The E-2 Cap Table Test: Preserving Treaty Nationality and Control When Co-Investors Enter the Deal

Written September 10, 2026. Reviewed by Rosanna Berardi, Esq.

TLDR:

• E-2 eligibility depends on two separate tests: at least 50% treaty-country ownership, and the treaty investor’s demonstrable control over the enterprise.
• Bringing in U.S. investors, private equity, or partners of another nationality doesn’t automatically disqualify you. It can, however, quietly erode one or both tests if the cap table isn’t engineered with E-2 in mind.
• Convertible notes, SAFEs, preferred equity, and reserved investor-approval rights all need to be reviewed against E-2 ownership and control law before the round closes, not after.
• Getting this right at the term sheet stage protects both your visa and your ability to raise capital on normal market terms.

For many E-2 investors, the visa application isn’t the hard part, the capitalization table is. A Canadian entrepreneur who owns 100% of a simple LLC has an easy ownership and control story to tell a consular officer. A Canadian founder who has taken on a U.S. angel investor, granted a private equity fund a board seat, or issued convertible notes ahead of a Series A has a much more complicated one. That complexity is exactly what sophisticated growth-stage companies are built on.

The good news: E-2 law was never designed only for single-owner small businesses. It has real, well-established mechanisms for shared ownership and shared control. The risk isn’t that outside capital disqualifies you. The risk is that nobody checks the cap table against E-2 rules until it’s already signed.

The Two Tests Every E-2 Structure Must Pass

E-2 eligibility for a business entity turns on two distinct legal questions, and both have to be answered “yes.”

1. The 50% Nationality Test

Under 22 CFR 41.51(b)(2), at least 50% of the enterprise must be owned by nationals of the treaty country. For a Canadian-founded company seeking E-2 status, that means Canadian nationals must hold a majority stake. This stake is measured by actual ownership of stock, membership interests, or equivalent equity, not by board seats or titles.

This test applies at every layer of the structure. If your operating company is owned by a holding company, consular officers will look through the holding company to determine who actually owns it. A cap table that looks 60% Canadian at the operating-company level can still fail if the holding company one level up is majority U.S.-owned.

2. The Control Test

Ownership alone isn’t enough. The treaty investor applying for E-2 status must also show that they personally control, or share control of, the enterprise. This means they can direct its major decisions, not simply hold equity in it. This is where most cap-table problems actually surface, because control can be given away in ways that don’t show up on a simple ownership percentage.

A term sheet that hands an investor veto rights over hiring, budget approval, or strategic decisions can undercut an applicant’s control claim even if that investor owns a minority stake. Consular officers and USCIS adjudicators are specifically trained to look for this.

Where “Negative Control” Comes In

One of the most useful, and most misunderstood, concepts in E-2 practice is negative control, addressed directly in 9 FAM 402.9. In a strict 50/50 ownership split between two parties, neither owner holds outright majority control. But because neither can act without the other’s consent, each is considered to hold sufficient control to qualify, provided both are actively involved in developing and directing the business.

Negative control has real limits. It generally only works cleanly between two parties. Add a third equal partner, and no individual can demonstrate the control needed to qualify as a principal E-2 investor on ownership alone. A structure would instead need to rely on a managerial or operational control argument for each participant, which is a heavier evidentiary lift.

Sample Ownership Scenarios

The following illustrate how common capitalization structures hold up under E-2 scrutiny.

Scenario A: Clean Majority Ownership. A Canadian founder owns 65% of a Delaware LLC; a U.S. angel investor owns the remaining 35% with no board seat and no approval rights over operations. Result: Both the nationality test and the control test are straightforward to document. This is the easiest structure to present.

Scenario B: 50/50 Joint Venture. Two Canadian nationals each hold 50% of the enterprise, each with equal management authority under the operating agreement, and both intend to actively direct the business day to day. Result: Negative control applies. Both partners can potentially qualify for E-2 status, provided the operating agreement clearly documents shared authority and each partner’s active role is well defined and distinct.

