Selling my Business to a Non-US Citizen or Foreigner?
Can my business be sold to a non-U.S. citizen located outside the United States? I’ve listed my business for sale and there’s a potential buyer from China. However, I’m uncertain about the practicality of selling to someone from abroad. What’s the process for selling my business to a foreign buyer?
Selling your business to an international buyer is not only feasible but also quite customary. However, there are important considerations to bear in mind.
The United States draws in inventive entrepreneurs worldwide, and its immigration laws are strategically crafted to attract skilled business minds from abroad. This strategic move bolsters our economy in the long term, enriching the U.S. talent pool and inviting accomplished entrepreneurs with successful track records in their home countries. The outcome is a diverse tapestry of business innovators continually injecting fresh concepts, products, services, and technological advancements. This arrangement proves advantageous for both the U.S. economy and the prospective buyer.
One prevalent avenue toward U.S. citizenship is purchasing a business. While foreign-born buyers can alternatively pursue citizenship by initiating a business, many view the acquisition of an existing business as a more secure investment. Notably, passive investments, such as real estate or businesses demanding minimal owner involvement, don’t meet the criteria for obtaining a long-term U.S. visa.
Key inquiries arise when engaging with international buyers:
- Are foreign buyers dependable purchasers?
- What kinds of businesses tend to attract foreign interest?
- Does the process of selling a business differ for foreign buyers?
- Which countries provide the E-2 visa option?
- What prerequisites accompany an E-2 visa application?
- How does negotiation with an international buyer differ, if at all?
- Is the effort of selling to a foreign buyer justified?
The succeeding article addresses each of these queries in depth.
Why Foreigners Make Good Buyers
Foreign buyers offer distinct advantages for you, the seller, thanks to two primary factors that effectively reduce potential risks:
- U.S. immigration regulations necessitate a significant level of capitalization or down payment, often ranging from 50% to 60% of the business’s total price.
- The ongoing success of the business directly affects the foreign buyer’s visa status. Consequently, they are more inclined to persevere through challenges, aiming to avoid visa loss and a return to their home country. This dynamic benefits sellers who are financing a portion of the sale.
With the requirement that the business remains operational to uphold their visa, foreign-born buyers exhibit a higher degree of risk aversion compared to local buyers. Consider relocating to a place like South Korea – would you feel capable of comprehensively evaluating demographic, socioeconomic, and other crucial factors, then devising a new business strategy? The likelihood is slim unless you’re already well-versed in the industry and local market dynamics.
Each marketplace possesses nuanced intricacies that demand an in-depth grasp of its composite components – from demographics and psychographics to consumer preferences, competition, politics, and an array of other variables. Such insights are challenging for any outsider to fully internalize.
This knowledge gap translates into foreign buyers approaching business purchases with heightened caution compared to their domestic counterparts. Most international buyers seek enterprises with lower risk profiles, ones that hold a substantial likelihood of enduring success.
An exception to this principle arises when the business necessitates no strategic alterations and solely requires an injection of fresh capital for equipment, inventory, or operational funds. In such cases, a foreign buyer might perceive this capital investment as less risky.
For some intermediaries, this risk aversion might be misconstrued as a quest for guarantees. However, it’s essential to recognize that if the buyer falters in their new business endeavor, it could result in a change to their visa status and potential loss of their entire investment. Given that their visa validity hinges on the business’s continuous operation, they often possess a heightened incentive to navigate challenges and ensure success even in adverse circumstances. Consequently, foreign buyers tend to exercise a higher degree of caution, and their wariness toward risk should be factored into communication and negotiation during the sales process.
The financial commitment required for securing a visa is substantial, typically suggesting that the individual is astute and experienced, and thus capable of gauging investment risk. Simultaneously, it’s prudent to highlight to the buyer that no investment comes with guarantees, and risk is an inherent aspect of any financial endeavor. The buyer should cultivate a balanced perspective on risk, aiming to mitigate it while maintaining the resolve to take calculated leaps. Ideally, the sought-after foreign buyer embodies a serial entrepreneur profile, having helmed multiple businesses previously. Such individuals are adept at managing risk and are well-equipped to embrace decisive action.
The E-2 Visa
The E-2 visa stands as the key visa typically secured in conjunction with a business acquisition.
