Spotlight EB-5 New Enterprise

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					                                                                       IMMIGRATION LAW & STRATEGY

                                                                                Northern Virginia/DC Office
                                                                                   Telephone (703) 531-0790

                                                                                   San Francisco CA Office
                                                                                   Telephone (415) 888-8296

Spotlight: EB-5 Investor, New Enterprise
The EB-5 Investor Visa allows for conditional, and then permanent, US residence for persons who,
after November 29, 1990, invested $1,000,000 into a single corporation or $500,000 to a US CIS-
recognized Regional Center, to employ 10 US citizens or authorized immigrant workers full-time
and to engage in the business through day-to-day management or policy formation.

Basic Legal Requirements

Engaging in a new commercial enterprise

The immigrant investor must be coming to the United States to "engage in a new commercial
enterprise" in which an investment was made after November 29, 1990. The establishment of a
new commercial enterprise can be the creation of an original business, the purchase and
restructuring or reorganizing of an existing business, the expansion and substantial change in net
worth by 40 percent of an existing business or increasing the number of employees by 40 percent,
or it can be an investment in a troubled business. A troubled business is one that has been in
existence for at least two years and has incurred a net loss for accounting purposes during the 12-
or 24-month period prior to the filing of Form I-526. The loss for such period must be at least equal
to 20 percent of the troubled business’s net worth prior to such loss. Successors in interest to the
troubled business will be deemed to have been in existence for the same period of time as the
business they succeeded.

Commercial in nature

Like the E-2 requirement, the enterprise must be for profit and commercial in nature.

Multiple investors/pooled arrangements

There can be multiple owners/investors or pooled investments. Each investor seeking EB-5 status
must individually invest the required amount and the required jobs created must be allocated to
each investor needing EB-5. Job allocation need not be made among investors not seeking EB-5.

The Administrative Appeals Office (AAO) has held in some non-precedent cases that all investors,
including non- EB-5 investors, must identify their source of funds. However, if this issue is raised at
the I-829 stage, it should be argued that if the I-526 is approved, the source of funds should not be

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readjudicated unless the government has reason to believe the funds were unlawfully obtained
pursuant to 8 CFR §216.6(c)(2).

Investor "engaged" in the new commercial enterprise
EB-5 applicants must be "engaged" in the new commercial enterprise. The investor cannot have a
purely passive role, but must be engaged in the management of the enterprise, either through
day-to-day managerial control or policy formulation. The investor must submit a position
description or evidence of being a corporate officer or director, or, if in a limited partnership,
evidence of direct management or policy making authority. A named limited partner in a limited
partnership formed under the Uniform Limited Partnership Act should qualify provided the
investor has the actual rights and duties normally granted to limited partners. This evidence is less
extensive in terms of showing specific required job duties than that required for managers and
executives seeking E-1/E-2 visas.

The investor must "have invested" or be "actively in the process of investing"

Given the two-year conditional nature of the EB-5 program, one might think that capital can be
invested over the course of the two years. However, before approving an I-526, USCIS has often
taken the approach that the investment must be fully made, or at the very least be at risk,
committed to the enterprise, and not just languishing in a business account. The petitioner must
demonstrate access to the funds or assets that will be invested and a strong likelihood of follow-
through to complete the full investment required. The irrevocable commitment of funds, as in the
E-2 context, is required.

Investment "capital" means cash, cash equivalents, equipment, inventory, or other tangible
property. It does not include intangible property. Capital must be valued at its fair market value (in
U.S. dollars). The regulations and cases are very specific (and often controversial) on capital issues.
Beware of statutes limiting foreign investment in certain activities. Capital does not include loans
by the petitioner or other parties if secured by assets of the enterprise. A contribution of capital in
exchange for a note, bond, convertible debt, obligation, or any other debt arrangement between
the alien entrepreneur and the new commercial enterprise does not constitute a contribution of
capital. Debt secured by the investor’s personal assets is permissible capital provided the assets
securing the note are specifically identified, the security interests are perfected, and the assets are
amenable to seizure by the note holder. However, indebtedness often increases the likelihood of
scrutiny of EB-5 applications, because the adjudicators cannot quite grasp the concept that, or
frequency with which, companies are funded with debt. The regulations specifically prohibit the
investor from loaning money to the enterprise or securing debt with company assets.

Capital "at risk"

The capital must be "at risk" in the business in that it cannot sit in the investor’s personal account.
It must be available for use in the business and be subject to total or partial loss. Like E-2 program
applicants, EB-5 applicants can place their funds in escrow pending approval, provided the funds
are irrevocably committed. Clients should be counseled about the risks of escrow, however. At the
I-829 stage, it will be necessary to show that the funds were disbursed from escrow and deposited
into the business account of the company for which the investment is intended.

