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How Do You Rescue A Troubled Business Via EB-5?               By Joseph P. Whalen (July 8, 2012)(Updated July 13, 2012)Thi...
legal framework. With this in mind, there are certain threshold issues to bedetermined. To put it another way, preliminary...
pay the proffered wage” it should not be overlooked for its potential for describingand discussing EB-5 troubled businesse...
or office of the qualifying organization in the United States and                         abroad.(q) Cultural visitors —  ...
petition must be accompanied by evidence that the number of existing            employees is being or will be maintained a...
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How do you rescue a troubled business via EB-5?

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How do you rescue a troubled business via EB-5?

  1. 1. How Do You Rescue A Troubled Business Via EB-5? By Joseph P. Whalen (July 8, 2012)(Updated July 13, 2012)This is a topic I have not addressed in an in-depth manner until now. Where tobegin? How about with the “definitions”? I like to stress the concept of keepingthings in their proper context and this is a very specific context: preserving and/orcreating jobs in a troubled business, or rescuing a failing commercial enterprise! 8 CFR Aliens and Nationality PART 204—IMMIGRANT PETITIONS Subpart A—Immigrant Visa Petitions§ 204.6 Petitions for employment creation aliens. * * * * *(e) Definitions. As used in this section: * * * * * 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 percent of the troubled businesss 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. * * * * * 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.A basic underlying concept is that each word and each part of a statute and itsimplementing regulations is to be given full effect in harmony with the rest of the Page 1 of 5
  2. 2. legal framework. With this in mind, there are certain threshold issues to bedetermined. To put it another way, preliminary questions need to be asked andsatisfactorily answered, in order to move forward with the EB-5 project.The business has to have been in existence for at least two years upon filing the I-526 in order to be in the running as a possibly “troubled business”. It has notbeen settled as to what will prove the establishment of the business in order to meetthe regulatory requirement of having existed for at least two years. Was itestablished upon filing certain paperwork? Which paperwork? With whom? Was itestablished after that point when physical premises were secured? Was itestablished when the “business owner” took possession/occupancy of thecommercial space? Did it not fall under the definition until it was “operational”?The troubled business needs to show a 20% or greater loss in “net worth” in theprior 12 or 24- month period as of the I-526 filing date. How is net worth beingcalculated? At what point in the existence of the business can one start countinglosses? Set up costs are not losses, they are the investment needed to begin doingbusiness. How can you show a net loss if you never had a profit and/or neveractually got around to doing any business 1?A commercial enterprise is a “for-profit activity formed for the ongoing conduct oflawful business”. In order to show a loss, the business must at the very least, havebeen operational to the point of conducting ongoing lawful business of some sortand to some degree. An EB-5 investor can buy a troubled business and beconsidered the successor-in-interest but must be careful to make sure that the entitypurchased was actually operational and conducting business at some point duringits minimum two-years of existence. Although it would be easiest if the troubledbusiness actually had made a profit at some point, I am not convinced that it is anabsolute requirement as long as the business was actually operational and runningat a loss while striving to turn a profit. You do have to have, and spend, money inorder to make money in the vast majority of businesses in the world. Manybusinesses are after all initially funded with savings and/or borrowed money.For the concepts of how to examine and describe business activities, profitabilityand the reason(s) for a temporary or short-term loss in revenue, I suggest studyingMatter of Sonegawa, 12 I&N Dec. 612 (Reg’l Comm’r 1967). While Sonegawa isbest known for its interpretive value on the concept of “an employer’s ability to1 “Doing Business” is defined in other portions of 8 CFR relating other visa categories. Page 2 of 5
  3. 3. pay the proffered wage” it should not be overlooked for its potential for describingand discussing EB-5 troubled businesses.In addition to what may be “borrowed” from Sonegawa, certain nonimmigrantcategories may offer guidance on related concepts useful to the EB-5 “troubledbusiness” context.§ 214.2 Special requirements for admission, extension, and maintenance ofstatus.The general requirements in §214.1 are modified for the followingnonimmigrant classes: * * * * *(e) Treaty traders and investors — * * * * * (13) Bona fide enterprise. The enterprise must be a real, active, and operating commercial or entrepreneurial undertaking which produces services or goods for profit. The enterprise must meet applicable legal requirements for doing business in the particular jurisdiction in the United States. * * * * * (15) Marginal enterprise. For purposes of this section, an enterprise may not be marginal. A marginal enterprise is an enterprise that does not have the present or future capacity to generate more than enough income to provide a minimal living for the treaty investor and his or her family. An enterprise that does not have the capacity to generate such income, but that has a present or future capacity to make a significant economic contribution is not a marginal enterprise. The projected future income-generating capacity should generally be realizable within 5 years from the date the alien commences the normal business activity of the enterprise. * * * * *(l) Intracompany transferees — * * * * * (1) Admission of intracompany transferees — * * * * * (ii) Definitions — * * * * * (H) Doing business means the regular, systematic, and continuous provision of goods and/or services by a qualifying organization and does not include the mere presence of an agent Page 3 of 5
  4. 4. or office of the qualifying organization in the United States and abroad.(q) Cultural visitors — * * * * * (1) — * * * * * (iii) Definitions. As used in this section: * * * * * Doing business means the regular, systematic, and continuous provision of goods and/or services (including lectures, seminars and other types of cultural programs) by a qualified employer which has employees, and does not include the mere presence of an agent or office of the qualifying employer. * * * * *There are additional regulations specific to the context of the “troubled business”such as the following.§ 204.6 Petitions for employment creation aliens. * * * * *(j) Initial evidence to accompany petition. A petition submitted for classificationas an alien entrepreneur must be accompanied by evidence that the alien hasinvested or is actively in the process of investing lawfully obtained capital in a newcommercial enterprise in the United States which will create full-time positions fornot fewer than 10 qualifying employees. In the case of petitions submitted underthe Immigrant Investor Pilot Program, a petition must be accompanied by evidencethat the alien has invested, or is actively in the process of investing, capitalobtained through lawful means within a regional center designated by [USCIS] inaccordance with paragraph (m)(4) of this section. The petitioner may be requiredto submit information or documentation that [USCIS] deems appropriate inaddition to that listed below.2 * * * * * (4) Job creation — * * * * * (ii) Troubled business. To show that a new commercial enterprise which has been established through a capital investment in a troubled business meets the statutory employment creation requirement, the2 Expect this to be the case is most EB-5 submission and you will be less likely to get an ulcer. Page 4 of 5
  5. 5. petition must be accompanied by evidence that the number of existing employees is being or will be maintained at no less than the pre- investment level for a period of at least two years. Photocopies of tax records, Forms I–9, or other relevant documents for the qualifying employees and a comprehensive business plan shall be submitted in support of the petition.With above in mind, do not lose sight of the underlying statutory requirement forthe EB-5 investors. Each EB-5 investor must be credited with ten (10) full-timejobs for qualifying employees. Therefore, if the mere preservation of jobs isinsufficient to meet the minimum of ten jobs each then additional jobs must becreated. In a direct “stand-alone”, non-Regional Center case, the jobs must be “EB-5 direct” jobs, which means: on-the-books employees & on the alien’s payroll. ARegional Center affiliated rescue of a troubled business may also count certainpreserved and created “indirect jobs”. Good Luck! That’s my two-cents, for now. Page 5 of 5

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