+1-800-997-1228
EB5 INVESTORS MAGAZINE

Six Questions about L1

 By Hansi Men

 

I’ve applied for EB-5. Why L1?

 

EB-5 was retrogressed for the first time on May 1, 2015. Investors must wait until their priority date is earlier than the cutoff date to apply for a temporary green card. While no one can accurately predict the wait time with the data published, it is foreseeable that without substantial reform, EB-5 investors will have to wait for years before they can get a temporary green card.

 

Date of Visa Bulletin

Cutoff Date

Movement (Days)

May, 2015

05/01/2013

 

June, 2015

05/01/2013

0

July, 2015

09/01/2013

123

August, 2015

09/01/2013

0

September, 2015

09/22/2013

21

October, 2015

10/08/2013

17

November, 2015

11/22/2013

46

December, 2015

12/15/2013

24

January, 2016

01/08/2014

25

February, 2016

01/15/2014

7

March, 2016

01/22/2014

7

April, 2016

02/01/2014

11

May, 2016

02/08/2014

7

June, 2016

02/15/2014

7

July, 2016

02/15/2014

0

 

As such, investors are exploring other options that allow them to live in the United States lawfully while waiting for their green card. The following are the most common ways:

 

 

 

Visa Category

Major Pros

Major Setbacks

F (Student Visa)[1]

Holders of F1 visas can lawfully reside in the United States with a spouse and children under 21 years of age. Children under 21 may attend public K-12 schools while on F2, a visa issued to dependents of the F1 visa holder.

Holders of an F visa are restricted from being employed within the United States. F1 holders and dependents cannot work without a CPT issued by the school. If holders of F visa are found working unlawfully, it may jeopardize their EB-5 petitions.

 

This is not an option for investors who do not intend to go to classes on a regular basis, or feel challenged by U.S. education. Getting an F visa through a typical “shell school” constitutes immigration fraud, and may also jeopardize EB-5 petitions.

 

L1-A (L1 Intra-Company Transferee; hereinafter, “L1”)

No requirement of English language proficiency.

 

No minimum amount of investment.

 

Spouse and children under 21 years of age may obtain L2 to work and study in the U.S.

 

Acquiring a sizeable U.S. company may eventually offer L1 visas to multiple executives at the foreign company.

 

The U.S. company needs to actively develop a business and generate revenue, which can be extremely challenging for Chinese investors who have never run businesses in the U.S.

 

Applicants must have worked for the foreign company continuously for over one year, and must prove such employment.

E2 (Treaty Investor)

No requirement of foreign employment.

 

The U.S. company can be an independent company.

 

No requirement of English language proficiency.

 

No minimum amount of investment.

Investors must be citizens of countries that already have a treaty with the U.S., such as Canada and Belgium. Mainland China does not have a treaty with the U.S. as of the date of this article.

 

While there’s no minimum investment amount, the investment cannot only generate marginal income for the application. The investor must be able to generate income more than what’s enough to cover living expenses.

 

 

As demonstrated above, L visa holders do not need to attend any classes, do not need to speak fluent English, and do not have to sit in the office eight hours a day as an executive (while L1 holders must be full-time employees). Mainland-born EB-5 investors may apply for L1 without immigrating to another country. For many EB-5 investors, they are already considering developing businesses in the U.S. Therefore, L1 has become a retrogression solution commonly considered by EB-5 investors. However, EB-5 investors have a lot of misconceptions about the L visa.

 

 What does L1 require?

 

L1 requirements can be summarized as follows: First, the U.S. company must be the parent, subsidiary, branch office or affiliate of the Chinese company. Affiliate usually means a company controlled by the same parent company as the other, such as wholly owned subsidiaries of a parent company. Second, L1 applicants must be here for executive or management jobs. In other words, the applicant must be doing “high-level” work. Third, L1 applicants must have worked for the foreign company for over one year. Sufficient documentation must be provided to prove each element.

 

Can I get an L1 by just registering a U.S. company?

 

No, that would not work. Historically, L1 was actually more of a special work visa for large multinational companies, even though U.S. immigration regulations do not specifically provide for a minimum size. After years of litigation, L1 became more and more open to smaller entities. With such a history, while technically a U.S. subsidiary with only one employee may apply for L1, the USCIS may deny the L1 application for reasons other than the size. In a most recent Administrative Appeals Office (“AAO”) decision in June 2016 (Matter of M-G-USA LLC), the USCIS denied the appeal from a one-employee company. In the decision, the USCIS acknowledged that certain aspects of the employee’s functions do meet L1 requirements, but also found that the employee does not have enough time for “executive” work. Notably, the employee in this case argued that he/she was managing foreign company’s employees and operations, but the USCIS was not persuaded.

