By its very nature, the EB-5 immigrant investor program is a combination of business & immigration law. Below is a list of definitions of terms found & used throughout business, investment, and immigration law particular to EB-5 investments & regional centers.
8 CFR Sec. 204.6(e) Definitions. As used in this section:
"Capital" means cash, equipment, inventory, other tangible property, cash equivalents, and indebtedness secured by assets owned by the alien entrepreneur, provided that the alien entrepreneur is personally and primarily liable and that the assets of the new commercial enterprise upon which the petition is based are not used to secure any of the indebtedness. All capital shall be valued at fair market value in United States dollars. Assets acquired, directly or indirectly, by unlawful means (such as criminal activities) shall not be considered capital for the purposes of section 203(b)(5) of the Act. Basically, you should invest the entire amount, without using any promissory notes. However, you can borrow money from banks using your personal assets, such as real properties, expensive jewelry, etc.; but you cannot borrow the money using the very new commercial enterprise or business to make the investment.
"Commercial enterprise" means any for-profit activity formed for the ongoing conduct of lawful business including, but not limited to, a sole proprietorship, partnership (whether limited or general), holding company, joint venture, corporation, business trust, or other entity which may be publicly or privately owned. This definition includes a commercial enterprise consisting of a holding company and its wholly-owned subsidiaries, provided that each such subsidiary is engaged in a for-profit activity formed for the ongoing conduct of a lawful business. This definition shall not include a noncommercial activity such as owning and operating a personal residence. Statutory amendment has reaffirmed (as if it was not already clear from the above regulatory language) that a limited partnership formed pursuant to Uniform Limited Partnership Act of the state should qualify as a "commercial enterprise", and Matter of Izummi, one of the precedent AAO case, has made it clear that the commercial enterprise can engage in lending activity in the context of a Regional Center -- meaning in a Regional Center, a limited partnership can be formed pursuant to the Uniform Limited Partnership Act, to act as a commercial enterprise and carry on the commercial activities required in making investment loans to a third-party entity that is actually responsible for the creation of new jobs.
"Employee" means an individual who provides services or labor for the new commercial enterprise and who receives wages or other remuneration directly from the new commercial enterprise. In the case of the Immigrant Investor Pilot Program, "employee" also means an individual who provides services or labor in a job which has been created indirectly through investment in the new commercial enterprise. This definition shall not include independent contractors. Basically, this definition excludes free-lancers or independent contractors who work for themselves.
"Full-time employment" means employment of a qualifying employee by the new commercial enterprise in a position that requires a minimum of 35 working hours per week. In the case of the Immigrant Investor Pilot Program, "full-time employment" also means employment of a qualifying employee in a position that has been created indirectly through revenues generated from increased exports resulting from the Pilot Program that requires a minimum of 35 working hours per week. A job-sharing arrangement whereby two or more qualifying employees share a full-time position shall count as full-time employment provided the hourly requirement per week is met. This definition shall not include combinations of part-time positions even if, when combined, such positions meet the hourly requirement per week. Subsequent statutory amendment has clarified that the "full-time" means "employment in a position that requires at least 35 hours of service per week at any time, regardless of who fills the position." We have to admit we are not actually certain what this means, although we have some ideas.
"High employment area" means a part of a metropolitan statistical area that at the time of investment:
(i) Is not a targeted employment area; and
(ii) Is an area with an unemployment rate significantly below the national average unemployment rate.
"Invest" means to contribute capital. 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 for the purposes of this part. Basically, investor individually cannot lend money to the new commercial enterprise. This means the investor must invest the requisite amount into the Limited Partnership entity formed pursuant to the Uniform Limited Partnership Act, to act as a new commercial enterprise for the particular Regional Center EB-5 project.
"New" means established after November 29, 1990.
"Qualifying employee" means a United States citizen, a lawfully admitted permanent resident, or other immigrant lawfully authorized to be employed in the United States including, but not limited to, a conditional resident, a temporary resident, an asylee, a refugee, or an alien remaining in the United States under suspension of deportation. This definition does not include the alien entrepreneur, the alien entrepreneurs spouse, sons, or daughters, or any nonimmigrant alien.As you can see, this means the investors parents or relatives can be employed.
"Regional center" means any economic unit, public or private, which is involved with the promotion of economic growth, including increased export sales, improved regional productivity, job creation, and increased domestic capital investment. Later statutory amendment deleted the increased export sales activities, and has said any investments into the region that leads to the job-creation suffices. Without this amendment, most Regional Centers will be out of business.
