Can a UK or Irish Company Use E-2 to Buy a US Business?

19 Oct Can a UK or Irish Company Use E-2 to Buy a U.S. Business?

Posted at 08:00h in Investor by Janice Flynn

After much research and discussion, the board has finally given official approval for the acquisition of a U.S. business.

Someone has now raised the question, “Who will be running the show in America and when will that start?”

The truth is that you are not yet prepared with an answer. After perusing pages on several different law firm sites, you are still not sure whether the candidate selected to head the new division qualifies.

All the articles appear to refer to individual investors buying an overseas business, not to one company acquiring another.

Can a UK or Irish Company Use E-2 to Buy a U.S. Business? Yes, but not in the way the question suggests. A UK or Irish company can make the investment and the U.S. business it acquires may qualify as a treaty enterprise. But an E-2 visa is issued to a person, not to the company itself.

The ownership of the U.S. enterprise must satisfy the treaty-nationality rules, and the individual travelling to the United States must qualify either as the treaty investor or as a qualifying executive, supervisory or essential-skills employee.

“Corporate immigration law is an evolving and complex field. Having spent more than twenty years moving people into the United States, I know the intricacies involved in the purchase of a U.S. business by a UK or Irish company. As Managing Partner of Flynn Hodkinson, my mission is to help clients avoid the delays and pitfalls associated with transferring an employee to head a business they've purchased in the U.S..”

Janice Flynn, a U.S. visa and nationality lawyer in the UK and Ireland

The question underneath the question about E-2

E-2 is a classification granted to a person, not to a company.

A company might invest millions and still find that the one person it needs on the ground does not qualify because of:

who owns the shares
in what proportion
holding what other status
E-2 is a non-immigrant classification under INA 101(a)(15)(E)(ii).

Some U.S. consular posts maintain E-visa company registration programs for treaty enterprises, particularly where a company regularly sponsors E visa applicants. Company registration is not, however, a universal legal prerequisite for E-2 classification. Each individual applicant must still establish eligibility for E classification.

Where a consular post operates an E-visa company registration program, the FAM generally calls for a company’s registration to be reviewed at least every five years. A registration should not, however, be terminated solely because that review has not taken place within five years.

Where nationality comes from

Rule	What it means
Incorporation is irrelevant.	The country in which the U.S. company is incorporated has no bearing on its nationality for E-2 purposes. A Delaware LLC can be a UK treaty enterprise. The country in which the U.S. company is incorporated does not determine its nationality for E-2 purposes. A Delaware LLC, for example, can qualify as a UK or Irish treaty enterprise. The relevant question is the nationality of the enterprise’s owners. Nationals of the qualifying treaty country must ultimately own at least 50% of the enterprise.
The Fifty Percent Rule	Nationals of the treaty country must own at least 50% of the enterprise (22CFR 41.51(b)(2)(ii)).
Tracing through tiers	Where a business owns another business, the ownership of each entity in the chain must be reviewed to establish that the parent carries the required 50% treaty nationality. A Topco, a Bidco, and a U.S Opco are three tests, not one.
One nationality only	A business seeking E status may have only one qualifying nationality, unless it is owned and controlled equally by nationals of two treaty countries. Dual nationals must elect which nationality is used, and must hold themselves out as nationals of that country for all E purposes involving that company.
The LPR problem	Shares held by lawful U.S. permanent residents cannot be counted towards the 50%. A treaty-country owner who holds LPR status also cannot bring in employees under E classification (9 FAM 402.9-4(B)(e)).
The treaty basis	UK nationals: E-1 and E-2 eligibility derives from the 1815 Convention of Commerce and Navigation, in force from 3 July 1815. Irish nationals: the 1950 Treaty of Friendship, Commerce and Navigation provided E-1 treaty rights. E-2 investor rights were added by a supplementary Protocol that entered into force on 18 November 1992.
The UK territorial limit	The 1815 Convention applies to British territory in Europe: the British Isles, except the Republic of Ireland, as well as the Channel Islands and Gibraltar. It applies to “inhabitants” of that territory, which the State Department defines as people who and permanently reside and are domiciled there. Nationals of other Commonwealth countries do not qualify solely by virtue of Commonwealth nationality.

