I. A new commercial enterprise
A. A creation of a new enterprise
1. Creating sole proprietorships, corporations, joint ventures, partnerships, holding companies and their wholly-owned subsidiaries, or business trusts.
2. The new commercial enterprise can be publicly or privately owned but it should be for profit business operations.
3. A new business enterprise used to purchase an existing business is not qualified. For example, the fact that an entrepreneur establishes a new company which purchases a 24 year old Howard Johnson hotel is not considered to qualify for EB-5 petition by INS.
4. Entrepreneur’s ownership interest should be present at the new commercial enterprise’s inception. Several of EB-5 petitions were denied on situations which a partnership normally was created first and the general partner will seek alien entrepreneur as limited partner later on to avoid or limit legal liability. This business operation is normal in real world and typically involved in real estate transaction. However, CIS takes the position that the entrepreneur does not qualify for EB-5 because he or she was not partner when the original partnership was created and then there is no new commercial enterprise established.
B. Purchasing and restructuring an existing business
1. A new commercial enterprise is established when the entrepreneur purchases an existing business and simultaneously or subsequently restructures or reorganizes the enterprise.
2. Simply changing the legal form of the enterprise does not qualify this standard.
3. The entrepreneur must create at least 10 full-time jobs and cannot create a net loss of employment.
C. Expanding an existing business and thereby substantially increasing the net worth or number of employees in a business by 40 percent
1. If there are several partners along with the entrepreneur, the entrepreneur can qualify this requirement for the 40% increase of net worth or number of employees of the business by pooling capitals with other investors. However, AAO requires that all investors, not only the entrepreneur, must prove their source of funds by lawful means. This evidentiary responsibility is on the alien entrepreneur, which is so extremely onerous that makes it almost impracticable, if not impossible, for the alien entrepreneur as a partner in a partnership to file EB-5 petition.
II. $1,000,000 investment, ($500,000 in a targeted employment area)
A. Invested capital must be $1 million, or actively in the process of investing;
B. $500,000 in a targeted employment area, which is a rural area of less than 20,000 population or an area which has experienced high unemployment of at least 150% of the national average;
C. The invested capital can be in a form of
2. cash equivalents,
5. tangible property, and/or
6. indebtedness secured by personal assets owned by the alien entrepreneur who has to be personally and primarily liable for the debts.
D. All capital is valued in U.S. dollars at fair market value at the time they are given. For example, a promissory note in a face value $500,000 was secured on entrepreneur’s vacation home which is estimated as $460,000 in the market. The contributed capital is $460,000, not $500,000.
III. Investment at risk
A. Entrepreneur’s invested capital must be at risk. An unsecured promissory note based on entrepreneur’s credit, for instance, is not an investment of capital while the note is secured by his or her property is qualified.
B. The assets of the new commercial enterprise which are used to secure any of the indebtedness are not qualified for this purpose.
For example, a bank loan secured by hotel property is not considered as an investment even though the entrepreneur personally guarantees on the loan because the lender is not obligated to proceed against the alien investor. More often than not, the bank usually can satisfy its secured loan by foreclosing the hotel’s property and then it is not necessary to seek personal liability from the entrepreneur. By contrast, loans secured by the alien entrepreneur in his or her homestead are considered to be qualified.
Additionally, various debt arrangements, such as exchange for a note, bond, convertible debt, stock redeemable at the holder’s request, payment of partnership expenses, sell options at a fixed price other fair market value (redemption), or any “escape” clauses at note, between the entrepreneur and the new commercial enterprise does not qualify as “capital”.
C. Entrepreneur must substantially complete his payments on a valid promissory note prior to the end of the 2 year conditional residency period. Payment schedule is a critical factor to meet this requirement. For example, an EB-5 petition with five annual payments $18,000 with balloon of $290,000 plus a final payment of $120,000 was denied by INS since the face value of the note was substantially reduced by the 2 year period.
D. The promissory note should be enforceable and valid at the place that it is executed. Particularly, CIS takes the position in 1998 that PRC’s national cannot file EB-5 petition by securing a note secured on a foreign property in China because it is not enforceable in PRC.
E. Prior to 1998, there are several EB-5 immigration service providers which had some kind of redemption agreement, guaranteed interest payment or guaranteed returns with foreign investors. All those arrangements are not permitted by CIS since the investment of entrepreneur is not at risk.
F. If the alien entrepreneur invests his or her capital into a business account while he or she is the sole owner and exercises sole control over the business, CIS simply denied the EB-5 petition on the reason that the investor can withdraw it at will. Therefore, depositing funds in a company account is not sufficient. Further business activities, such as purchasing real property, leasing office or warehouse, purchasing inventory or equipment, or entering contracts, are necessary.
IV. Source of funds must be legitimate
The alien entrepreneur must prove the source of funds of his or her invested capital being legitimate, such as gifts, inheritances, or loans.
V. Creation of at least 10 qualifying US workers
A. The alien entrepreneur must create at least 10 full-time (35 to 40 hours weekly) employments for U.S. citizen, lawful permanent resident or other immigrants lawfully authorized to be employed in the United States.
B. Non-qualifying employees:
1. Independent contractors;
2. Nonimmigrant alien workers; and
3. The alien entrepreneur and investor’s spouse and children.
C. Exception for investment in “troubled businesses”: the entrepreneur does not have to create 10 new jobs. He or she is only required to maintain the number of existing employees at the time of investment.
VI. Investor’s involvement in the management of the new commercial enterprise
A. The alien entrepreneur must either be involved in the day-to-day managerial control of the commercial enterprise or manage it at least by formulating policy. Passive role, such as shareholder or limited partner only, is not qualified.
B. Evidence, such as investor being a corporate officer, or a member of the board of directors, normally is sufficient. However, a limited partner with a partnership agreement providing rights, powers and duties normally granted limited partners under the Uniform Limited partnership Act (ULPA) is considered to satisfy this requirement. But AAO found that merely calling the investor a limited partner pursuant to the ULPA in a partnership does not automatically qualify the alien investor as involvement in the management of the new commercial enterprise.