The United States has forged reciprocal treaties centered around friendship, commerce, and navigation with numerous countries. Buyers hailing from such nations possess viable avenues to potentially attain U.S. citizenship.
Countries Offering E-2 Visa Opportunities
Here’s a compilation of nations with which the United States has established treaties of friendship and commerce:
- China (ROC)
- Costa Rica
- United Kingdom
Rest assured, these are the countries where E-2 visa prospects exist.
Requirements for an E-2 Visa
The E-2 visa is designed for individuals aiming to enter the U.S. to nurture and oversee a business venture into which they’ve made, or pledged to make, a significant capital investment. This investment must not be marginal but substantial.
Here’s a breakdown of the three main components that constitute the prerequisites for obtaining an E-2 Visa:
- Substantial Capital Investment: The determination of substantiality doesn’t follow a fixed formula; rather, a proportional approach is adopted. The capital invested is assessed in relation to the business’s value, gauged as a percentage of the down payment. Down payment percentages vary, with small businesses typically ranging from 50% to 90%, and larger enterprises as low as 10% to 20%. For instance, a $5 million investment could suffice, irrespective of the business’s value. Generally, a minimum cash amount of around $100,000 is typically acceptable. Special cases might be considered for highly specialized businesses when the investor brings unique skills. Importantly, the foreign buyer’s funds should be the source of investment, and loans are acceptable provided the business’s assets aren’t used as loan collateral.
- Direct Engagement & Management: The foreign buyer must hold at least 50% equity ownership in the targeted business and play an active managerial role. Passive investments don’t meet E-2 visa criteria.
- Economic Significance: The business must demonstrate a history of generating substantial profits, enabling the foreign buyer to support themselves. Additionally, the business should create employment opportunities for U.S. citizens. Businesses that only employ the foreign investor and a limited number of staff are less likely to qualify. The greater the number of employees, the less emphasis is placed on other factors. For instance, if the business employs 100 individuals, a reduced down payment might be considered.
These three requirements collectively ensure the foreign buyer’s commitment to the business’s ongoing operation. While evaluated as a whole, these factors aren’t governed by rigid rules.
Tips on Dealing with Foreign Buyers
Here are key insights for handling a buyer whose purchase hinges on securing a visa:
- Selective Approach: When juggling negotiations with multiple parties, exercise caution when considering offers from foreign buyers. Only entertain such offers if they notably surpass other offers, given the prolonged timelines and potential uncertainty surrounding visa approvals.
- Navigating Immigration Complexity: The U.S. immigration process is intricate and time-consuming. Anticipate that the buyer will have legal guidance to navigate this process. Openly discuss the timeline and relevant considerations with both the buyer and their immigration attorney.
- Shared Objectives: Foreign and domestic buyers are united by common goals – generating income and returns on investment. Recognize that foreign buyers are driven by a dual objective: maximizing opportunities while minimizing risk. Tailor your approach to underscore your business’s stability and emphasize specific measures to mitigate risk. This could include strategies like trimming fixed costs or reducing working capital needs.
- Readiness for Delays and Escrow: Be prepared for potential delays and the likelihood of using escrow. Understand that your funds will be released upon visa issuance, but brace yourself for potential visa-related delays on the buyer’s end.
Navigating the intricacies of visa-driven purchases requires a strategic approach, and understanding these dynamics will place you in a position of confidence.
Are there additional advantages for the foreign buyer?
Absolutely, upon acquiring the business, they gain the freedom to employ family members without compromising their visa status.
What’s the duration of an E-2 visa?
The E-2 visa can be renewed indefinitely, contingent on the business’s ongoing operations. Typically granted for an initial five-year period, it often serves as a stepping stone for most immigrants towards obtaining permanent residency.
Are there any drawbacks for the immigrant?
Upon achieving “permanent resident” status, worldwide income becomes subject to U.S. taxes. This aspect can pose a substantial and costly challenge, particularly if the immigrant holds investments beyond U.S. borders.
Is selling to an international buyer worth the effort?
In most cases, the liquidity requirements outweigh any inconveniences, drawbacks, or the extended timeline involved. This holds true unless you’re evaluating offers from multiple buyers, and the foreign buyer’s proposition doesn’t outshine other attractive offers.