"Rural area" means any area not within either a metropolitan statistical area (as designated by the Office of Management and Budget) or the outer boundary of any city or town having a population of 20,000 or more.
"Targeted employment area" means an area which, at the time of investment, is a rural area or an area which has experienced unemployment of at least 150 per cent of the national average rate.
"Troubled business" means a business that has been in existence for at least two years, has incurred a net loss for accounting purposes (determined on the basis of generally accepted accounting principles) during the twelve or twenty-four month period prior to the priority date on the alien entrepreneurs Form I-526, and the loss for such period is at least equal to twenty per cent of the troubled business net worth prior to such loss. For purposes of determining whether or not the troubled business has been in existence for two years, 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.
PPM (Private Placement Memo):Disclosure document that describes a financial security for potential buyers, provides investors with material information about investments, and a description of the company business & finances. The purpose of a PPM in the EB-5 context is to comply with securities laws & protect investors by providing them with transparent information on the targeted investment company. In practice, it also protects the business which is seeking investments by distributing information on the risks associated with potential investment.
Private Equity Advisor: An outside firm hired by an institutional investor to handle the selection, negotiation and monitoring of private equity funds. Private Placement:Sale of securities to a select few investors to raise capital. In the EB-5 context, this refers to the sale of securities (such as private stocks or bonds) in exchange for their investment in the business enterprise.
SEC (Securities & Exchange Commission): Agency of the US federal government that holds primary responsibility for enforcing the federal securities laws and regulating the securities industry, stock and options exchanges, and other activities and organizations.
Security:A tradable asset, such as a stock, bond, membership, unit, or cash. A security is exchanged, in the EB-5 context, for an investment in the business enterprise. The security is where the investor seeks a non-guaranteed return on their investment.
Accredited Investor: Term that delineates investors permitted to invest in certain types of higher risk investments as determined by the SEC. Accredited investors are those who meet one of the following (1) Net worth of over $1Million; (2) Net income of over $200,000 for previous two fiscal years and expected to continue for the following year; or (3) Joint income with spouse of over $300,000 for the previous two fiscal years and expected to continue the following year.
Non-accredited investor: An individual who does not meet any of the three SEC criteria as discussed in ‘Accredited Investor’ above.
Escrow: a bond, deed, or other document kept in the custody of a third party, taking effect only when a specified condition has been fulfilled. In the EB-5 context, the investment capital is usually held in an escrow account pending the intending immigrant’s I-526 application approval. Once the application is approved, the funds are released from escrow to the targeted business enterprise.
Escrow Agent: An entity that has responsibilities in the transfer of property from one party to another. In the EB-5 context, the escrow agent handles the escrow agreement and is responsible for releasing the investment funds upon the approval of the intending immigrant’s I-526 application; or returns the funds to the investor if the I-526 is denied. Escrow Agreement: Document that delineates the terms of the escrow between the investor and the targeted business enterprise. The escrow agreement names the escrow agent, on what conditions the funds will be released or returned, fees, jurisdiction in case of legal action, etc.
Due Diligence: A process of inspection that a venture capital or other private equity firm carries out before closing on a deal. Liquid Assets:Assets in the form of cash (or easily convertible into cash).
NAICS: The North American Industry Classification System or NAICS is used by business and government to classify business establishments according to type of economic activity. It is usually a number that classifies businesses according to type of economic activity. Regional Center classification applications require a list of all applicable NAICS for the industry in which they will operate.
Market Analyst:Someone who studies the conditions affecting a market, such as the stock market. Investment Capital: Total cash investment made into a company.
Target Company:Typically used in the context of a merger, the target company is the company which will be acquired or absorbed by the other business enterprise (Usually relating to direct investment).
Relative Return: The return an asset achieves over time.
Prospectus:A legal document required filed with the SEC that explains in detail public investment opportunities offered by the enterprise; and contains all pertinent and necessary information for investors to make an informed decision.
Offering Document:A legal document containing a PPM, Escrow Agreement, Partnership Agreement, Subscription Agreement, Prospectus, etc given to potential investors as an informational memorandum. The offering document also protects the enterprise seeking investments from liabilities.
Economist:An expert concerned with the material prosperity of a given region. In the EB-5 context, an economist is necessary to set up a regional center; and provides the enterprise seeking Regional Center designation with an analysis of the regional center’s job creation projection, fund flows, etc. Economic Studies:A field of knowledge focused on production, consumption, & transfer of material goods & wealth.
