EB-5 Two Pathways: Direct Investment or Regional Center Investment
By Echo Meisheng King and Roxi A. Liming
The EB-5 program requires that the Investor make a capital investment of either $500,000 or $1 million, depending on whether or not the investment is in a targeted high unemployment area or rural area. Investors must invest the proper amount of capital in a business called a new commercial enterprise, which will create or preserve (in very limited circumstances) at least 10 full time jobs for US workers, within 2 years of receiving conditional permanent residency.
Two distinct EB-5 pathways exist for an Investor, direct EB-5 and Regional Center EB-5. Which pathway is best for an individual Investor requires a number of considerations.
1. Job Creation
The EB-5 program requires that the new commercial enterprise must create 10 full time jobs for each investor. The job creation is the one of the most important consideration in the success of an EB-5 project.
The Direct Investment Program requires the new commercial enterprise to create or preserve only direct jobs that provide employment opportunities for US workers by the commercial enterprise in which the capital has been directly invested.
The Regional Center Program allows the Investor to fulfill the job creation requirement not only through direct jobs, but also projections of jobs created indirectly which is estimated by an economist using reasonable methodology. Jobs created indirectly are the job opportunities that are predicted to occur because of investments associated with the regional center. Usually job numbers in a Regional Center project are much higher than the ones in a Direct EB-5.
Typically, Direct Investors invest in smaller projects with fewer total investors involved. Many Direct Investors are the sole investor in a particular project. Types of businesses that Direct Investors have chosen are restaurants (franchise and non-franchise), hotels, nursing homes, farms, and retail stores.
2.Path of Investment
The difference in how the job creation requirement is met is often cited as the primary difference between the Direct Investment Program and the Regional Center Program. However, there are a number of other differences. In the Direct Investment Program, the Investor usually puts his investment capital directly into the new commercial enterprise. The investment capital usually stays under the control of the Investor throughout the investment period and the Investor usually controls the timing of the job creation based upon the business needs.
Under the Regional Center Program pathway, the Investor sends funds to the investment pool (i.e., the new commercial enterprise as designated by the Regional Center.) The new commercial enterprise then transfers the funds to the job creating entity for management of the project. At the job creating entity, the foreign investments are combined with investments from other sources, which could be funds from other foreign investors or US domestic funds, or a combination of both.
3. Type of Investment Capital
Most Regional Center investments require the transfer of cash in order to meet their capital investment requirements. However, the type of investment capital for a Direct Investment may consist of contribution of various forms of capital, including cash, equipment, inventory, property or other tangible equivalents. For example, a large portion of the capital contribution can come through the transfer of specialized manufacturing equipment from the Investor’s home country to the US, as long as the investor is able to show the value of this contribution through the US Customs forms completed at the time the equipment arrived in the US.
4. Marketing of Project
The Direct EB-5 option allows the business or developer to market the project to investors virtually immediately without having to obtain any USCIS preapproval. With Regional Center Programs, the Regional Center must obtain USCIS preapproval, and make sure all it offering documents comply with the US Securities and Exchange Commission requirements, before it can market the program to investors.
5. Management Role
The Direct Investment pathway does not allow for a passive investment. The Investor in a Direct Investment must be an equity investor in the job-creating enterprise. This can be accomplished either through the issuance of common shares or preferred equity. At the least, the Investor must be placed in an advisory capacity. With this structure, the Investor could obtain a more substantial return on his investment. With a Regional Center Investment, the Investor is usually a limited partner and or an investing member in a limited liability company and he does not have to meet the day to day operation obligations.
6. I-829 Remove Conditions
The I-829 conditional removal process for a Direct Investment requires more documentation. Direct Investors must document through payroll records and tax returns, the actual number of US workers. The Direct Investor must prove each employee is a US citizen or permanent resident or otherwise qualifying employee. Regional Center investors do not have to meet this requirement, as these investments are allowed to meet the job creation requirement through different counting mechanisms.
Regional Center designations are based on the full investment of many different investors in a single project. If a Regional Center project does not attract a sufficient number of investors, the project may not happen or may be delayed, which could result in the original investors being unable to remove conditions.
A Direct Investment is best suited for the Investor who really wants to own and be involved in the operation of the business. Ideally, the Investor should be competent in the English language and US business practices (or be willing to hire management assistance who is). This pathway requires the individual Investor to put more time and effort. Realistically, the Investor must be willing to make at least a 5 year commitment to the business enterprise (based on current processing times). If the business is successful, the Investor has the potential to receive great financial rewards. The Investor is not only involved in creating a business that will contribute to his family success, but the Investor is creating a legacy for his family—all part of the “American Dream.”
A Regional Center investment is good for people who have no interest or time to devote to managing a business. The Regional Center pathway is ideal for those Investors where lack of control over the investment funds is not an issue, but they still want to obtain a US green card with geographic mobility. This is a different path towards achieving the “American Dream.”
Echo Meisheng King is the lead and managing attorney of the King Law Center based in Orlando, Florida. Focusing on EB-5 investment immigration, Echo combines her immigration law practice with her Chinese and Korean cultural heritage to bring knowledge, understanding, and expertise to offer clients comprehensive service.
Roxi A. Liming is an EB-5 immigration attorney and a partner at Adams, Liming & Hockenberry, LLC., a law firm located in Columbus, Ohio. Attorney Liming deals largely with immigration, employment and labor laws.