By Fernando Berrocal

Many Canadian entrepreneurs are unaware that establishing a startup in the USA and then relocating to the United States to manage it is very simple. This has been possible since the U.S.-Canada Free Trade Agreement (which came into effect on January 1, 1989) and has continued under the North American Free Trade Agreement, which took effect on January 1, 1994, and replaced the Canada-U.S. Free Trade Agreement.

Even though a Canadian entrepreneur seeking to launch a startup in the United States has a variety of alternatives, the E-2 treaty investor category remains one of the most popular. It effectively applies to citizens of any eligible treaty countries (including Canada) who invest a significant amount of money in an authorized US startup.

Although E-2 investors do not get lawful permanent residency (i.e., a Green Card), they are allowed to live in the United States and manage their startups for up to five years at a time, with no restriction on the number of renewals. In other words, by renewing their status every five years, individuals may reside in the United States practically indefinitely under this category (provided that they remain eligible).

E-2 dependent status is given to the spouses and minor children of such applicants for the same period as the primary applicant. Dependent spouses may be eligible for open work permits (to work for anyone, in any job). Although dependent children are not eligible for work permits, they are permitted to attend school as a result of their E-2 dependent status.

Obtaining E-2 Treaty Investor Status

So, what are the requirements for becoming an E-2 treaty investor? Although this is a difficult category with several technical requirements, I will address some often-asked questions below.

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"What Kind of U.S. Business Qualifies?"

Almost any type of business may be classified as an E-2 treaty business. An E-2 visa application might, for example, be supported by a franchised business.  There are, however, certain restrictions, which are briefly described below.

The proposed startup, for example, must be a legitimate and active commercial or entrepreneurial venture that produces a profitable service or product. To put it another way, it can't be a shell corporation or a speculative investment (i.e. owning undeveloped land or company stocks). Purchasing a home property to rent it out does not qualify since it is not an active business.

Furthermore, the planned corporation must not be a small-scale operation. A marginal startup cannot create more than enough revenue to support the treaty investor and his or her family daily. A startup that employs several U.S. workers and makes enough profit to sustain the investor and his or her family, on the other hand, would not be considered a marginal venture.

"How Much Money Should I Invest?"

According to official US Department of State guidelines, no minimum investment is required to qualify as an E-2 treaty investor. Instead, consulates in the United States are expected to evaluate the proportionality of the applicant's investment concerning the entire cost of launching or purchasing the startup; this is known as the proportionality of the investment.

The higher the proportionality of the investment, the lower the cost of starting/acquiring the startup. For instance, a $100,000.00 corporation could ask the investor to pay 75% of the required cash. A business that costs $500,000.00, on the other hand, may simply require the investor to pay 60% of the required capital.

In practice, a minimum investment requirement does exist, although it is only implemented informally. Cases requiring a minimum investment of $100,000.00 are typically fine at the United States Consulate General in Toronto, which adjudicates all-new E-2 visa applications for Canada (given that the proportionality of the applicant's investment is likewise sufficient). In some circumstances, however, scenarios involving contributions as little as $75,000.00 (or even $50,000.00) may be accepted.

"What Qualifies as an Investment?"

The funds for the investment must come from legal sources (savings, a gift, an inheritance, etc.) and the applicant must have possession and control of those funds at the time of the investment. As a result, the applicant must be able to prove the source of the investment funds.

It's also not possible to inherit a U.S. startup since the applicant must have custody and control of the investment funds. However, inherited assets may be utilized to buy the business in the United States.

The funds must also be irrevocably committed to the U.S. startup and at danger of being lost if it fails. To put it another way, the investment capital must be put into the planned business's activities. Loans secured on the assets of the planned startup are ineligible because the investor is not at risk; in the event of a default, a secured creditor will attempt to seize the startup assets before pursuing the investor. Personal capital, unsecured loans, and even loans secured on the investor's personal assets (including a loan secured by a residence) can all be considered eligible investments.

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Conclusion

Entrepreneurs from Canada who want to start or buy a startup in the U.S. should see if they qualify for E-2 treaty investor status. If they are qualified, they can use this option to start a business in the United States and then stay in the country as long as the startup is successful.

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