10 Feb The Pros and Cons of Buying a Franchise as an EB-5 Project

EB-5 investments require a minimum of $1 million—or $500,000 in a Targeted Employment Area (“TEA”)—and the creation of ten full-time jobs within two years of an investor’s obtaining lawful permanent residency. This requirement can be met by directly purchasing a unit of a franchised business. Opening a franchise may be an ideal option for foreign applicants who are looking to invest directly, but who lack the entrepreneurial know-how to launch a business from scratch. Franchise chains—e.g. YoBlendz, Elements Therapeutic Massage, Subway, Meineke, and Battery Giant—offer an established business model with a proven track record. Moreover, franchisors will often offer provide training and advertising support to new owners. Because the brands are well-known and established, investors may be more confident that the business will succeed. A proven track record associated with a particular brand will also make it easier for an EB-5 applicant to convince USCIS that the business will be viable and marketable.

Not all franchise options are a good fit for the EB-5 program, however. As a result, investors must thoroughly research potential franchise offerings to ensure that the chosen project will satisfy USCIS requirements. If not, the investor risks denial of his EB-5 petition.

One concern is that some franchise outlets cost less than $500,000 to launch and thus don’t meet the minimum threshold for investment under the EB-5 program. Another concern is that USCIS’ background checks and economic analyses can take months, or even years. This extended timeline will not work with the tight development deadlines imposed by some franchises, which are eager for new locations to open as quickly as possible.[1]

Another factor in assessing franchise options concerns job creation. Not all franchise businesses will require ten or more full-time employees to operate. If one location cannot fulfill the minimum jobs requirement, the investor may have to open up multiple locations in order to create at least ten new jobs. Importantly, if an investor chooses to buy an existing franchise location, they must increase the number of employees by ten, since the jobs requirement is explicitly limited to the creation of 10 new job[2] On the positive side, franchises generally operate on a uniform model, and if a franchise has already established an estimate for how many employees are required to operate a location, investors can rely on this business model and experience in demonstrating their ability to create ten new jobs to USCIS.[3]

In conclusion, the franchise route is an acceptable way to obtain an EB-5 Visa, but the immigrant investor must diligently consider all possible franchises options and carefully weigh the merits and demerits of each. If one chooses a well-established franchise that is in a TEA and will likely create the requisite number of jobs, this will likely make the EB-5 process significantly easier.

e-Council Inc.’s  attorneys, researchers, and other professionals specialize in providing due diligence services that will equip potential investors with the information needed to assess the viability and feasibility of opening a new franchise location, as well as the likelihood that the business will pass USCIS scrutiny. If the business passes muster, e-Council Inc. can create a Matter of Ho-compliant business plans and provide a wide range of complementary services designed for the EB-5 application. Working with e-Council Inc. to complete all of your EB-5 documents minimizes the need for outside services from unrelated sources; all of our diverse service providers have been fully vetted and are immediately available.

To inquire about our wide range EB-5 services such as our best-in-class Matter of Ho-compliant business plans, please contact us at info@ecouncilinc.com.

e-Council Inc.com’s website, newsletter and other forms of communication contain general information about legal matters. The information is not legal advice, and should not be treated as such. You must not rely on the information on this website as an alternative to legal advice from your attorney or other professional legal services provider. If you have any specific questions about any legal matter you should consult your attorney or other professional legal services provider.

[1] http://www.wsj.com/articles/SB10001424052702303465004579324104108839042

[2] However, In the case of a troubled business investment, ten jobs must be preserved, created, or some combination of the two. See http://www.hooyou.com/eb-5/job.html#sthash.nuUglMes.dpuf

[3] http://www.hooyou.com/news/news2012/news122812eb5.html#sthash.kgLGXqZy.dpuf