and/or products of the franchising company, each franchise counts as an independent business being run by the franchisee, subject to the franchise agreement between the franchisor and the franchisee.
Company recognition: One of the biggest benefits of investing in a franchise for an EB-5 visa is that an investor does not have to grow a brand name on his/her own. Whether the franchise is a nationally known company or a respected local enterprise, an investor has the ability to benefit immediately from an established company name. This will make establishing a business presence in a community easier since familiarity with a company or brand name will already exist before an alien invests. While nothing is guaranteed in the business world, starting a new enterprise by investing in a franchise will take less risk for an investment: the company has a product, customer base, and advertising strategy that has been proven to be lucrative before an alien even opens his/her own location.
Training and Advertising: Depending on the size of the franchise company, an alien will also benefit from company training and advertising support from the franchisor. If an alien wants to start a certain type of business (such as a restaurant) but does not have extensive experience in running such a business, a franchise arrangement will allow the investor to rely on the experience of the franchisor in order to establish a new business. Each type of business will be different, but the ability to gain knowledge from a franchisor that is equally interested in the success of the investor’s business will mean less uncertainty when learning how to make an investment successful. Furthermore, if a franchise already has a proven advertising method which leads to revenue growth, an investor will not have to be as concerned with how to attract customers or clients.
Job Creation: Investing in a franchise for an EB-5 visa may also help diminish the research necessary to prove satisfactory job creation for the USCIS. If a franchise has already established estimates for how many full-time employees are required for each location, an alien can rely on this information to substantially show to the USCIS that a minimum of 10 full-time employment positions will be created. Since one aspect of franchising is product and brand uniformity, there will not be widely varying levels of employment from one location to another. Depending on the size of the franchise, the business model itself may likely contain how many employees must be hired in order to run a franchise location adequately.
Easier Filing: Since franchise investments are based on the fact that a franchisor is already well known and successful, the ability to project and convince the USCIS of business success will be easier for franchisees than most other EB-5 investors. While the hiring plan will still need to be shown, relying on the past success of the franchisor will make the work of the franchisee much easier.
Example of a Successful Franchise Petition from Our Firm
Mr. Wang, a prospective investor, retained us for our immigration services in May of 2011. For the next two months Mr. Wang gathered funding, opened a bank account for the investment, established his investing company in the US and transferred funds from his home country to the US. In the meantime Mr. Wang was discussing with us what type of franchise would be the best for his investment. By September of 2011 Mr. Wang had decided on a commercial building cleaning franchise with our help. This franchise was selected due to Mr. Wang’s desire to invest in a smaller franchise with lower costs of purchase that would still remain virtually immune to the effects of the economic recession. We and Mr. Wang decided on a business with minimal startup costs and fees, high employment creation, and steady rates of growth to maximize his initial investment. Between November and December of 2011 Mr. Wang finalized and signed the franchise agreement with the franchisor. From the moment of deciding on this commercial cleaning franchise until March of 2012 our firm helped Mr. Wang prepare the business plan, document the legal source of his funding and drafted the EB-5 petition letter. By April of 2012 Mr. Wang’s case was ready and the petition was filed. Just 3 months later, in July 2012, Mr. Wang’s EB-5 petition was approved, well under the USCIS estimated processing time for EB-5 petitions. The average time for an I-526 to be processed is 8 months. The fact that Mr. Wang’s case was approved within 3 months, as well as the speed of business plan creation, shows some of the benefits of opting to invest in a franchise.
An alien may invest in a franchise in order to obtain an EB-5 visa, but just because the alien did not create the business from scratch does not mean that he/she is exempt from the statutory requirement of having control over the company. Absentee franchisees (aliens who merely invest in a franchise, but do not have a say in the operation of the business) do not qualify for an EB-5 visa. The fact that much of the establishing work for setting up a new business has already occurred when opening a franchise should not lead an investor to imagine that investing money alone will be sufficient to receive permanent resident status. An alien must have a certain level of management duty over the new business in order to qualify for EB-5. Luckily, immigration law does not strictly define how much an investor must be involved in managing a company. For an EB-5 investor, the investor needs to exercise daily management or make policy decisions.
Some franchises offer the option of an “absentee franchisee.” This is essentially someone who is the owner and source of funds for opening a new business but without any oversight of how the company is run. In such a situation a franchisee would most likely hire a trusted manager for his/her location(s) and simply receive the profits. It should be noted that this franchise agreement will not be accepted by the USCIS for EB-5 processing. An alien must demonstrate that he/she performs some level of management duties.
Return of Investment: There are certain trade offs for investing in a franchise. While there are certainly beneficial and stabilizing aspects to owning a franchise, they come at the expense of some other business aspects. One thing to consider is the return on investment that an alien hopes to receive. On top of the ongoing royalty fee that will be paid to the franchising company, a franchise may not offer as high a rate of return on an alien’s investment as other investment opportunities. The comparatively low risk of investing in a franchise means that the pay off may not be as high as other areas of investment such as setting up one’s own business. This really all comes down to how risk averse an investor is with his/her investment. Franchises will more likely be a safer bet and pay out in more stable but comparatively smaller returns.
Franchise operations are a great option for aliens who have a desire and ability to enter into entrepreneurial ventures without having a distinct idea of what business to start. For the risk averse or those who have already reached a level of wealth which satisfies them, investing franchises is a great option and a perfect route to obtaining a green card.
The most important things to consider when thinking about investing in a franchise for immigration purposes are: 1) How many businesses will need to be opened to meet employment creation minimums? 2) Will the opening of a franchise meet the minimum investment amount on its own? 3) Is the alien involved enough with the management of the company to qualify as an active investor?
With quicker launch times and more easily documented employment creation and investment figures, using a franchise to obtain an EB-5 visa will substantially ease the introduction to starting a business for those with the capital but perhaps not the experience to start a new company from the ground up.
Founded in 1996, Zhang & Associates, P.C. offers legal services to clients nationwide in all aspects of U.S immigration law. We have successfully handled thousands of immigration cases.
At Zhang & Associates, P.C., our attorneys and supporting professionals are committed to providing high-quality immigration and non-immigration visa services. We specialize in NIW, EB-1, PERM, and I-485 cases. In the past sixteen years, we have successfully helped thousands of clients get green cards. If you plan to apply for a green card, please send your CV to Attorney Jerry Zhang (firstname.lastname@example.org) for a free evaluation.
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