The E-2 treaty investor visa allows nationals of treaty countries to invest in and direct a U.S. business. This can include starting a business, but it can also include purchasing a pre-existing business. One of the key requirements whether you are purchasing a business or starting a business is demonstrating that the investment is substantial. In many startup cases, substantiality is determined by the amount of money required to make the enterprise fully operational, and whether the invested amount is minimal in the eyes of the government officer. However, with a pre-existing business, the enterprise may already have the inventory, the physical premises, employees, and everything needed to make it fully operational. So how do you demonstrate your investment is substantial with a pre-existing business? Below are some considerations on what to provide to show your investment is substantial when purchasing a pre-existing business.
- Provide strong objective evidence like purchase agreements, corporate taxes, audited financials, and proof of funds to show your investment is proportional to the enterprise’s cost.
- When objective financial records are unavailable, obtain a professional valuation report from an independent CPA or valuation firm to establish substantial investment.
- Use a comprehensive valuation report for complex acquisitions or limited records, especially where goodwill or intellectual property dominate, to preempt scrutiny and support the E-2 petition.
Does the business have objective evidence to support the valuation of the company?
Objective evidence is always the strongest type of evidence to provide in support of a petition. Evidence such as the purchase agreement, the company’s corporate taxes, audited financial statements, operational records and proof the funds were transferred can show the government the objective value of the company. The key is to demonstrate your investment is proportional to the cost of the enterprise. The evidence you provided should objectively support this claim.
What if the company doesn’t have objective evidence to support the valuation of the company?
Occasionally, a pre-existing company does not have corporate taxes or audited financial statements. A situation like this may arise when the company has not been fully operational for a year or more, or when the company has acquired other assets and undergone corporate changes. When you are unable to obtain objective evidence that accurately reflects the value of the pre-existing company you are trying to purchase, such as the taxes or audited financials, you can obtain a valuation report. A valuation report of the company can show the government your investment, at the time of purchase, was a substantial investment based on the objective value of the company.
What is a valuation report?
A valuation report is a professional document that estimates the worth of a business, an asset, or security based on a comprehensive analysis of financial performance, market conditions and other relevant factors. The valuation can be done by a CPA or valuation company but should ideally be an objective third party unrelated to you or the seller. There are many types of valuation reports. A basic valuation report is a streamlined analysis. It uses limited information and minimal analysis to give an approximate value rather than a detailed, fully supported conclusion. The basic report usually includes a summary of the business, a review of the financial statements on a smaller scale (typically 1-3 years), one or two valuation methods, limited financial adjustments, and minimal industry and economic research.
What is a comprehensive valuation report?
A comprehensive valuation report is an in-depth analysis of various aspects of the business. The comprehensive valuation generally includes a detailed financial analysis to include historical data on the business, a review of the assets and liabilities, a detailed industry, economic, and competitive analysis, risk assessment, and the use of multiple valuation methods across income, market and asset approaches. This type of report is typically used in situations where there will be a high level of scrutiny.
When to Leverage a Valuation Report
A valuation report is not legally required for E-2 visa eligibility; however, it can be strategically beneficial in certain circumstances. A valuation report can preempt questions about whether the investment is substantial relative to the enterprise’s fair market value. It can be useful where goodwill, intellectual property, or brand value comprise a significant portion of the enterprise. The valuation can help demonstrate the true scope of the investment.
For small businesses or clear asset purchases, the purchase agreement and supporting financial documents are generally sufficient. For acquisitions involving complex ownership structures, intangible assets, or where the company has limited or no financial documents, a valuation can serve as persuasive evidence to support the petition and mitigate a request for evidence.