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Amount of investment required

Unlike the E-2 visa program, for which there is a proportionality test to determine the minimum
amount needed to invest, the EB-5 program has specific statutory minimums that may or may not
be significant in relation to the total amount of capital invested in the enterprise. In addition, there
is no marginality issue in the EB-5 context as there is for E-2s. $1 million is the general minimum
investment required, except that $500,000 is permissible in "targeted employment areas" that are
either rural or high-unemployment areas as designated by each state. (Unemployment must be at
least 150 percent above the national average.) The states file their designations with USCIS.

Investment must benefit the economy

Although the investment must benefit the U.S. economy, this requirement is not defined in the
regulations. Presumably, it is a reference to the job creation requirement.

Job creation requirement

The investor must create 10 full-time jobs for U.S. workers (U.S. citizens, legal permanent
residents, or other authorized immigrants). The investor, his or her spouse or children, and
independent contractors cannot be counted toward the 10 jobs. The jobs must be full time (at
least 35 hours a week), or the jobs can be shared if combined they meet the hourly requirement,
but the jobs of part-time workers cannot be combined to count as a full-time job. Under the
Regional Pilot Program allowing investment in private or government-run "designated regional
centers," indirect creation of the 10 U.S. jobs is permitted by showing improvement to the local
economy. The regional centers are designated by the attorney general and secretary of state. The
jobs can be created over the course of the two-year conditional residence period, but if they are
not created by the time the I-526 is submitted, a detailed business plan is required to establish the
likelihood of the jobs being created during the two-year period. Failure to fill temporarily open
positions during the conditional residence period may be excused, so long as there were good-
faith attempts to fill the position. Investment in a "troubled business" requires maintenance of the
existing jobs at the pre-investment level during the conditional period, not creation of 10 new
ones. Investors that elect to expand a business by 40 percent may choose to increase the net
worth of the business by that amount or increase jobs by 40 percent. The required 10 jobs must be
created. Larger companies may need to create more than 10 jobs.

Evidence to Qualify for Removal of Conditions

The full investment was made by the time of filing the I-526

Theoretically, if the investment was made at the time of filing the I-526, it should not be
questioned again unless USCIS has evidence that the funds were obtained unlawfully. It has been
held that the investment should not be re-determined if there were no issues of fraud and the
company is conducting ongoing business and creating the required jobs. If the funds were in
escrow at the time of the I-526, disbursement of funds into the business should be documented.
Audited financial statements, though not required, are helpful to provide, along with all types of
bank and other records that prove the investment was fully made and lawfully obtained.

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Sustaining the investment through the two-year period

This requirement alludes to making sure the investment was actually used in the business during
the conditional residence period. Evidence of having sustained the investment through the two-
year period should focus on business operations during the period, and may include bank
statements, invoices, receipts, contracts, business licenses, federal or state income tax returns, or
quarterly tax statements. Other evidence might include proposals, marketing or business plans,
and documentation of current and future business to show the business has been ongoing and

Job creation

The petitioner must prove either that the jobs were created or that they are likely to be created
within a reasonable period of time. I-9 forms, payroll records, and payroll tax records can show
this. Evidence of jobs to be created can include advertisements, job offer letters, business plans,
and prospective contracts for business. Investors in troubled businesses, who may qualify by
saving jobs rather than creating them, need to show evidence of maintenance of the number of
existing employees at no less than the preinvestment level for the prior two years. Notably,
regional center investors may not have their own employees. Therefore, proof of indirect job
creation is based on "reasonable methodologies," which may include economic analysis and
forecasts rather than I-9 Forms and payroll.

Overview of Case Logistics

   1. Investigate whether your investment is financially viable. It is recommended that the
      Investor hires business analysis experts and conducts due diligence on the prospective

   2. Assemble investment funds and collect required documentation proving the funds are
      legally obtained.

   3. Make the capital investment.

   4. File a petition for alien entrepreneur with USCIS (Form I-526).

   5. Upon approval of the petition, the alien applies for adjustment to conditional resident
      status if inside the United States. If abroad or using a B-1 Visitor Visa for travel, the case is
      final-processed through the US consulate in the country of residence. This process flows
      through the National Visa Center which is a hub for all consulates.

   6. The US consulate schedules an immigrant visa interview to ensure you are not subject to
      grounds of exclusion, eg, a criminal past, infectious diseases, etc. The person is then
      granted conditional resident status, valid for 2 years.

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   7. File an application to remove conditional resident status (Form I-829) between 21 to 24
      months after conditional resident status is approved.

   8. Once conditional resident status is removed, USCIS grants a full green card for indefinite
      resident status and work permission in the United States.

   9. U.S. citizenship is possible after five years from the time one is admitted as a conditional


                                San Francisco CA | Washington DC