Example: A UK holding company acquires a U.S. distribution business through a newly incorporated Delaware subsidiary. Three shareholders sit above the holding company: two UK nationals holding 35% each, and a third holding 30% who took U.S. permanent residence four years ago.

Assuming the two UK owners also satisfy the UK treaty’s territorial “inhabitant” requirement, the enterprise has 70% qualifying UK ownership because the lawful permanent resident’s 30% interest cannot be counted towards treaty nationality. That still clears the 50% requirement. If qualifying UK ownership were only 45%, however, the enterprise would not meet the treaty-nationality requirement.

Why the purchase price is not the investment

Substantiality is proportional, not absolute. There is not minimum figure. The test weighs qualifying funds invested against the cost of the business, on an inverted sliding scale: the cheaper the business, the higher the proportion required. For an established business, the cost is generally the purchase price, normally its fair market value (9 FAM 402.9-6(D)).
The leverage trap. Debt secured by the assets of the enterprise being acquired cannot normally be counted as qualifying E-2 investment because the investor is not personally placing those funds at risk. That remains true even where the enterprise’s assets and some personal assets are both pledged as collateral. Borrowed funds may count where the debt is secured by the investor’s own personal assets rather than by the assets of the E-2 enterprise. (9 FAM 402.9-6(B))
The consequence. A conventional acquisition facility secured against the target is, for E-2 purposes, worth nothing. A £5m acquisition funded with £1m of qualifying equity and £4m of debt secured against the target may therefore present only £1m of qualifying investment against a £5m acquisition cost.
Real and active. The enterprise must be a real and active commercial undertaking producing a service or commodity. It cannot be a paper organisation, not an idle speculative holding — including stock held by an investor with no intention of directing the enterprise (9 FAM 402.9-6(C)). A passive holding arrangement that does not amount to a real and active commercial or entrepreneurial enterprise will not satisfy the E-2 enterprise requirement.
More than marginal. The enterprise must have present or future capacity to generate more than a minimal living for the investor and family, with future capacity generally realisable within five years of the start of normal business activity (9 FAM 402.9-6(E)). For an established business, payroll records, tax returns, financial statements and operating history can provide useful evidence for the marginality analysis. Whether the requirement is satisfied remains a fact-specific assessment.

None of the information shown here is obscure; these matters have been settled for years. The reason it surprises many is that the debt package is negotiated by corporate finance, while the share register is set by the corporate lawyers. Neither team has any reason to know that both documents are, in effect, visa documents.

The chicken-and-egg problem and how it is solved

You’re being asked to commit capital, irrevocably, before anyone will confirm the visa, something no sensible investor wants to do.

Yes, the funds must be irrevocably committed for the investor to be considered “in the process of investing.” But that does not necessarily mean completing the acquisition before knowing whether the E-2 visa will be issued.

A purchase agreement may be conditioned on issuance of the E-2 visa where the investment funds are placed in escrow and committed for release once the visa condition is satisfied. Mere intent to invest, uncommitted funds in a bank account or prospective arrangements without a present commitment will not satisfy the requirement.

Mere intent, uncommitted funds in a bank account, or prospective arrangements with no present commitment will not do.

This is a drafting question, settled in the purchase agreement and the escrow instructions. The risk can often be addressed through carefully drafted purchase and escrow terms, provided the arrangement still creates the irrevocable commitment required for E-2 purposes.

So, who goes?

Having understood all these factors, you’re back to the original question: “Who will be running the show in America and when will that person be on the ground to start?”

Requirements for the employee route:

The employee must meet the nationality requirement, and the employer and employee must share the same nationality (9 FAM 402.9-7(A)).
The executive or supervisory element must be the principal and primary function of the role, not incidental to it. A title alone carries little weight, particularly in a small U.S. operation (9 FAM 402.9-7(B)).
Essential-skills employees must possess specialised skills that the enterprise needs. Ordinarily, skilled workers can qualify where their essentiality derives from familiarity with the overseas operation –typically in start-up or training situations –and the applicant must also establish how long the skills wil be needed (9 FAM 402.9-7(C)).
Where a UK or Irish company owns at least 50% and wants to send an employee, the company itself must demonstrate that it develops and directs the U.S. enterprise (9 FAM 402.9-6(F)(c).

