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EB-5 Immigrant Investors: Must Invest In New Commercial Enterprise

One of the requirements to qualify for the EB5 employment-based immigration visa, is that the immigrant investor must invest in a “new commercial enterprise.” There are two criteria here that must be established. The Enterprise must be “new” and it must be “commercial.”

New commercial enterprise

For the enterprise to qualify as being commercial, it must be a for-profit entity created for the purpose of conducting ongoing lawful business. This also includes subsidiaries so long as the subsidiaries are also for-profit. An enterprise is not commercial if it does not engage in commercial activity, such as a nonprofit company. For a commercial enterprise to be considered new for purposes of the EB5 investment, it must have been formed after November 29, 1990. The investment will not qualify if the commercial enterprise was formed before that date. However, there are two exceptions to this rule. A commercial enterprise may be formed before that date if the investor either “restructures” or “expands” it.

No requirement to create an original business

Case law from 1998 held in a precedent decision that the investor was required to have a hand in creating the enterprise and also was required to be present at the origin of the enterprise. This rule was not practical and seemed to make little sense because partnerships are frequently created before the general partner looks for investors. Under this rule, investors were unable to qualify due to the fact that they were not partners when the original partnership was established. Congress eliminated this requirement in 2002. Consequently, investors are now only required to establish that they have made an investment in a commercial enterprise.

Restructuring an existing business

A business will be deemed to have become a new commercial enterprise if it can be established that the investor has reorganized or restructured an already existing business. The statute and regulations offer little guidance as to the level of restructuring or organization required in order to establish a new commercial enterprise. Yet, case law does hold that it is not enough to merely alter the business’ legal form.

Expanding an existing business

A new commercial enterprise will be deemed to have been created if it can be shown that the investor has expanded an already existing business. The expansion must have resulted in an increase in the business' net worth of at least 40 percent, or resulted in a 40 percent increase in its number of employees. The investor does not need to prove that the investment singlehandedly resulted in the 40 percent increase. Case law requires proof of audited financial statements that show the net worth of the company at the time the investment was made.

The investor must be engaging in the new commercial enterprise

In order to qualify for the EB5, the investor must serve more than just a mere passive role in the new commercial enterprise. The investor is required by regulations to actually be involved in the enterprise's management. This means the investor must have involvement in the daily managerial control of the business or must formulate policy that manages the business. According to the regulations, this requirement is satisfied if the investor is a corporate officer, board member, or limited partner. If you have questions about the EB5 immigrant investors visa category, please contact our immigration attorneys or call The Law Firm of Shihab & Associates, Co., LPA at the nearest office close to you to consult with an attorney.

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