E-2 investment rules: committed capital, proportionality and source of funds

What counts as an E-2 investment?

The regulation, 8 CFR 214.2(e)(12), defines an investment as the treaty investor placing capital, including funds and other assets, at risk in the commercial sense with the objective of generating a profit. Four conditions follow from that definition and from the State Department’s Foreign Affairs Manual (FAM), the guidance consular officers apply:

• At risk: the capital must be subject to partial or total loss if the business fails. Money that is safe whatever happens to the business is not an investment.
• Possession and control: you must hold and control the capital you invest.
• Personal: it must be your unsecured personal business capital, or capital secured by your personal assets.
• Lawful: it cannot be obtained, directly or indirectly, through criminal activity.

Sources: 8 CFR 214.2(e)(12), with (e)(14); 9 FAM 402.9-6(B)(b), with 402.9-6(B)(f)-(h)

Which assets and payments count toward the total?

Cash is not the only form of capital. The FAM lists several others and sets limits on each.

• Equipment and inventory: the amount spent buying equipment and inventory on hand can count, and so can goods or equipment shipped to the United States for the business, if they are used in an ongoing commercial enterprise and not for personal purposes.
• Rent and leases: only the funds devoted to the lease in any one month count, unless rent was paid in advance. The market value of leased equipment does not count.
• Intangible property, such as a patent or copyright: it can count to the extent its value can reasonably be determined, for example from current publishing or manufacturing contracts or, failing those, expert opinions on market value.
• Inheriting a business is not itself an investment.

Sources: 9 FAM 402.9-6(B)(b), with 402.9-6(B)(f)-(h)

What does “actively in the process of investing” mean?

You do not have to have spent every dollar before applying, but the capital must be irrevocably committed to the enterprise, and you carry the burden of showing that. The FAM says you must have entered into an agreement and committed funds, and must be close to starting actual business operations, not still signing contracts that may be broken or scouting for locations.

Escrow is the common mechanism. The regulation allows invested funds to be held in escrow pending E classification, and the FAM says a business purchase conditioned on the visa can still be an irrevocable investment if the assets are held in escrow for release once the condition is met. An escrow arrangement may also protect the investor if the application is refused.

What does not count: an intent to invest, money in your own bank account that is not committed, or a prospective arrangement with no present commitment.

Sources: 9 FAM 402.9-6(B)(d)-(e); 8 CFR 214.2(e)(12), with (e)(14)

Can borrowed money count?

It depends on what secures the loan. A loan secured by your own personal assets, such as a second mortgage on your home, or an unsecured loan on your personal signature, can be part of the investment, because you lose it if the business fails. A mortgage or commercial loan secured by the enterprise’s own assets cannot count, even if some of your personal assets also secure it, because the FAM says that money carries no requisite element of risk to you.

Sources: 9 FAM 402.9-6(B)(c)

Is the amount substantial? The proportionality test

No dollar figure is set. Under 8 CFR 214.2(e)(14) and the FAM, a substantial amount is one that is substantial in relation to the total cost of buying an established enterprise or creating this type of enterprise, enough to ensure your financial commitment to its success, and large enough to support the likelihood that you will develop and direct it.

The proportionality test compares qualifying funds invested with the cost of the business, on an inverted sliding scale: the cheaper the business, the higher the percentage expected; a very expensive business needs a lower percentage. There are no bright-line percentages. The FAM’s own examples: 100 percent of a business with a $100,000 startup cost would normally be enough, and $10 million in a $100 million business may be substantial on sheer magnitude.

The cost of an established business is generally its purchase price, normally fair market value. The cost of a new business is what it actually takes to become operational: the assets already bought plus cost estimates for the assets still needed. Only qualifying funds count, so enterprise-secured loans and uncommitted money drop out of the calculation.

Sources: 9 FAM 402.9-6(D)(b)-(c)

The marginality test

Separately, the business may not be marginal. A marginal enterprise is one without the present or future capacity to generate more than a minimal living for you and your family. A business that cannot do that can still pass if it has present or future capacity to make a significant economic contribution. Projected capacity should generally be realizable within five years of the date normal business activity begins.

Sources: 8 CFR 214.2(e)(15)

Lawful source of funds, and tracing the path

The FAM accepts savings, gifts, inheritance, contest winnings, loans collateralized by your own personal assets and other legitimate sources. The money does not have to come from outside the United States, but it must not come from illicit activity, and the officer may ask for whatever documents are needed to assess the source.

In practice this means two records: where each sum originated, and its path from there into the business. The DS-156E instruction page (E-2 employees file the form; principal investors answer its questions in the DS-160) lists evidence of possession and control of the funds and of remittance to the United States, such as bank transfers and receipts. Where a step between source and business is not documented, the officer may ask for more records.

Sources: 9 FAM 402.9-6(B)(b), with 402.9-6(B)(f)-(h); Form DS-156E, instruction page (06-2018)

What evidence usually shows each part?

The FAM’s suggested checklist is a guide, not a required list, and each embassy or consulate can ask for more. Common categories:

• Source of funds: a statement of personal net worth prepared by a certified accountant, records of property or business sales and rental income, bank statements crediting the proceeds, audited financial statements.
• Investment made: escrow statements, a signed purchase agreement, closing papers, wire transfer receipts, invoices and receipts for inventory and equipment, cancelled checks, the lease and first month’s rent, business account statements.
• Cost of the business: for an existing business, a tax valuation or market appraisal; for a new one, trade association statistics, chamber of commerce estimates or market surveys.
• Marginality: for an existing business, corporate tax returns, financial statements and payroll records; for a new one, five-year financial projections supported by a thorough business plan.
• For a change of status with USCIS, the Form I-129 E-1/E-2 supplement asks for the total investment broken into cash, equipment, inventory, premises and other.

Sources: 9 FAM 402.9-11(B); Form DS-156E, instruction page (06-2018); Form I-129 (edition 09/09/26), E-1/E-2 Classification Supplement, Section 4; 9 FAM 402.9-6(D)(d)

Common problems

• Unverified, unaudited financial statements built only from the applicant’s own figures are normally not enough to show the nature and status of the business.
• Annual rent counted in full when only one month was paid.
• Enterprise-secured financing counted as investment.
• Contracts signed, but the business is nowhere near opening.
• Leased equipment counted at its market value, or an inherited business counted as an investment.

Sources: 9 FAM 402.9-6(D)(d); 9 FAM 402.9-6(B)(c); 9 FAM 402.9-6(B)(d)-(e); 9 FAM 402.9-6(B)(b), with 402.9-6(B)(f)-(h)

How Visa Trouble can help

Free route discovery at Visa Trouble covers the E-2 treaty investor route, including the treaty-country check. We’re building application preparation for E-2 investors; it is planned, not open yet. Visa Trouble is not a law firm and does not give legal advice.

You can begin free route discovery at visatrouble.com.