Basically, a “high-level” executive must be managing some other “lower-level” employees. L1 is a visa for managers and executives so applicants must do managerial and executive work.

 

Well, why can’t I just give myself a fancy title and get a couple of employees? Would that work?

 

Many applicants and even attorneys have such misconceptions. In another AAO decision in June 2016 (Matter of K-I Corp), AAO rejected this viewpoint: “Specifics are clearly an important indication of whether a beneficiary’s duties are primarily executive or managerial in nature; otherwise, meeting the definitions would simply be a matter of reiterating the definitions.” While the applicant in Matter of K-I Corp asserts that he’s an important executive in the U.S. company, the applicant did not describe the strategies and plans of the company with enough details, such as how the company would go from a start-up to become a company that needs a high-level executive. Notably, the L1 petition was filed by a company engaged in U.S.-China trade commerce.

 

Applicants need to understand that L1 requires an extension. Usually, a one-year visa will be issued to the applicant to set up a U.S. company. Extension applications must be filed before the one-year visa expires. Extension applications must demonstrate to the U.S. that the company has had significant development and requires a high-level executive or manager. Otherwise, even if applicants get the one-year visa, the extension will likely not go through if the U.S. firm is still too small or does not have active business operations. Once the extension is denied, the applicant will have to depart the U.S. immediately.

 

How to structure an investment to meet L1 requirements?

 

To me, the most important step of an L1 visa application is to determine the target market and business plan. Applicants should evaluate investment risks and U.S. business development strategies. EB-5 investors with some level of business experience would still need to discuss with an investment advisor, accountant, and legal counsel the structural issues. Attorneys advising these types of clients should understand both immigration regulations and investment structures.

 

Due to the fact that many EB-5 investors do not have business development experience in the U.S., starting a new business is challenging to say the least, thus making acquiring an existing U.S. business an attractive option. For example, consider an EB-5 investor who happens to be a director at a mid-size company in China. After filing for EB-5, the investor could not move to the U.S. due to retrogression. The investor started to look at other options. Due to the fact that China’s economy is a bit stagnant, the investor’s company in China was already contemplating expanding overseas. To identify investment opportunities, the investor engaged a U.S. business broker and identified a target company with about 20 employees. After due diligence, the U.S. company agreed to sell 51 percent of its common stock with two seats on the company’s board of directors. Both the Chinese company’s board of directors and the investor liked the offer in general, but the U.S. company asked for $5 million. For risk management purposes, the Chinese company wanted to invest $1 million first and then another $4 million if the U.S. business developed well.

 

In this example, a 20-employee company is in no way a “large corporation,” but for L1 applicants, companies of that size usually can sponsor one to two executives’ L1. If the investor wants to get an L1, the Chinese company would need to acquire 51 percent of the U.S. company so that the two companies could have a “qualifying relationship” required by the USCIS. However, the U.S. firm would never sell 51 percent of its common stock for $1 million. In that scenario, the Chinese company could subscribe to 51 percent of the U.S. company, and execute a $4 million promissory note secured by 45 percent of the common stock. While the U.S. company would be limited in its financing options because of the security, the company may still issue preferred stocks or notes. On the other hand, if the Chinese company decides not to invest the $4 million, the U.S. firm can basically sell 6 percent of the common stock for just $1 million. Under current immigration laws, because the Chinese company is already a parent company of the U.S. company after executing the subscription agreement and paying the $1 million, the investor can apply for an L1. From an investment perspective, this structure accommodates the demands of both sides.

 

Can I get a green card through L1 for cheap?

 

In my practice, I often encounter Chinese people who want to get a green card via L1 for cheap. They hope to spend $20,000 to $30,000 on a small business in the U.S. and get a green card. I would usually walk away if I can’t persuade them to give up on such ideas.

 

L1 is a good option for Chinese entrepreneurs who seriously intend to develop businesses in the U.S. Indeed, a lot of people came to the U.S. on L1 and obtained a green card through EB-1 after the business took off. More often than not, these entrepreneurs invested a lot more money and energy into their U.S. businesses than EB-5 investors who invested in a Target Employment Area project sponsored by a regional center. L1’s biggest difference from EB-5 is that it requires the applicant to have an active role in the business operation. L1 applicants often need to leverage the resources they already have to develop businesses in the U.S.



[1] Pursuant to the INA, F Visa applicant may not “abandon” foreign residence. Many visa officers have interpreted the INA as though the applicant cannot have intent to immigrate. In my experience, EB-5 investors do not typically experience difficulties in getting F visa. Of course, applicant must disclose the filed I—526 petition on DS-160.

Hansi Men

Hansi Men

Disclaimer

Add your comment

Use a Facebook account to add a comment, subject to Facebook's Terms of Service and Privacy Policy. Your Facebook name, photo & other personal information you make public on Facebook will appear with your comment.