Question: How can I make my EB-5 investment work?
Question Detail: For my EB-5 project, I am planning to buy a company for about $600,000. It it in a targeted employment area and has a dual portfolio: the company develops software and does medical billing, as well as invests in properties. How would it be possible for me to buy that company and through that corporation invest my money in real estate and operations/growth of the company? Most of the jobs will be made in software development, but most of the investment will be in real estate. How can I make this eligible for EB5?
Since EB-5 program requires a foreign investor to invest required capitals in a new commercial enterprise that creates at least 10 full-time jobs, the commercial enterprise that an investor invested must be “new”. Regulation defines “new” as a company formed after Nov 29, 1999. Thus, an investor who didn’t establish the company, but invested in a company that began after Nov 29, 1999 is investing in a new commercial enterprise. For a company formed before Nov 29, 1999, it can be considered “new” if 1) it has been restructured or reorganized, or 2) it has been expanded so that a 40% increase in the net worth or the number of employees has occurred. You need to determine the establishment date of the company you are planning to buy in order to meet the eligibility of EB-5. Please keep in mind that in addition to “new” commercial enterprise, you still have to meet the requirement relating to the amount of capital that must be invested and the number of jobs that must be created.
If the existing company you are planning to buy is a trouble business (which has been in existence for at least 2 years but has incurred a net loss for accounting purposes during the 2 years and the loss for such period is at least equal to 20% of the troubled business’s net worth), you only need to show that the number of existing employee will be maintain at no less than the pre-investment level for a period of at least two years. However, the regulation that allowing job preservation does not decrease the number of job creation requirement. 10 jobs must be preserved, created or some combination of the two. Such as an investment in a troubled business preserves six jobs and creates four new jobs.
EB-5 program allows an investor to diversify the investment cross a portfolio of businesses or projects. For direct investment, you may deploy the capital into a portfolio of wholly-owned business, as long as all capital is deployed through a single commercial enterprise and all jobs are created within that commercial enterprise or through the portfolio of business that received capital through that commercial enterprise. In the case of your company, you may set up different businesses as the wholly owned subsidiaries of the holding company, such as software and real estate, and deploy most of capital toward the real estate subsidiaries but create most jobs through software subsidiaries.
As the jobs can be created indirectly for a new enterprise located in the regional center, the new employees would not be employed directly by the new enterprise. You only need to show that the indirect jobs are created as a result of the new enterprise, even if the creation of jobs is outside the new enterprise. But under this circumstance, the capital must still be invested in the holding company, which can then deploy the capital toward the subsidiaries and the jobs can be created indirectly through the subsidiaries.
You are allowed to invest $600.000 capital when the enterprise is located in regional center but 10 jobs creation requirement must be met. Rather, jobs can be created either directly or indirectly. You may invest in the holding company then deploy that capital toward software and real estate subsidiaries and create jobs through the subsidiaries. But:
1. If the existing company was formed after Nov 29, 1999, you can make your investment without showing the enterprise was restructured/reorganized or expanded. 2. If the existing company was formed before Nov 29, 1999, you must restructure/reorganize or expand it by 40% increase in the net worth or the number of employees. 3. If the existing company is troubled business, you only need to maintain or create 10 jobs within at least 2 year.