What are the business ownership requirements in an EB-5 direct investment?

In a direct investment, it is permitted that an EB-5 investor be either in active management of day-to-day operations of a business or in a policy-making role affecting major business decisions (changing business purpose, liquidation or termination of NCE) such as a limited partner in a partnership setting or a board member in a corporation. There is no requirement as to percentage ownership.

An EB-5 investor must be engaged in the management of the new commercial enterprise (NCE), but there is no requirement about minimum or maximum ownership percentage of the NCE. The managerial role can be as simple as policy-making advice and voting on major change, similar to the rights and duties of a limited partner under the Uniform Limited Partnership Act. The investor need not be involved in the day to day management of the business.

Investors can be involved in the day-to-day management, or as little as voting on policy matters. Please work with an EB-5 attorney who has experience with setting up EB-5 projects.

The investor does not need to be the majority shareholder of the business. However, under the direct EB-5 context, an investor must demonstrate that he or she is or will be engaged in the management of the new commercial enterprise, either through the exercise of day-to-day managerial control or through policy formulation, as opposed to maintaining a purely passive role.

The statute requires that the investor has "an active participation'' in the investment. They compare it to the participation a limited partner would have under the Uniform Partnership Act. The project and the investor are free to make other arrangements as long as the Service considers it "active participation."

There is no requirement on ownership percentage. The rules state that the investor must be involved in either the day-to-day management or in a policy direction role of the business, including being on a board of directors of the company or as a limited partner of a partnership.

In a direct EB-5 investment, the investor must engage in the management of the enterprise, i.e. the investor is required to take an active enough role in the business that he has at least a policy-making position, such as a corporate officer, board member, etc., but there is no requirement to be a sole or majority owner of the business.

For an EB-5 investment, you cannot be a passive investor, but you do not have to have a percentage ownership interest in the business. You must take a management/direction role, but here are many ways to accomplish this.

He may be a limited partner and does not need majority ownership.