Using a single corporate vehicle to own several franchise units can simplify operations and limit liability, but it raises important immigration and tax questions for anyone pursuing an E-2 Investor Visa. This article explains the legal and tax implications of a holding company model so the reader can make informed structuring decisions.
What a holding company is and why franchisees use one
A holding company is an entity that owns the equity interests in other companies rather than directly operating a business. For franchise investors, a common pattern is a parent holding company that holds membership or share interests in multiple subsidiary entities, each of which operates a single franchise unit. This model is popular for several reasons:
- Liability segregation: Separating units into distinct subsidiaries limits creditor exposure to the assets of individual locations.
- Operational clarity: Each unit can have its own bank accounts, P&L, and franchise agreement, which makes accounting, valuations, and exits cleaner.
- Scalability: A holding structure supports growth and can centralize shared services like marketing, purchasing, and training under the parent company.
- Estate and succession planning: Ownership interests can be allocated at the holding level for easier transfer or sale.
How the E-2 visa rules interact with holding companies
The E-2 visa USA is a nonimmigrant treaty-investor classification that requires the applicant to be a national of a treaty country and to make a qualifying investment in a U.S. enterprise. Using a holding company to own multiple franchise units is possible, but certain points require careful attention:
Ownership and control
The E-2 investor must demonstrate ownership and the ability to control the enterprise. That generally means showing direct or indirect ownership commensurate with control, normally a majority stake, and highest managerial authority. If the holding company will be the E-2 “enterprise,” the investor must show that he or she owns or controls the holding company per the requirements on the E-2 application documentation.
Qualifying investment and at‑risk capital
E-2 visa requirements require that the investor’s funds be irrevocably committed and at risk in a commercial enterprise. Funds used to acquire franchise territories, pay initial franchise fees, build-out, purchase equipment, and hire staff typically qualify. If the holding company is the recipient of funds and then capitalizes subsidiaries, the paperwork must clearly trace the source and flow of funds so consular officers or USCIS can see that the investment is bona fide and at risk.
Single enterprise vs. multiple enterprises
Regulators assess whether the applicant has invested in a single qualifying enterprise or multiple distinct enterprises. A holding company that operates as a centralized franchising business (providing management, marketing, purchasing, etc.) and that directs operations across units may be treated as a single commercial enterprise. Alternatively, independently run subsidiaries with separate management could be viewed as separate enterprises — which could complicate claims that the investor’s consolidated investment meets the substantial investment standard. Clear organizational charts and a unified business plan help frame the holding structure as one qualifying enterprise when appropriate.
Non‑marginality and job creation
An E-2 enterprise must not be marginal — it should generate significantly more than a minimal living for the investor and create job opportunities for U.S. workers. For franchise groups, aggregating the economic impact and projected job creation across multiple units often strengthens the E-2 case, especially at initial stages where a single unit’s payroll might be small. A holding company’s pro forma showing aggregated revenue and employment projections for planned units is persuasive evidence that the venture is not marginal.
Consular and USCIS scrutiny
Different consulates and USCIS adjudicators may treat holding-company structures with varying levels of scrutiny. Consular officers often scrutinize chain-of-ownership documents and intercompany agreements. Extensive, clear documentation that shows who owns, funds, and controls each entity reduces the risk of questions or delays.
Common holding-company structures and immigration consequences
Several legal forms can function as a holding company; choice of entity affects tax treatment and immigration strategy.
Parent LLC with subsidiary LLCs
A commonly used model is a parent LLC that owns one or more single-member or multi-member LLC subsidiaries, each operating a franchise unit. LLCs offer flexibility, liability protection, and pass-through taxation options. For E-2 purposes, the investor should show ownership in the parent entity and document how capital flows to the subsidiaries.
C corporation holding company
A C corporation can act as a holding company and is sometimes used when investors prefer a classical corporate structure or plan to retain earnings. C-corporations pay corporate tax on profits and distribute after-tax dividends to shareholders. For E-2 applicants who are non-U.S. persons, a C-corporation is still viable; however, tax consequences differ from pass-through entities.
Important note on S corporations
S corporations are generally unavailable to nonresident alien shareholders. The IRS disallows nonresident aliens (except certain residents) from being S-corp shareholders, so an E-2 investor who is a nonresident alien cannot use an S-corp owned by them as the E-2 qualifying entity. For more detail, see the IRS guidance on S corporations at irs.gov.
Series LLC and state-specific options
In certain states, a series LLC allows creation of protected “cells” under one entity. While attractive for cost and administrative consolidation, the series LLC’s recognition varies by state and is a less-tested structure with immigration adjudicators; caution and specialist advice are recommended.