The control nuance: it matters particularly in PE and joint-venture structures

Two separate tests matter here.

First, nationals of the qualifying treaty country must own at least 50% of the enterprise.

Second, the treaty investor or qualifying owners must be in a position to develop and direct the enterprise.

The develop-and-direct requirement can be established through ownership and operational control. A managerial position or another corporate mechanism may also be relevant, but a managerial title alone is not enough if the person does not control the enterprise.

A 50/50 two-party joint venture or partnership may generally establish the necessary control where each party has full management rights and can bind the other. This is sometimes described as negative control. An equal partnership involving more than two parties generally does not produce the same result because control becomes too remote. Three equal co-investors can therefore present a materially different E-2 analysis from two equal owners.

When E-2 is not the answer

Nationality does not line up

A U.S., non-treaty-country or lawful permanent resident shareholder does not automatically prevent E-2 qualification. The problem arises when, after excluding ownership that cannot count towards treaty nationality, qualifying treaty-country ownership falls below 50% or the required develop-and-direct control cannot be established.

Mixed-nationality ownership, private equity structures and investment funds therefore need to be traced carefully through each tier. The headline nationality of the acquiring company may not tell you whether the U.S. enterprise qualifies.

L-1A as the alternative

Where the acquisition creates a qualifying parent, subsidiary, branch, or affiliate relationship, the L-1A route turns on the corporate relationship rather than on the nationality of the shareholders. L-1A requires the individual to have been employed abroad by the qualifying entity for one continuous year within the three years immediately preceding the petition and requires a petition to USCIS. The proposed U.S. position must also qualify as an executive or managerial position for L-1A purposes.

What the process looks like:

Generally, no USCIS petition for a consular E-2 visa application

When an applicant applies for an E-2 visa from outside the United States, there is generally no Form I-129 petition filed with USCIS first. The visa application is made through the appropriate U.S. consular post.

Form I-129 is used where an eligible person already in the United States seeks E-2 classification through a change or extension of status.

Forms

Form DS-160 is required for E visa applicants. An E-2 principal investor does not separately complete Form DS-156-E because the relevant investor questions are incorporated into the DS-160.

E-2 executive, supervisory and essential-skills employee applicants generally submit Form DS-156-E in addition to Form DS-160. The DS-156-E should be completed and signed by an authorised company representative as required by the applicable instructions.

Applicants should also check the relevant consular post’s current E-visa submission instructions because documentary and submission procedures can differ between posts.

Posts

UK E-visa applications are handled through the U.S. Embassy in London. Irish applicants should follow the current E-visa application instructions published by the U.S. Embassy in Dublin.

Timing

E-visa processing time should be checked against the relevant consular post’s current published guidance when the application is being planned. Standard visa appointment wait-time tools may not reflect a separate E-visa package review stage, so acquisition and relocation timelines should not be built around the ordinary nonimmigrant visa appointment estimate alone.

Visa validity is not the same as period of stay

The visa validity period determines how long the visa can generally be used to seek admission to the United States. It does not determine how long the person may remain after each admission.

Qualified E-2 investors and employees are generally admitted for up to two years at a time. Extensions of E-2 status may be granted in increments of up to two years, with no specified limit on the number of extensions while the individual and enterprise continue to satisfy the requirements.

Family

An eligible E-2 spouse admitted in E-2S status is employment authorised incident to status and does not need to obtain a separate Employment Authorization Document simply to have permission to work. An unexpired Form I-94 showing E-2S status may be used as evidence of employment authorisation for Form I-9 purposes.

Unmarried children under 21 may hold derivative E-2 status but are not employment authorised on that basis.

