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[HOT] Key definitions required to understand EB-5 law requirements


Below are definitions on various key EB-5 related terms that are essential to the understanding of EB-5 law, including such terms as "Capital", "Full-time", "Invest", "New Commercial Enterprises", Regional Center" and "Targeted Employment Area". Proper understanding of these terms are essential to your understanding of EB-5 law. Italicized portions are our own additions or clarifications to the regulatory definitions.

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 entrepreneur's spouse, sons, or daughters, or any nonimmigrant alien. As you can see, this means the investor's 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 entrepreneur's Form I-526, and the loss for such period is at least equal to twenty per cent of the troubled business's 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.

In addition to the above terms which are referenced in the EB-5 statutes and regulations, USCIS has created confusion by introducing the following terms into EB-5 vocabulary:

Capital investment project: Where the new commercial enterprise entity engages in making a loan to job-creating projects, an entity other than the actual new commercial enterprise entity which creates jobs by borrowing from the new commercial enterprise entity and using that fund to create jobs. Instead of using the term"capital investment project", USCIS should use the term "job-creating entity" vs. "new commercial enterprise".

material change: No one knows at this time what USCIS means by "material change". It appears USCIS is proceeding on "we will know when we see it" approach which is not good for business persons who need clear guidance from USCIS. Material change makes sense when I-526 is still pending, but after I-526 is approved, the material change concept loses its meaning. After I-526 has been approved, the relevant question should be: Have I-829 requirements been met?