Key tax considerations for holding-company franchise ownership
Tax strategy should be considered at the outset because entity choice affects federal, state, and local tax obligations.
Entity tax treatment and residency
LLCs are flexible: they can be treated for U.S. tax purposes as partnerships, disregarded entities, or corporations. Foreign investors often use LLCs taxed as partnerships or C-corporations. The investor’s U.S. tax residency status (determined by the substantial presence test or green card) also affects worldwide taxation. The IRS’s business structures and LLC pages provide helpful overviews: irs.gov/business-structures and irs.gov-llc.
S-corp restriction
Because nonresident aliens generally cannot be S-corp shareholders, the investor should avoid S-corp ownership unless they become a U.S. tax resident or the corporate structure otherwise changes. This restriction is often decisive in the choice between LLC and corporation.
Payroll, employment taxes, and worker classification
Franchise units typically create payroll obligations at the subsidiary level. Proper classification of workers as employees versus contractors, accurate payroll tax withholding, and compliance with federal and state employment taxes are essential. Centralizing payroll functions at the holding company might work operationally, but payroll liabilities usually reside where employees perform services, so legal and tax counsel should confirm the best approach.
State taxes, sales tax, and franchise fees
Each unit may create nexus for state income, franchise taxes, and sales tax collection. Multi-state operations increase complexity: sales tax registration, unemployment insurance accounts, and state filing requirements multiply with each operating entity. A tax adviser who understands multi-state franchise operations is valuable.
Intercompany transactions and transfer pricing
When the holding company provides shared services (marketing, purchasing, royalties) to subsidiaries, intercompany agreements and arm’s-length pricing should be documented to withstand tax authority review. This also affects the taxable income reported at each entity.
Documentation and evidence for a successful E-2 filing
Because the E-2 petition depends on both immigration and commercial analysis, meticulous documentation increases the likelihood of approval. Important items include:
- Organizational documents: Articles of incorporation/formation, operating agreements, shareholder ledgers, and membership certificates that show ownership and control.
- Funding trail: Bank statements, wire transfers, escrow agreements, and proof of source of funds that demonstrate the investor’s funds were invested and are at risk.
- Franchise agreements and approvals: Signed franchise agreements, territorial grants, initial fee invoices, and correspondence with the franchisor.
- Business plan and pro formas: Unit-level and consolidated projections showing revenue, expenses, staffing, and job creation over at least three years.
- Operational contracts: Management agreements, lease agreements, supplier contracts, and intercompany service agreements.
- Employment evidence: Payroll records, job descriptions, hiring plans, and evidence of recruitment of U.S. workers.
- Insurance and compliance: Liability coverage, business licenses, permits, and state filings for each operating unit.
Risk management and operational best practices
Practical steps reduce legal exposure and make the holding structure more defensible to both immigration adjudicators and tax authorities:
- Segregate liabilities by placing each unit in its own subsidiary with separate bank accounts and vendor contracts.
- Implement clear intercompany agreements for management services, royalties, loans, and use of trademarks to document arm’s-length relationships.
- Keep robust corporate records and hold regular board or member meetings with minutes that reflect decision-making and control.
- Document hiring and payroll promptly to demonstrate non-marginality and job creation.
- Maintain insurance and compliance with franchisor standards to avoid defaults that could undermine the business case for the E-2.
Practical step-by-step checklist for implementation
For an investor considering a holding company to own multiple franchise units, the following checklist outlines pragmatic next steps:
- Consult an experienced E-2 immigration attorney and a franchise-savvy tax attorney to design the structure.
- Decide entity forms (parent LLC vs. corporation) taking into account S-corp restrictions and tax residency of the investor.
- Form the holding company and operating subsidiaries, and obtain EINs and state registrations.
- Sign franchise agreements and document initial capital contributions and expenditures clearly showing funds at risk.
- Prepare a consolidated business plan linking the holding company’s role and showing aggregated economic impact and job creation projections.
- Establish bank accounts, payroll systems, and accounting controls for each subsidiary.
- Assemble the E-2 petition or consular package with meticulous documentation of ownership, funds, contracts, and operations.
Choosing the right holding-company design for multiple franchise units can provide operational and liability advantages, but it requires coordinated immigration and tax planning. With careful structuring, transparent documentation, and professional advice, a holding company can support scalable franchise growth while meeting the E-2 Investor Visa and U.S. tax system requirements.
For authoritative E-2 information see the U.S. Department of State’s E-2 page: travel.state.gov, and for tax-structure guidance consult the IRS business structures resources at irs.gov.
Please Note: This blog is intended solely for informational purposes and should not be regarded as legal advice. As always, it is advisable to consult with an experienced immigration attorney and tax professional for personalized guidance based on your specific circumstances.