Business Plan: Written description of a business’s future strategy. A written business plan is needed for the regional center designation application (Form I-924). Partnership Agreement:Contract between two or more parties, including one or more general partners & one or more limited partners, agreeing to pool their capital, labor, & skills together; and where the profits & losses will be shared among the partners.
LLC (Limited Liability Company):Business combining the characteristics of a corporation & a partnership to create an unincorporated association. Since it is ‘limited liability’, a person’s financial liability is limited to a fixed sum (usually the amount of their investment in the company). In contrast, sole proprietors and general partners have unlimited liability for the debts of a company.
LP (Limited Partnership): A partnership agreement where only one partner is needed to be the general partner, with others being limited partners (however there can be more than one general partner). General partners have management control, may use partnership property, share the company’s profits, and are liability for the debts of the partnership. Limited partners within association or only liable for debts up to their personal invested amount in the association.
Equity Model:Method used to determine the value of shares issued by a company. In the EB-5 context, an entrepreneur who has invested in a business is an equity holder. I-526 Application:Immigrant Petition by Alien Entrepreneurs. Form I-526 is used by EB-5 investors who wish to immigrate to the US by making direct investments or by investing in Regional Centers. Once the I-526 is approved, the investor may apply for conditional permanent resident status with form I-485; or may undergo consular processing to receive a visa (if residing abroad).
I-829 Application: Petition by Entrepreneur to Remove Conditions. Used by EB-5 conditional permanent residents to remove the conditionality of the permanent resident status 90 days prior to the second anniversary of their permanent resident status. The removal of conditions (and continuance of permanent resident status) is contingent upon the job creation requirement of the EB-5 category.
I-924 Application: Application for Regional Center Under the Immigrant Investor Pilot Program. Used by prospective regional center entrepreneurs to designate a business entity as a USCIS approved regional center, so that they may receive investments from EB-5 Immigrant Entrepreneurs. Regional Center applicants must demonstrate: (1) A defined geographical area with a description of how the RC would promote economic activity within the region, (2) How the RC will create jobs, either directly or indirectly, through economic models & forecasts, (3) Statements how the amount & source of capital funds invested in the RC, (4) Detailed forecast of how the RC will positively affect the region’s and the nation’s economy & employment levels.
Processing Time: Time taken by the USCIS once an application is received to process, review, & adjudicate an application. Processing times vary, depending on the application type.
Consular Processing: Process used by intending immigrants & nonimmigrants to receive a visa overseas. Typically involves an interview, biometrics, medical examination, and additional paperwork. For EB-5 intending immigrants who reside abroad, consular processing is required to receive the EB-5 visa. Without the EB-5 visa, the intending investor immigrant cannot enter the the US as a conditional permanent resident. (See Processing Time)
Adjustment of Status: Process used by intending immigrants who are already in the United States on a valid status to become a conditional US Legal Permanent Resident (LPR) based on a pending or approved immigrant petition. EB-5 investors who reside in the US & have an approved I-526 may apply for adjustment of status with form I-485. Their immediate family members (spouse& unmarried children under age 21) may also apply concurrently based on the approved I-526. (See Processing Time)
Immigrant Visa:In contrast to a non-immigrant visa, an immigrant visa allows the foreign born alien to enter or remain in the US as a Legal Permanent Resident (LPR). EB-5 Investors who reside abroad will receive an immigrant visa when they undergo consular processing (based on an approved I-526). The visa will allow the immigrant to enter the US. Once in the US, the conditional permanent resident card will be mailed to their place of residence in the US.
Conditional Permanent Resident:EB-5 investors receive conditional permanent resident status, as opposed to unconditional permanent resident status. The conditionality is contingent upon the creation or maintenance of 10 full time jobs for US workers based on their investment. If this condition is met, the investor may and must apply to remove the conditionality 90 days before the second anniversary of their permanent resident status through form I-829. If this condition is not met, the permanent resident status will expire and the investor will no longer be in valid lawful status in the US.
Immigration Quota: A cap on the number of visas that can be issued. Various factors play into quotas, including country of origin, type of visa applied for, and (for family based petitions) type of relationship to the US citizen or US Legal Permanent Resident. The EB-5 category has 10,000 available visas annually. This cap has never been met, but is expected to be in 2014 or 2015. If the visa cap is reached, then there will be cut-off dates varying by country (separated into China, India, Mexico, Philippines, and All Chargeability Areas Except Those Listed).
Priority Date: For employment & some family based immigration petitions, the priority date is the date which USCIS marks an application received. The priority date determines when a visa is or will be available for the intending immigrant. In summary, it marks an intending immigrant’s place in line. Currently, priority dates for the EB-5 category are always current; meaning that a visa was immediately available when the I-526 application was filed. However, since the EB-5 visa cap is expected to be reached for the first time in 2014 or 2015, priority dates will likely become more important under the EB-5 category.
