The Concept of Marginality in E-2 Visas and the Artfully Crafted Business Plan

In applying for a treaty investor (“E-2”) visa, the E-2 visa applicant must invest in a business that is more than “marginal.” For E-2 purposes, what is this concept of marginality?

If you are reading this you already know what an E-2 treaty investor visa is and you are seeking a detailed analysis of the finer points of the seemingly ambiguous term – marginality. This article addresses the legal definition of “marginality” within the E-2 framework and offers some practical advice on dealing with the concept on an E-2 visa petition. If you do not know what an E-2 treaty investor visa is, please click here before reading on.

The concept of marginality is often an overlooked aspect of the E-2 visa. However, it is a very important concept that must be addressed, especially for investors seeking E-2 classification based on investments in poor performing or underperforming existing businesses. Investing in an underperforming business can be advantageous for a foreign investor who can benefit by buying low and turning the business into a profitable enterprise. The concept of buying low and selling high is fundamental in capitalist societies – but it poses problems for foreign investors seeking the E-2 visa. The problem is that the alien must submit the company’s tax returns for the past three years. A poor performing business often times operates at a net loss. The immigration officer or consulate officer will examine the tax returns and if operating at a loss will view the investment as not being able to generate sufficient income, rendering it a marginal business. Many E-2 visas are denied on this basis. However, an investor can avoid this pitfall by carefully crafting their business plan.

Federal regulations defined a “marginal” enterprise as one that does not have the present or future capacity to generate more than enough income to provide a minimal living for the treaty investor and his or her family. Obviously, a business that is currently operating at a net loss may not provide enough income even to support the investor’s family. In this scenario remember the American dream takes precedent – show that you can “sell high!”

There are various ways to show that the business is more than marginal, in the sense of only providing a livelihood for the applicant. If the business does not yet generate sufficient income necessary to support the applicant and family, then one can look to the economic impact of the business. The enterprise must have the present or future capacity to generate more than a minimal living for the investor and family in order to make a significant economic contribution. When future capacity is at issue (which it will be in enterprises operating at a net loss) you need to demonstrate that the future capacity to generate income will occur within a five-year period. The most widely recommended way to show future capacity is to submit a reliable business plan to verify the capacity to realize a profit within a maximum of five years from the date the alien commences normal business operations.

The business plan should have a pro forma – that is, a hypothetical, realistic, financial statement based on assumptions. The assumptions deal with expected revenues and expenses. The overall assumption is that the business will grow and generate significant future income. The business plan should contain a detailed pro forma financial statement, a balance sheet and a statement of future cash flows. Without these financial projections, the immigration officer or consulate officer has no way of determining whether the enterprise will become a viable business. The financial projections are the only way the adjudicating officer can make a positive determination regarding the future financial health of the company. In other words, the officer will not be able to call the company marginal if a well-crafted business plan is included with the application.

The concept of marginality is often overlooked by aliens seeking E-2 visas principally because of concern of the investment amount and the business form. However, as discussed above, marginality is extremely important to consider in applying for the E-2 visa. The attorneys at The Law Firm of Shihab & Associates have over 17 years of experience in investor visa applications including advising on the details of the business plan. If you are interested in investing in a U.S. business that is currently underperforming or operating at a loss, contact the Law Firm of Shihab & Associates today at (888) 915-5057 to schedule a consultation.

DISCLAIMER: Treaty investor (“E-2”) visas confer nonimmigrant status. They do not grant permanent residency in the U.S. nor are they a path to U.S. citizenship. They do allow the principal applicant and family members to stay in the U.S. for extended periods of time as the visas are renewal indefinitely. If you are interested in applying for a green card or are seeking U.S. citizenship, the Law Firm of Shihab & Associates can help you navigate the complex immigration regulations in both of those areas.