We often encounter cases where an E-2 applicant may already have a business up and running in their home country. In cases where the E-2 applicant is setting up a new entity in the U.S. that will be taking over some or all of the foreign entity’s operations, it may be possible to use some of the foreign entity’s assets as part of the investment to the new E-2 entity. In fact, you could transfer not only cash, but also goods, such as equipment or inventory.
In order to do so, it is important to take the right steps to properly document the source of funds. This includes documentation that the foreign business has transferred ownership of these assets to the entrepreneur, who is a shareholder of that foreign company, in the form of a dividend issued to the entrepreneur or a shareholder loan. Applicants should be careful not to directly transfer these cash or goods from the foreign company to the E-2 company, because then the source of funds cannot be attributed to the personal assets of the applicant.
Dividend issued to the entrepreneur
If the foreign entity has earned profits and have accumulated business income, it is possible to execute a resolution to issue a cash dividend to the owner(s), such that a lump sum would be distributed to the E-2 applicant as part of their personal income. The applicant would then transfer these funds to the E-2 entity as an investment.
In this case, the applicant would provide full documentation of the source and trail of funds, which include proof of business revenues earned by the foreign company, the resolution authorizing the cash dividend, and the trail of funds transferred to the E-2 applicant which are then transferred to the E-2 entity.
It may also be possible to adopt a resolution to issue a dividend-in-kind, in the form of title to goods such as inventory or equipment, from the corporation to the individual owner, in accordance with its fair market value.
In this scenario it is important to check with one’s business law counsel or tax counsel to fully understand the business and tax implications of issuing such a dividend.
Shareholder loan to the entrepreneur
It is also possible to structure the transaction as an unsecured loan to the entrepreneur issued by the corporation. In this case, there will be an expectation that the cash or goods transferred will eventually be paid back by the entrepreneur once the E-2 business is up and running and these investments are made up.
In both circumstances – a distribution or shareholder loan – the title (ownership) to the funds or goods are being transferred from the corporation to the individual entrepreneur, which makes it possible for the entrepreneur to then transfer these resources to the new E2 entity as an investment.
Attorneys at Scott Legal have profound and broad experience strategizing E-2 petitions for entrepreneurs in a wide variety of business situations and can help you find the right option that works for your case.
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