Cut Off Date:Dates found on the visa bulletin which determine, in conjunction with the priority date, the availability for a visa in a given category. In summary, the cutoff date is the ‘currently serving’ number for an immigrant’s place in line. To have an available visa in a given category, the cutoff date must be on or before the priority date. Currently, there are no Cut Off Dates under the EB-5 category; but there will likely be cut-off dates (particularly for China) by the end of 2014 or 2015, due to increased demand from EB-5 investors.
Principal Beneficiary: The primary, or leading, immigrant for which a petition was filed. For example, an EB-5investor would be the principal beneficiary for an I-526 application. Derivative Beneficiary: Typically the relatives of the principal beneficiary who are also eligible for the same immigrant benefits; but whom were not petitioned for in the immigrant application. For example, Dr. Gupta is the principal beneficiary for his EB-5 I-526 application. Dr. Gupta’s spouse& children may accompany him to the United States (through consular processing if abroad, or adjustment of status if already in the US) once the I-526 is approved as derivative beneficiaries of his EB-5 application.
Direct Investment: An investment into a business by an individual or corporation by purchasing the business or expanding the business. In the EB-5 context, direct investment is one of two investment options (the other being investment in a designated regional center). The process for direct investment v. Regional Center investment is identical, save job creation requirements. Additionally, the investor must engage in the management of the enterprise; as opposed to a more passive role when investing in a regional center. Fund Flow Chart: Net cash in & outflow of financial assets. Typically measured monthly or quarterly. A fund flow chart or diagram is required for the regional center designation application (I-924) to illustrate the forecasted flow of funds from the RC to the local economy.
RFE (Request for Evidence):Formal response from USCIS when the provided evidence in an application is insufficient to warrant a favorable decision. The RFE denotes what specifically is lacking in the application, and allows the applicant to provide the additional documentation to the USCIS before a decision is made. For EB-5 I-526 applications, the most common RFE seeks to verify that the investment funds were lawfully obtained.
RC Annual Report:Regional Centers are required to demonstrate their continued eligibility for RC designation by filling form I-924A each fiscal year. Failure to file the annual report may results in termination of the enterprise’s designation as a regional center. The annual report should contain, (1) the aggregate amount of EB-5 alien capital invested, (2) aggregate number of direct or indirect jobs created by the EB-5 investors, (3) aggregate number of jobs maintained by EB-5 investors, (4) The industry(s) that are the focus of the EB-5 capital investments, (5) Information on all job creating enterprises located within the RC’s geographic area that have received alien investor capital, (6) Total number of approved, denied, & revoked I-526 application filed by alien investors through the RC, (7) Total number of approved, denied, & revoked I-829 petitions filed by alien investors through the RC.
RC Amendment: If a Regional Center must file an amended form I-924 if it seeks changes in any of the following areas: “1. Geographic area; 2. Organizational structure or administration; 3. Affiliated commercial enterprise investment opportunities, to include changes in the economic analysis and underlying business plan used to estimate job creation for previously approved investment opportunities and industrial clusters; 4. Affiliated commercial enterprise organizational structure and/or capital investment instruments or offering memoranda. B. An amendment may also be filed to seek a preliminary determination of EB-5 compliance for documentation provided as an exemplar Form I-526, Immigrant Petition by Alien Entrepreneur, prior to the filing of Form I-526 petitions by individual alien entrepreneurs” Time Frame of Job Creation: EB-5 investors must demonstrate that their investment created, maintained, or induced 10 full time jobs within 30 months of their I-526 application approval. According to a memo published May 30th, 2013; the 2-year job creation requirement found in 8 C.F.R. §204.6(j)(4)(i)(B) begins 6 months after the approval of form I-526, essentially giving the investor a 30 month period instead of a 24 month period to create and/or maintain 10 full-time jobs.
Direct Jobs & Indirect Jobs: Under the EB-5 category, direct job creation are identifiable positions for qualified employees within the targeted invested enterprise. Indirect jobs are those shown to be created as a result of the investment in the targeted enterprise. The jobs must be created or maintained for qualifying US workers (See: Qualifying Employee).
RIMS II Model (Regional Input-Output Modeling System):Economic model used to estimate an increase in economic activity within a given geographical area based on industries within the area.RIMS II uses input-output multipliers to forecast industry supplied increases in economic activity.