What to check before the share purchase agreement (SPA) is signed

Who holds the shares above the acquiring entity, in what percentages?
What nationality is each holder (traced through every tier, not just the top one)?
Does any shareholder hold U.S. permanent residence? (Their shares do not count.)
Is there a single qualifying nationality at 50% or more, or is treaty ownership split between two nationalities in a way that leaves neither above the line?
How much of the consideration is equity, and how much is debt secured against the target? (Only the first is likely to count.)
Who is being sent? What is their nationality, and does it match the enterprise’s qualifying nationality?
Is that person going as an owner who develops and directs, or as an employee? If as an employee, is the executive or supervisory element the primary function of the role?
Does the purchase agreement contemplate escrow with release conditioned on visa issuance?
Is the target a real, active, operating business rather than a holding structure, and do the filed returns and payroll records already answer the marginality question?

COMPARISON TABLE

	E-2 Treaty Investor	L-1A Intracompany transferee
What it turns on	Nationality of the enterprise’s owners	The corporate relationship between the entities
Treaty country required	Yes	No
Adjudicating body	Consular post for an E-2 visa application; USCIS for an eligible in-country change or extension of status	USCIS petition, followed by consular visa processing where a visa is required
Investment test	Substantial, proportional to the cost of the businesses, no minimum	None
Ownership test	At least 50% ownership by nationals of the qualifying treaty country; shares held by U.S. lawful permanent residents cannot be counted toward treaty nationality.	Qualifying parent, subsidiary, branch, or affiliate.
Individual prerequisite	Treaty nationality matching the qualifying nationality of the E-2 enterprise	Generally one continuous year of qualifying employment abroad within the relevant preceding three-year period, plus a qualifying executive or managerial U.S. role
Leads to permanent residence	No	No, but it is a common precursor
Typical fit in an acquisition	Clean UK or Irish ownership above the U.S. target	Ownership does not line up but the corporate relationship does

This post is for informational purposes only and is not intended as legal advice. If you require further assistance or advice relating to the above, please contact janice@flynnhodkinson.com.

Book an initial meeting with Janice Flynn

Frequently Asked Questions

1. Can a UK or Irish company get an E-2 visa?

No. An E-2 visa is issued to an individual, not to a company.

A UK or Irish company can make the investment and may give the U.S. business qualifying treaty nationality if the ownership structure meets the E-2 rules. The person travelling to the United States must then qualify either as the treaty investor or as an executive, supervisory or essential-skills employee of the treaty enterprise.

2. Can a UK or Irish company use E-2 to buy a U.S. business?

Potentially, yes.

The key issue is not simply that a UK or Irish company is making the acquisition. The U.S. enterprise must have qualifying treaty-country nationality, which generally means that at least 50% of the enterprise is ultimately owned by nationals of the relevant treaty country.

The ownership chain may therefore need to be traced through the acquiring company, holding companies and other entities above the U.S. business.

3. Does it matter where the U.S. company is incorporated?

No. The state or country of incorporation does not determine the enterprise’s nationality for E-2 purposes.

A Delaware corporation or LLC, for example, can qualify as a UK or Irish treaty enterprise if the required ownership ultimately belongs to qualifying UK or Irish nationals.

4. Do UK or Irish nationals need to own more than 50% of the U.S. business?

Qualifying treaty-country nationals must own at least 50% of the enterprise.

Where companies sit between the individual shareholders and the U.S. business, the ownership structure must be traced through each tier to determine whether the required treaty nationality exists.

Ownership alone is not always the end of the analysis. The E-2 rules also require the relevant treaty investor or owners to be in a position to develop and direct the enterprise.

5. Do shares owned by U.S. permanent residents count toward the 50% E-2 ownership requirement?

No.

Shares owned by U.S. lawful permanent residents cannot be counted toward the qualifying treaty-country ownership required for E-2 purposes.

This does not necessarily mean that the enterprise is disqualified. The question is whether qualifying treaty-country ownership still reaches at least 50% after those shares are excluded.

6. Can a minority U.S. or non-treaty investor prevent E-2 eligibility?

Not automatically.

A U.S., non-treaty-country or lawful permanent resident shareholder can be part of the ownership structure. The issue is whether qualifying treaty-country ownership still reaches the required level and whether the develop-and-direct requirement can be satisfied.

