Franchise and Investor's Immigrant Visa (EB-5)

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1 1. Introduction Franchise and Investor's Immigrant Visa (EB-5) In comparison to traditional family-based immigration and employment-based immigration, the one-million-dollar (half million for Targeted Employment Area) Investor's Visa (EB-5) has been increasingly attracting attentions. Such immigrant category does not exist until Through intensive marketing efforts in the past 15 years, there has been an unprecedented booming of EB-5 since For the past decade, the rapid economic growth in China has made a great number of entrepreneurs who inject strong energy into the EB-5. There are 10,000 visa quota available annually, 3,000 are set aside or reserved for investors who invest in a Targeted Employment Area (TEA) and 3,000 are set aside for investors who invest through EB-5 regional centers. Due to recent vast advertisement of Regional Center ( RC ), it has now become the spotlight for investors. As such, numerous Regional Centers established to lure investors' capital. However, investors' ability to evaluate the performance of various Regional Centers is often impaired by insufficient information and resources. On top of that, media tend to focus on the report of short and false performances which unavoidably causing investors to not test the water of this market. Therefore, some of the investors hesitate to invest because the performances of the investments of regional centers are various. Regular Investments, on the contrary, attract more than more attentions because investors may freely select industries they feel comfortable and enjoy full control over their investing fund. For entrepreneurs who are serious about running a business in the U.S., regular investment shall be a better option for them. It is not an easy task for inexperienced investors to start a new business from ground zero in the U.S. Meanwhile, it also posts a great challenge even for experienced foreign entrepreneurs to duplicate their success in the U.S market - it is a new environment after all. Franchise is a good option under both circumstances. Not only recognized by USCIS as a legitimate method of investment, franchise also improves the chance of conditional residency removal by safeguard the investment risk at large. 2. What is Franchise? A franchise is a right granted to an individual or group to market a company's goods or services within a certain territory or location. Some examples of today's popular franchises are UPS Store, Domino's Pizza, and McDonald s. In speak of franchise, many people think of only fast food businesses with franchising. As a matter of fact, more than 100 different types of franchise businesses are on the market today, including automotive, cleaning & maintenance, health & fitness, financial services, and pet-related franchises, etc.

2 3. How Franchise Works? If you plan to buy a franchise business, it is crucial for you to gather information on how franchising works and what fees are involved. An individual who purchases and runs a franchise is called a "franchisee The franchisee purchases a franchise from the "franchisor". Under most circumstances, the franchisee must pay an initial, one-time franchise fee to the franchisor and an ongoing franchise royalty fee as business runs. Franchising has become one of the most popular ways of doing business in today's marketplace. 4. Advantages of Buying a Franchise There are many advantages to buying a franchise. For example: Corporate reputation Well-recognized reputation, image and brand name of the franchise business has already established. Consumers are always more comfortable purchasing items from a familiar name or company they trust. Professional Training - Extensive training and support are commonly furnished by franchisor to the franchisee. Focus on business operation With the established business model to rely and follow, franchisee may save significant amount of time and focus on the business operation. There is no secret for the success of franchising. It is an ideal way for entrepreneurs who want own and operate their own business. If you are interested in investing franchise business, please consult with attorneys whose practice is focus on business law, commercial law and immigration law. 5. Steps of Buying Franchising Businesses 1) Collect information to choose a franchise business that suits you needs best; 2) With the assistance of professionals, negotiate and sign the contract with franchisor; 3) Invest the funds 4) Royalty payments - Pay ongoing royalty to franchisor based on a certain ratio of your gross profit 6. Buying Franchise and Investor s Visa (EB-5) In terms of immigration, investing in franchise is not an investment of a Regional Center Project. It is categorized as Regular Investment which requires one million dollar investment or half million investment. For half million investment, the funds must be invested into a franchise store located in high-unemployment or rural area (collectively, Targeted Employment Area ). Furthermore, the franchise business must directly create ten or more full-time jobs within two year. It should also be noted that

3 the investor must invest sufficient funds for initial business star-up in addition to the franchise fee and royalty paid to the franchisor. The follows are brief introduction of requirements for regular investor s visa application: 1) Invest in a Commercial Enterprise Definition of Commercial Enterprise: The form of a commercial enterprise can be a corporation, partnership or even a sole proprietorship. For instance, an investor may obtain franchising license then invest in a new store in the form of sole proprietorship or partnership. Both are recognized way of investing by Immigration Services. 2) Has Invested or Is Actively in the Process of Investing Capital The investment fund must be at least 1 million (half million for Targeted Employment Area) A. Definition of investment: The investment must be "capital". Capital means cash, equipment, inventory and other tangible property. Pleas note that it cannot be considered as a qualified investment even if the investor promises in writing that the amount of investment will be rendered to the new enterprise within a time frame unless the written promise is guaranteed by investor s personal assets. In addition, the Immigration Regulations allow joint venture by investors as long as each investor meets the requirement of job creation and the source of funds of each investor (with immigrant intent or not) can be evidenced. The number of job creation can also be freely allocated between investors. B. Investment at risk: It is not actively in the process of investing capital if it is only the investor's intent or plan to invest (such as merely placing the investing funds in personal or company's bank account). The investment is at risk when it is used for the purpose of generating profit for the company (such as acquiring warehouse, inventory or equipment). It cannot be considered as investment if the investing fund will be returned or is guaranteed by the company. C. Invest in Targeted Employment Area: Targeted Employment Area is an area that, at the time of investment, is a rural area or an area experiencing unemployment of at least 150 percent of the national average rate. In this area, only half million investment fund is required. D. Legal source of funds: In addition to prove the legality of direct source of fund (for example, the source of investing fund came from the proceeds of real property sale), investor must also prove that the money used to acquire direct source is legal (for example, the source of the purchasing money for that real property is also legal). Common sources of funds are as follows: a. Salary income b. Business Income

4 c. Gift or Inheritance d. Real property mortgage loan or sale e. Profit from stock trading 3) Job Creation Create at least 10 full-time jobs for qualifying U.S. workers within two years A. Direct and indirect jobs are credited when invest in Regional Center Projects, but only direct jobs are credited when invest in "Regular Investment". B. Full-time employment means at lease 35 hours work per week. C. Qualified employees include American Citizens, Permanent Residents and people who can legally work in the U.S. However, investor and his/her family member cannot be credited. D. If less than10 employees were hired when the new business is established, the company must support a detailed business plan to explain that the company will complete the requirement of 10 employees within 2 year along with the business operations. E. As mentioned above, number of job creations can be freely allocated between investors. As a result, all job creations can be allocated to investors who intend to file immigrant petition if there is more than one investor. 4) Non-Passive, Managerial Role Compared to the Regional Center Projects, the investors who invest Regular Projects are more relative. Investors do not have to participate in daily store operations, they can hire a professional manager to operate the business, but investors have to maintain a certain degree of supervision and management terms, such as determining the company's policy and decided the employees hiring and removal etc. 7. Comparing Franchise with Star-Up Business Advantages of franchising 1) Recognized business image and brand name. 2) Locations urban and rural areas. 3) Better chance of survival because you are associating with proven products and methods. 4) Low inventory risk. 5) Recognized job creation level. 6) Fixed business model. Support from the franchisor in training, consulting, accounting services, technology, equipment, logistics and advertisement 7) Stable and predictable business growth and fair rate of return. Advantages of Star-Up Business

5 1) No franchise fee or ongoing royalty, investing fund can be completely contributed to the business with better flexibility. 2) Investors have maximum control over the operation of the business 3) Greater potential on investment return