The EB-5 program offers foreign investors a variety of business investment possibilities. Investment in different types of business carry with it different risk levels. This article briefly discusses two unique investment categories: the purchase of an existing business and the purchase of a troubled business. Both require the same EB-5 investment amount similar to investing in regional center enterprises, and both have job creation or maintenance requirements.
1. The Purchase of an Existing Business
New commercial enterprises typically must have been formed after November 1990. The purchase of an existing business, however, is exempt from this requirement, thereby opening up more investment possibilities to foreign investors. The investment must still create ten jobs, as with most other investment enterprises under the EB-5 program. The following are the two types of existing businesses to consider under the category.
A. Purchase and Restructuring of an Existing Business
One option is to purchase an existing business and restructure or reorganize the business into a new commercial enterprise. A few cosmetic changes, such as providing a renovated business with a name medication, to the business will not satisfy the restructuring requirement. On the other hand, examples such as turning a restaurant into a nightclub or adding substantial crop production to a livestock farm, will qualify as a restructuring of an existing business. While this investment option allows the consideration of more businesses than just those established after November 1990, there is still much uncertainty as to what constitutes a restructuring or reorganization. Moreover, transforming a business into a new enterprise could present its own frustrations and obstacles versus investing in a brand new enterprise altogether.
B. Expansion of an Existing Business
The option to expand an existing business with the EB-5 investment capital begins with the same relaxed rule defining a “new” commercial enterprise. For this opportunity, the foreign investor must accomplish a substantial change in the net worth of the business or in the number of employees. A “substantial change” means at least a 40% increase in the enterprise’s net worth, or an increase in the number of employees hired. The potential challenge in meeting the “substantial change” requirements may mean that the foreign investor will have to create more than 10 jobs, depending on the original size of the existing business. If the original business operated inefficiently, then a foreign investor may find it necessary to put a lot more work into turning the business around in order to expand and increase profits.
2. Investment in a Troubled Business
Investors may also elect to invest in a troubled business that has been operating for at least two years and incurred a net loss during the twelve or twenty-four months prior to the foreign investor’s EB-5 visa petition filing. The primary goal for this type of investment is to preserve the existing jobs in lieu of creating new or more jobs (although creating more jobs is always allowed). The total jobs created and/or maintained (combinations of the two are acceptable) must be no less than pre-investment levels for the duration of the two years the EB-5 conditional green card has been issued.
Investing in a troubled business carries its own risks. The business will have been operating at a loss for a year or two before the EB-5 investment and the foreign investor must successfully develop and execute a business plan to turn the business into a profitable venture. Thus, while the job creation requirement is altered to include job preservation, the stresses and challenges of this enterprise are immediately apparent.
Fortunately, USCIS has relaxed some of the EB-5 requirements for these types of businesses because of the greater risks associated with them. While the risks are different from ones associated with investment in a brand new enterprise, foreign investors prior business expertise may find these alternatives very lucrative.
At Jatoi & de Kirby, APC, we know how important it is for you and your family to get the most up-to-date information on the EB-5 Program. Our San Francisco immigration attorneys can advise you on how changing EB-5 rules may impact new investors. Call us today at 415-221-2345 for more information.