Practice Pointers: The Business Lawyer Beyond Just Securities
While immigration attorneys are often front and center in EB-5 transactions, securities lawyers are understood to play an essential role in the process that is only ignored at a business’s great peril. EB-5 professionals now know that the Securities and Exchange Commission considers EB-5 investment opportunities to involve securities. Securities lawyers readily take on the task of generating the complex sets of disclosure documents essential to satisfy the U.S. securities law requirement that prospective investors be provided with all material facts about the proposed investment opportunity prior to investing, to help assure that the investment decision is as informed as possible. In addition to actually drafting the disclosure documents, securities lawyers also actively advise clients about how to lawfully conduct their offerings using those documents, and whom to work with to help sell their securities.
Some lawyers specialize only in securities work, and within that broader umbrella definition, many focus on only a select part of the overall universe of such work: some in private offerings (Reg D and Reg S), some on broker-dealer issues (registration and compensation), and others on one or the other of the 1940 Acts (the Investment Company or Investment Adviser Acts). Beyond just securities, many other lawyers combine an emphasis in securities law with the wearing of an additional hat—that of a business lawyer. Business lawyers are as vital to the success of every EB-5 business as the securities lawyers, as they consider EB-5 in the context of real-world business.
The business lawyer’s big picture perspective
As a broader, more general appellation than securities lawyer, the term business lawyer properly connotes an attorney whose focus is on a business as such: a broad-based enterprise whose activities will inevitably involve a variety of more narrowly-focused areas of the law, such as labor and employment law, landlord-tenant law, intellectual property law, contract law, transactional law, real estate law, and yes, securities laws. Unlike attorneys who specialize in one specific area, and develop narrow expertise in that one focus (including securities law), business lawyers develop broader-based expertise, including significant knowledge in many specific areas. So, while it is fair to say that securities lawyers are a sub-set of business lawyers, not all securities lawyers are business lawyers.
Because of their breadth of knowledge, business lawyers are uniquely positioned to assist businesses (including, of course, EB-5 businesses) with the big picture: how all of the pieces of a particular business’s puzzle fit together to produce a successful enterprise. Seen in this light, a given EB-5 fundraising project is properly seen not as an end in itself, but instead as a means to achieve a broader goal—a very important means, to be sure, but still, just one step in the life of a business.
A good business lawyer will caution clients swept up in that first blush of EB-5 possibilities (c’mon, you surely remember that first time) that it is not magic money. EB-5 funding is available money, and it is low-cost money, but it cannot magically transform a bad project into a good project; it simply cannot transform lead into gold. If a business does not make sense without EB-5 money, it cannot be made to work simply by including EB-5 money in the capital stack. That kind of perspective comes less readily to attorneys whose sole focus is narrower–on only disclosing information about a single fundraise.
Instead, the business attorney looks past the immediate achievement of raising the money, to the results of spending the money. That lawyer will ask how raising the money will get the enterprise to its goals. Will the costs involved with financing, or restrictions on the ability to deploy those funds, or the obligation to repay the money by a specific date handicap the business’s growth? Or, can all those issues be taken in stride? With the perspective to see these issues, and the ability to frame the questions, the business lawyer enables answers to be discovered.
Beyond just securities documents
Beyond long-term planning, the business lawyer will be able to contribute essential documents vital to accomplishing a successful EB-5 financing and a productive use of the monies raised.
Wearing their corporate lawyer hat, the business attorney understands which legal entities are appropriate to fulfill the various different roles that entities play in the EB-5 structure generally, as well as for particular projects. They know how to speedily and accurately file the appropriate formation documents with various states. They also know how to draft the internal governing documents which establish relationships inside the companies among partners, members, and shareholders; divvy up control and management; confirm the sharing of profits and losses; and govern the departure and addition of participants. Many of those documents will be vital in objectively demonstrating compliance with the EB-5 program’s unique requirements.
Based on my personal 30 years of practice, I understand how the business attorney can help negotiate, draft, or review the many agreements needed to enable the EB-5 transaction to actually take place. Business lawyers can have extensive contract law experience, and within the EB-5 context can put that experience to great use in drafting loan agreements, security (collateral) agreements (including deeds of trust, mortgages, and promissory notes), equity purchase agreements, regional center sponsorship agreements, investor procurement agreements with overseas brokers, letters of intent, subordination agreements, and the like. Remember: the business lawyer drafts the very contracts, agreements, and other documents and legal instruments that the securities lawyer discloses in the offering documents.
The business lawyer is able to provide guidance and documentation essential to the long-term success of the venture, beyond the narrower focus of the securities lawyer, because of the big picture perspective about how the EB-5 offering fits a business’s overall lifespan, the knowledge to generate the necessary documents beyond the set of securities disclosure documents, and the ability to form and properly maintain the various entities needed for EB-5 structures to last the long haul. It makes great sense to include a business lawyer on the EB-5 project’s professional team—either in addition to, or even better (keeping legal fees down), combined with the securities lawyer’s expertise.
Where to find an experienced business attorney? Just ask. Inquire of the securities lawyer, when interviewing, whether their scope of expertise includes a significant amount of broader general business work. Ask whether they can draft the various agreements and contracts that make the elements of the EB-5 project actually work. If they cannot, reach out to your immigration lawyers, economists, and business plan authors—many have worked with an array of different lawyers and know the broader-based from the disclosure-only attorneys. It will be well worth the extra digging to unearth the lawyer who can make the greater contribution