Private equity, joint venture and mixed-nationality ownership structures often require a more detailed analysis because the answer may not be obvious from the acquiring company’s name or place of incorporation.

7. Is there a minimum investment for an E-2 visa?

There is no fixed statutory minimum investment amount for E-2 classification.

The investment must be substantial in relation to the cost of purchasing or establishing the business. This is assessed proportionally, so the amount required will depend on the value and nature of the enterprise.

A larger purchase price does not automatically produce a stronger E-2 case.

8. Does acquisition debt count as an E-2 investment?

Not necessarily.

Borrowed funds secured by the assets of the U.S. enterprise generally cannot be counted as qualifying E-2 investment because those funds are not sufficiently at risk to the investor.

Borrowed funds may be treated differently where the debt is secured by the investor’s own personal assets rather than by the assets of the E-2 enterprise.

This can make the financing structure just as important as the headline purchase price.

9. Can an E-2 acquisition be conditional on the visa being approved?

Potentially, yes.

E-2 funds must be committed and placed at risk, but a properly structured purchase can use escrow arrangements where the funds are committed for release once the visa condition is satisfied.

Simply keeping funds available in a bank account or expressing an intention to complete the acquisition later is generally not enough.

The purchase agreement and escrow arrangements therefore need to be structured carefully.

10. Who can move to the U.S. after a company buys the business?

That depends on the ownership structure and the role of the person being sent.

A qualifying individual owner may be able to enter as the principal treaty investor if they meet the develop-and-direct requirements.

Alternatively, a qualifying treaty enterprise may be able to send an executive, supervisory or essential-skills employee. The employee must generally share the same qualifying treaty nationality as the enterprise.

Job title alone is not enough. The actual duties, level of authority and role within the U.S. operation matter.

11. Can a managing director qualify as an E-2 employee?

Possibly.

A managing director may qualify as an executive or supervisory E-2 employee if the executive or supervisory duties are the principal and primary function of the role.

The analysis looks beyond the title. In a small U.S. operation in particular, the applicant may need to show that the role genuinely involves high-level responsibility rather than primarily performing operational or routine work.

12. Can a 50/50 joint venture qualify for E-2?

It may.

A two-party 50/50 joint venture can sometimes satisfy the develop-and-direct requirement where each owner has full management rights and each can effectively prevent the other from acting unilaterally. This is sometimes described as negative control.

The result can be different where ownership is divided equally among three or more parties because control may become too remote.

13. When might L-1A be a better option than E-2?

L-1A may be relevant where the ownership nationality requirements for E-2 do not work but the acquisition creates a qualifying relationship between the overseas business and the U.S. entity.

The route generally requires the individual to have completed the required period of qualifying employment abroad and to enter the United States in an executive or managerial role.

Unlike E-2, L-1A does not depend on treaty-country nationality.

14. Does an E-2 applicant need a USCIS petition before applying at a U.S. Embassy?

Generally, no, where the applicant is applying for an E-2 visa from outside the United States.

The application is normally made through the appropriate U.S. consular post.

Form I-129 is relevant where an eligible person already in the United States is seeking E-2 classification through a change or extension of status.

15. Can the spouse of an E-2 investor work in the United States?

An eligible spouse admitted in E-2S status is generally employment authorised incident to status.

Unmarried children under 21 may accompany the principal E-2 holder in derivative status, but they are not employment authorised on that basis.

16. How long can someone stay in the U.S. on E-2 status?

Visa validity and period of admission are different things.

An E-2 visa may be valid for several years and allow repeated applications for admission during that period. After admission, qualifying E-2 investors and employees are generally admitted for up to two years at a time.

Extensions may be available in additional two-year increments for as long as the individual and enterprise continue to meet the E-2 requirements.

17. When should immigration advice be taken during a U.S. acquisition?

Ideally, before the ownership and financing structure becomes fixed.

Shareholder nationality, ownership percentages, financing arrangements, control rights and the identity of the person who needs to relocate can all affect whether E-2 is available.

Reviewing those issues before the SPA is signed can preserve options that may be much harder to change after the transaction has closed.

Can a UK or Irish Company Use E-2 to Buy a U.S. Business?