Scenario C: Priced Equity Round with a Board Seat. A Canadian founder retains 55% ownership after a priced round, but the new U.S.-based lead investor receives a board seat and negotiated veto rights over the annual budget, additional debt, and any sale of the company. Result: Ownership passes the 50% test, but the reserved veto rights need close review. Broad, sweeping approval rights held by a non-treaty-national investor can be read as undermining the founder’s control, even at 55% ownership. Narrowing these provisions to standard, limited-scope protective provisions, rather than blanket operational vetoes, is usually the fix.

Scenario D: Convertible Notes and SAFEs Pre-Conversion. A Canadian founder owns 100% of the company outright, but has issued SAFEs to U.S. investors that will convert to equity at the next priced round. Result: Until conversion, SAFE and convertible note holders are generally not equity owners, so the nationality test is unaffected in the near term. But the analysis has to be redone at the moment of conversion. Documents should be drafted with an eye toward what the post-conversion cap table will look like, so a future round doesn’t inadvertently tip majority ownership to non-treaty nationals.

Scenario E: Multi-Layer Holding Structure. A Canadian-owned holding company owns 100% of the U.S. operating company, but the holding company itself has taken on outside investors and is now only 45% Canadian-owned. Result: Because adjudicators look through to the true ownership of the enterprise, this structure fails the 50% test at the holding-company level despite the operating company appearing wholly Canadian-owned on its own books. This is one of the most common, and most avoidable, mistakes in layered structures.

What This Means for Future Funding Rounds

A cap table isn’t static, and E-2 status isn’t a one-time approval. It is periodically re-examined at renewal, and any material change in ownership or control between filings should be evaluated against these same two tests. A structure that passes today can fail after a Series A if:

• The round dilutes treaty-national ownership below 50%, even temporarily during a transition period.
• New investor-approval rights are broader than what existing shareholders held.
• A convertible instrument converts in a way that shifts effective control to non-treaty-national holders.

Building E-2 considerations into term sheet negotiations, rather than reacting to a signed round, is generally far less disruptive than trying to unwind or restructure equity after the fact.

Structuring for Growth Without Losing E-2 Eligibility

None of this means E-2 investors need to avoid outside capital. It means the capitalization structure needs to be reviewed with immigration consequences in mind at the same time it’s being reviewed for tax and corporate purposes, ideally by counsel who understands both. Founders who bring their immigration attorney into the term sheet conversation early tend to have far more flexibility in how they negotiate with investors, because they know in advance which provisions are safe to concede and which ones need to be renegotiated or narrowed.

At Berardi Immigration Law, we work directly with founders, their corporate counsel, and their investors to structure (and restructure) ownership and governance provisions so that growth capital and E-2 eligibility aren’t working against each other. Nobody should navigate immigration alone, and that’s especially true when a term sheet is on the table and the clock is running. Click here to book your consultation with an award-winning immigration attorney today.

FAQs

Q: Can I still qualify for an E-2 visa if I take on a U.S. investor?

Yes, in many cases. The key is making sure treaty nationals retain at least 50% ownership and that the treaty investor retains real control over major business decisions. The specific terms of the investment (board rights, veto provisions, voting structure) matter more than the simple fact that a U.S. investor is involved.

Q: Does a convertible note or SAFE count as ownership for E-2 purposes?

Generally not until it converts to equity, since the holder isn’t yet a shareholder or member. However, the structure should be reviewed for what the cap table will look like after conversion, since that’s the point at which the nationality and control tests will need to be reassessed.

Q: What happens to my E-2 status if a new funding round changes the ownership structure?

E-2 status can be affected if a round pushes treaty-national ownership below 50% or transfers meaningful control to non-treaty-national investors. This is typically evaluated at the next renewal or filing, which is why it’s worth reviewing planned funding rounds against E-2 requirements before they close, rather than afterward.