I have a franchise business with 15 employees operating under a S-corp. I have foreign investor interested in buying my business to obtain EB-5 visa.
Can an existing (my) Franchise business qualify as a “new business”?
Can they buy over all my share in the S-corp as their investment?
First, the S corporation will terminate, as it will now have foreign ownership. A "new" business is one that was established prior to 11/29/1990. If your franchise has 15 employees, after the foreign investors takes over, he/she must create an additional 10 full-time jobs.
In order to qualify for the EB-5 category, the foreign investor needs to invest in a new commercial enterprise. If the foreign investor purchases an existing business, he will have to create an additional 10 full time employees. In your case, the foreign investor will have to have 25 employees two years from him or her obtaining his conditional residence. If you have any questions, please do not hesitate to contact me.
A ''new commercial enterprise'' is defined in the regulations as one being established after November 29, 1990. The jobs created, however, must also be new, which means the new commercial enterprise creates the jobs AFTER the investor makes the investment, not before. There must be a ?nexus? between the investment and the job creation. The investor could get credit for saving/maintaining the existing jobs if the new commercial enterprise qualifies as a ''troubled business.''
A business is considered "new" if it was established after 11/29/1990. It still can qualify if your business was established before that date; there are other requirements in that case. But aside from whether the business is considered new, there are other requirements such as job creation that will need to be evaluated.
Your existing business will not be a new business. If the foreign investor buys your business, he/she cannot count the 15 existing employees for EB-5 purpose.
"New business" means a business that was established after November 19, 1990.
The goal of receiving personal investment funds from the foreign national investor and placing these funds into an existing U.S. corporation will require EB-5 compliance. That is, the EB-5 rules and policies will require the new personal investment funds to create additional employment for full-time employees who are U.S. citizens or U.S. permanent residents.
Since the business appears to be already operational, it will likely be classified as an existing business, which has its own set of requirements concerning job creation, etc.
Depending upon the purchase price/equity, it is possible but would be better to be structured via a new LLC that purchases the assets. Further, US chapter S benefits will not continue to a foreign owner.
It depends on when your franchise business was started. If it is a business started after 11/29/1990, the investor can buy your business and hire additional 10 full time U.S. workers in addition to the existing number of employees, that will be 25 employees in total. If the business was started before 11/29/1990, then the investor must expand or restructure the business in order to make it a "new" commercial enterprise. The legal definition for "restructure" is a blur. We would suggest the investor expand the business instead. The investor must expand the established commercial enterprise by 40 percent in net worth or new employees.
An S corporation cannot have a foreign shareholder or its S election will be terminated.
To qualify your business would have to be established after Nov. 29, 1990, or if established before then it must be restructured or reorganized in such a way that a new commercial enterprise results, or expanded through the investment so that a 40-percent increase in the net worth or number of employees occurs.
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