IMPLAN Model (Impact Analysis for Planning): Model used to account for all dollar flows between economic sectors in a given region to estimate the total economic implications of certain economic activity. IMPLAN uses localized models to forecast specific economic consequences of business transactions within an enterprise’s geographic region.
REMI Model (Regional Economic Models, Inc): Economic forecasting & policy analyses tool used for economic projections of investments. REMI uses input-out; general equilibrium, econometric, and economic geography approaches to determine the varying economic forecasts.
REDYN (Regional Dynamics Economics Analysis Model): A model used to analyze economic impact of investments and other economic activity. The REDYN model uses financial, budgetary, & economic impacts at varying levels (National, Regional, Local) to create long-term economic forecasts. The model utilizes data from public & private sources, updated annually.
Subscription Agreement: Used by EB-5 direct investors as an act of limited partnership to exchange investment capital with a specified number of the company’s shares.
Shareholder Agreement: A contract between shareholders in a given corporation or incorporation agreeing to regulate the exercise of their rights as shareholders, both amongst other shareholders and between shareholders and the company.
Loan Model: A popular operating model for EB-5 investors where funds are placed into a created Limited Partnership instead of directly into a project. The LP issues units to the entrepreneurs for their investments, and then loans out the investment capital to the project operation company.
Actual (Real) Project: Term used by the USCIS describing applications for regional center designation (I-924) filed together with exemplar I-526 immigrant investor applications, which includes all documents and forms except information on the source of funds and the investor’s personal documents. The benefit of filing an actual project as opposed to a hypothetical project, is that it eases the requirements of future I-526 applications. USCIS will accord deference to future I-526 applicants when the regional center designation is an actual project.
Hypothetical Project: Term used by the USCIS describing regional center applications (I-924) that do not include any specific project documents with the application. The USCIS will examine the project documentation during the I-526 (Immigrant Investor Application) stage instead, making the I-526 applications more difficult and time consuming. However, regional centers filed as hypothetical projects require less initial documentation and can more easily receive initial approval.
In order to qualify as an investment in the EB-5 Program, the immigrant investor’s capital must actually be placed “at risk” for the purpose of generating a return and evidence of such risk must accompany the EB-5 petition. The mere intent to invest is not sufficient and prospective investment arrangements entailing no present commitment will not suffice to show that the applicant is actively in the process of investing. While the law does not specify what the degree of risk must be, the entire amount of capital must be at risk to some degree. According to Matter of Izummi, a decision issued by the Administrative Appeals Office (AAO) of USCIS, if the immigrant investor is guaranteed the return of a portion of his or her investment or is guaranteed a rate of return on a portion of his or her investment, then the portion of the capital is not at risk. For the capital to be considered “at risk” there must be a risk of loss and a chance for gain. In Matter of Izummi, the immigrant investor’s capital was deemed not to be “at risk” because the investment included a redemption agreement that protected against the risk of loss of the capital and constituted an impermissible debt arrangement under 8 C.F.R. § 204.6(e) because it was no different from the risk any business creditor incurs. In addition, an investment with a promise to return any portion of the immigrant investor’s minimum required capital would also not be considered “at risk” capital. If an agreement between the new commercial enterprise and the immigrant investor, such as that of a limited partnership agreement or operating agreement, states that the investor may demand return of or redeem some portion of capital after obtaining conditional lawful permanent residence status, that portion of capital is also not at risk.
Additionally, if the investor is individually guaranteed the right to eventual ownership or use of a particular asset in consideration of the investor’s contribution of capital into the new commercial enterprise (such as a home or other real estate interest or item of personal property), the expected present value of the guaranteed ownership or use of such asset does not count toward the total amount of the investor’s capital contribution in deciding how much money was placed at risk. However, during or after the conditional residency period, an investor is not prohibited from receiving a return on his or her capital, as long as, prior to or during this period and before the requisite jobs have been created, the return is not a portion of the investor’s principal investment and was not guaranteed to the investor.
It is important to note that an investor’s money can be held in escrow until the investor has obtained conditional lawful permanent residence status if the immediate and irrevocable release of the escrowed funds is contingent only upon approval of the investor’s Form I-526 and subsequent visa issuance and admission to the U.S. as a conditional permanent resident or, in the case of adjustment of status, approval of the investor’s Form I-485. Funds may be held in escrow within the U.S. or in foreign escrow accounts as long as the petition establishes that it is more likely than not that the minimum qualifying capital investment will be transferred to the new commercial enterprise in the U.S. upon the investor obtaining lawful permanent resident status.