Regarding EB-5 Invested Enterprise Requirements
In US EB-5 program, USCIS excludes corporate and other non-individuals as an investor from the EB-5 category. However, it is perfectly acceptable for multiple investors seeking EB-5 status to join together as long as each investor infuses the requisite amount of capital into an enterprise and each investment creates at least 10 full-time positions.
Under the USCIS regulations, there are 3 different types of EB-5 invested enterprises, and the criteria and requirements vary as follows.
New Business Enterprise
Any for-profit entity of lawful business is considered a commercial enterprise. This does not include non-profit organizations. In order for an enterprise to be “new”, it must have been created after November 29, 1990.
Enterprises established before this date can also be considered new enterprises if they have gone through re-organization or substantial change, which means a 40% increase in either the net worth or the number of employees.
There are four types of sub avenues classified as new business enterprises.
Creating a new business: Based on a 1998 precedent, an EB-5 investor was required to be present at the creation of an enterprise. However, this was problematic for businesses created under a partnership model. A partnership is typically formed with the main partners and then other limited partners are sought afterwards. Because of the 1998 precedent, such limited partners could not qualify for an EB-5. In 2002, Congress overruled this decision, only requiring a petitioner to show that he/she has invested the required amount.
Buying an existing business: An EB-5 investor can restructure an existing business. USCIS does not consider merely changing the legal structure of an enterprise sufficient. There is only one known case of a petitioner showing that an enterprise was materially changed enough to receive approval.
Expanding an existing business: An EB-5 investor can also create a “new” business by expanding an existing one. Through this avenue, an EB-5 investor must either expand the net worth of an existing business or the number of employees by 40%. If an investor chooses to increase the number of employees, he/she could be required to create more than 10 jobs; the larger the number of existing employees, the more of a burden this becomes.
Pooling: Multiple Eb-5 investors can combine their money to invest in an enterprise. All investors must infuse the required amount into an enterprise and create at least 10 jobs. All jobs created by a pooling arrangement will be distributed evenly among investors. For example, if there are 3 investors and only 21 jobs are created, this does not mean that 2 of the investors created 10 jobs each and the third investor only created one job. It means that all three investors created 7 jobs a piece.
The definition of a troubled business is one that has existed for a minimum of 2 years. Furthermore, this business must have incurred a net loss for the 12 to 24 month period before you file Form I-526. This loss must be equal to at least 20 percent of the business’s total net worth.
Regional Center Pilot Program
Invest at least $1,000,000 or $500,000 in a regional center affiliated new commercial enterprises or a troubled business located within the area of the USCIS designated Regional Center.
Except in a regional center company case, investors are required to participate in the operational management of the invested enterprise; in practice, this can be satisfied by taking a managing position, participating in the decision-making process or being a limited partner in a LLP. In some cases, the participation requirement can be waived.
Business Forms of Invested Enterprises
EB-5 has no requirement for the form of invested enterprise. Corporations, limited liability companies and limited partnerships are all acceptable. However, the choice of business form is very important for tax and management reasons.
Businesses can take many different forms under U.S. law. There are many different factors that influence a business’ decision to take on a particular form. The organizational structure of a business can affect its success.
Three forms of business entities commonly associated with EB-5 petitions:
Corporations are the most familiar business structure. A corporation exists as a separate legal entity. This means that when an individual incorporates his/her business in a particular state, the corporation is responsible for its actions, including taxes and debt. Typically under this structure, corporate officers and shareholders cannot be held personally liable for the actions of the corporation. Additionally, ownership of corporate stock may be freely transferred by sale or by gift, subject to certain corporate restrictions. An incorporated business may buy, sell, and hold property under the corporation name and enjoy unlimited life, meaning the business remains unaffected by the death of a director, officer, or shareholder. However, some types of corporations are subject to “double taxation.” This means that profit is first taxed at the corporate level and then again at the personal level.
Limited Liability Companies
A limited liability company (LLC) exists as a separate legal entity. This structure combines some of the limited liability advantages of a corporation with the tax-related benefits of avoiding double taxation associated with a partnership. One of the major advantages of an LLC is that the business can choose how it would like to be taxed—as a corporation or partnership. Additionally, there is no limit to the number of shareholders that can exist in a LLC structure. A LLC can be managed either through “member management,” in which all members of the LLC have a say, or through “manager management,” in which members appoint a manager to operate and direct the business. Many states have implemented “franchise taxes” for LLCs which serve as fees to the company for the limited liability and flexibility they enjoy.
A limited partnership occurs when two or more individuals join together to form a business by contributing capital, property, labor or skills in exchange for part of the profit or losses of a business. In a limited partnership, there is usually only one general partner and one or more limited partners with limited duties and liabilities. In this structure, the general partner(s) have full management responsibilities and control daily business functions. The limited partner is typically a passive investor. Limited partnerships enjoy the tax benefit of avoiding double taxation on their profit. However, partners are personally liable and not all partners share liability equally. Examples of limited partnerships include large law firms.
The following are some typical enterprises in Regional Center Programs: a real estate limited partnership program that offers investment in industrial properties in a specified major city, a limited partnership program that makes low interest loans to businesses in a specified major city, ownership of an 80-acre almond farm in a specified location in an agriculture state.