Foreign nationals with significant resources who are seeking a pathway to citizenship are likely aware of the EB-5 visa program. The program is intended to attract immigrants with resources and skills that can help drive economic and job growth. In fact, the conditions of the program require an immigrant investor to make a minimum investment of $500,000 or $1 million into a new commercial venture to create at least 10 full-time jobs for Americans.
However, many intending immigrants have questions and concerns about the program including whether their investment can be made into an already-existing, but mismanaged company. Certain investors may think that they understand a troubled business’ problems and believe that they can fix those issues to return the company to profitability. An intending applicant for an EB-5 visa can indeed invest into a troubled business, but certain conditions and requirements apply to both the immigrant investor him or herself along with the company where the investment is targeted.
What Satisfies the EB-5’s “New Commercial Enterprise” Requirement?
AS part of the terms of the EB-5 immigrant investor program, all EB-5 investors are required to make an investment into a “new commercial enterprise.” There are two main requirements. First, the investment must be made into an entity that fits the definition for a “commercial enterprise.” A commercial enterprise includes any business entity formed for the purposes conducting ongoing lawful business operations. Forms the business entity can take are not limited and can include a:
- Joint venture
- Limited partnership
- General partnership
- Sole proprietorship
- Public or privately owned trust
While economic activity that is not commercial in nature – such as running one’s household – is not included.
Aside from an investment into a commercial enterprise, the enterprise must also be”new.” While this requirement would appear to foreclose the possibility of investing into an already existing troubled business, this is not the case. New commercial enterprises include those ventures that were established after November 1990. Alternatively a commercial enterprise can qualify as new if the business is restructured so thoroughly so that a new enterprise results or it is expanded such that a 40 percent increase in the company’s net worth or number of employees is realized. Therefore an intending immigrant investor can invest into an already existing business provided that one of the foregoing conditions are met.
What is a Troubled Business and What Impact Will investing Into One have on an EB-5?
However, not every already existing company is also a troubled company. To meet the definition of a troubled business the company must have already existed for at least two years. A troubled business has incurred net losses over the prior one year or two year period preceding the immigrant investor’s priority date. The minimum loss is no less than 20 percent of the venture’s net worth.
The main impact investing into a troubled business has is on the job creation requirements set forth by the EB-5 program. While the program standards require an immigrant investor to create or preserve at least 10 full-time jobs, new jobs are not credited when an immigrant investor invests into a troubled business. Rather, only the jobs that are preserved are counted.
The Pros and Cons of a Troubled Business Approach to the EB-5
There are a number of benefits to the approach of investing into a troubled business. First, because the business already exists, the investor does not have to start from scratch. Furthermore, because the business is in trouble, it is highly possible that your investment can have greater buying power. Furthermore, the opportunity to turn around setbacks and inefficiencies means that there is the opportunity to make a profit. Furthermore, one typically only has to preserve jobs rather than creating new positions.
However there are also drawbacks to this approach. For some, they may find investing into a company that is already losing money to be too risky. Furthermore, should the company fold within two years of the immigrant investor’s investment, the investor can lose not only his or her money but also this chance at citizenship.
Immigration Attorneys Provide a Strategic Approach to EB-5 Visa Concerns
If you have questions or concerns about a potential EB-5 investment into a new business or a troubled business, the immigration attorneys of Colombo & Hurd may be able to provide perspective and guidance. To schedule an initial immigration consultation call our firm at 800-659-7142 or contact us online today.