This article is one of a series that offers insight and guidance into the process of buying, selling or valuing a business. Whether you want to buy, sell, or appraise the valuation of a going-concern business, these articles provide specific guidance and references to help you accomplish your goal.
Selling to the Foreign Investor
by Tom West
Now that the world is a
global village, many business owners are beginning to think foreign
when they make the decision to sell. And why not? Foreign buyers
are making a major impact on the American independent business scene,
with every indication that they will continue to be aggressive purchasers.
However, sellers of the small to midsized business should be aware
that foreign-buyer status raises issues with the U.S. Immigration
and Naturalization Service. The following is a look at the U.S.
visa system as it applies to the acquisition of a business by the
E-2 Visa. This is a non-immigrant, long-term,
temporary visa, issued to a person who makes a substantial investment
in an enterprise that is active ("not marginal") and that
the foreign buyer will direct and manage. "Substantial investment"
is not defined by a minimum amount. There are, however, certain
percentage requirements. For example, a business costing less than
$100,000 requires an investment of at least 75 percent; a business
selling for between $100,000 and $500,000 requires a minimum investment
of 60 percent. The term "not marginal" means that the
business must have a large number of employees and/or an established
record of profitability; otherwise, the foreign buyer must show
proof of an outside source of income with which to sustain him-
or herself during the first few years of operation.
An additional requirement is that the investor
must be legally committed to the purchase of a business by paying
the deposit--even before the E-2 Visa has been approved. To avoid
incurring substantial liability should the application be denied,
the business broker handling the sale will usually recommend an
escrow closing, wherein the deposit is paid into a special account
and turned over to the seller only upon issuance of the visa.
Only foreign buyers with citizenship in specific
countries may apply for the E-2 Visa, and depending on the country
of origin, the visa will be issued for a period of three to five
years, renewable without limitation as long as the investment is
Some advantages of the E-2 Visa: the foreign buyer
may (1) bring to the U.S. supervisory personnel who are nationals
of the same country; (2) draw a salary in the U.S.; (3) bring his
or her family into the country, and send children to school or university
without obtaining a separate L-1 Visa. This "inter-company
transferee" visa, available for up to seven years, is issued
to a non-national who has been employed abroad by a company for
one out of the last three years in an executive, managerial or specialized-knowledge
position. The person must be entering the U.S. to work for a subsidiary,
affiliate or branch of the same company for which he or she was
employed abroad. Unlike the E-2, there is no minimum investment
set for the L-1, the chief requirement being that the company can
prove its readiness to begin operations and its ability to pay the
transferred persons annual salary. A person already owning a company
abroad can form a U.S. company in order to acquire a business in
this country, whether or not the businesses are of the same nature.
One of the main advantages of this visa is that,
after the U.S. company has been in existence for at least one year,
it may petition for a Permanent Residency Visa for its executive
officer or manager, thus avoiding the complications and expense
of a labor certification application.
Employment Creation Visa. More commonly known
as a Permanent Residency Visa, this type is issued to a non-national
who invests at least $1 million in a newly-created or newly-organized
U.S. business enterprise that creates or protects ten or more jobs.
The required investment for the Employment Creation Visa can be
reduced to $500,000 if the investment is made in a rural or "targeted
employment" area. This visa is issued for a period of two years
on a conditional basis, to be made permanent upon proof at the end
of this time that the investment has been completed and the employment
level has been met.
The principal advantage of this visa is the following
loophole: if the buyer acquires a "troubled" company (one
that has sustained a 20 percent reduction of its net worth during
the past two years), it is not necessary to create an additional
ten jobs, regardless of the area where the business is located.
(The minimum number of total employees, however, must be at least
ten.) For example, if the company already has seven employees, the
foreign investor must create only three additional jobs.
Sellers who are interested in exploring
the expanding world of foreign buyers should keep in mind the reality
that U.S. immigration authorities are vigilant defenders against
illegal entry. They will keep an eagle eye on business-motivated
visa applications to ensure that the foreign buyer has a legitimate
interest in contributing to the U.S. business scene. A professional
business broker can help both buyer and seller understand the requirements
and documentation necessary for the successful completion of the
About the Author
||Mr. Tom West is the editor/publisher of The Business Broker, a monthly newsletter for the business brokerage field. He has written or co-written numerous books including the The Business Reference and Pricing Guide and The Resource Handbook for Business Brokers. He is a founder, past president, and former executive director of the International Business Brokers Association (IBBA). He is a frequent lecturer and seminar leader on all aspects of buying, selling, or appraising a business. Mr. West is probably the most knowledgeable individual in the country today concerning the issues of buying or selling small to mid-sized businesses.
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