By Jor Law
Selling or Buying a Regional Center
Time. It is a precious commodity in the EB-5 industry. EB-5 immigrant investors seek to obtain their green cards as soon as possible. Companies fundraising through the EB-5 Program typically want access to the invested capital earlier rather than later. However, EB-5 is a slow, time-intensive process. It takes time to vet out the right professionals to put together an EB-5 offering. It takes time to prepare documentation to solicit investors. It takes time to market an offering to investors. Even after an investor commits and transfers his or her money, it takes time to approve the immigration paperwork. If a Regional Center is involved, one of the lengthiest processes is getting a Regional Center approved.
With the increasing delay in Regional Center processing and the abundance of Regional Centers that have been relatively inactive, many people have asked about whether they can buy or sell a Regional Center. Some people have asked about merging multiple Regional Centers together under common ownership. To understand Regional Center mergers and acquisitions (M&A,) it may be helpful to understand 1) what Regional Centers are, 2) the corporate basics of M&A transactions and 3) immigration issues affecting the sale and acquisition of Regional Centers.
In EB-5, a “Regional Center” is defined as any economic entity, public or private, which is involved with the promotion of economic growth, improved regional productivity, job creation and increased domestic capital investment. An entity seeking the “Regional Center” designation must submit a Regional Center proposal to the U.S. Citizenship and Immigration Services (USCIS). Upon approval of such designation, it is deemed to be a “Regional Center.” Typically, the Regional Center designation is bestowed on a limited liability company (LLC), although other entities do seek and obtain Regional Center designation as well. It is crucial to understand that the entity receiving the designation is technically not the Regional Center; rather, it just owns the Regional Center designation as one of its assets, much as an entity may own other licenses and permits as assets.
The two general structures in acquisitions are an equity acquisition or an asset acquisition. An equity acquisition is a transaction whereby the equity of the entity is sold. The buyer who acquires a sufficient amount of the equity of the entity (usually a majority or more) ends up owning and controlling the company. A buyer wanting full ownership and control would typically buy 100% of the equity interests. With an equity acquisition, all assets and all liabilities are acquired as a matter of law, although parties can contractually agree to transfer an asset back to the seller or have seller indemnify for a liability that is assumed. By contrast, an asset acquisition is a transaction whereby none of the equity of the entity is sold. With an asset acquisition, the parties can pick and choose which assets will be transferred while leaving all or only a portion of the liabilities behind. Ownership of the entity is transferred in an equity acquisition while ownership of the asset is transferred in an asset acquisition.
As it applies to Regional Centers then, solely from a corporate perspective, the two general ways of selling or purchasing a Regional Center would be 1) to transfer equity interests in the entity owning the Regional Center designation or 2) to transfer only the Regional Center designation as an asset of the entity. For example, if ABC, LLC was designated as a Regional Center, the owners of ABC, LLC could sell 100% of their interests in ABC, LLC to a buyer who would then own ABC, LLC in its entirety, including the Regional Center designation. Alternatively, ABC, LLC could sell its Regional Center as an asset to a buyer.
Transfers of Regional Centers require an analysis of the immigration issues involved as USCIS must approve transfers. Although Regional Center transfers have been approved by USCIS in the past, at the time this article is being written (Spring 2013), it is not clear whether USCIS would currently approve a transfer of a Regional Center under either scenario. Recently, Homeier & Law, P.C., has seen USCIS issue notices of intent to deny whereby USCIS expressly rejects an entity seeking to transfer its Regional Center designation as an asset to a separate entity. Further, there has been some evidence suggesting that USCIS might also have difficulty with allowing Regional Centers in effect to be transferred by an equity transfer. Therefore, in the current environment, it is not clear that any straight-out transfer of a Regional Center would be approved by USCIS. It is important to note that even if USCIS has approved a Regional Center transfer in the past, it is not guaranteed that USCIS would continue to approve such transfers in the future. Similarly, the fact that USCIS is denying some or all transfers currently does not mean that it would always continue to deny such transfers in the future.
There are a number of other alternative structures that one might consider that have a similar effect to the transfer of a Regional Center. For example, securing rights to exclusive sponsorship by a Regional Center might be a good alternative to the actual purchase or sale of a Regional Center. With such an arrangement, one could assure that the Regional Center would be solely dedicated to the licensee. It is important to note that an exclusive sponsorship by a Regional Center that is intended to act as a transfer of the Regional Center in perpetuity would generally have different and additional terms in the sponsorship agreement than a sponsorship by a Regional Center for a single project. Other alternative structures may be possible as well, but go beyond the scope of this article.
Whether it is a sale and purchase of a Regional Center, a license of a Regional Center, or another structure that achieves similar results, it is important to work with both a corporate transactional attorney skilled in M&A and the EB-5 industry as well as an EB-5 immigration attorney. The strategy for the transfer or license of the Regional Center should be clearly communicated and agreed upon between the M&A attorney and the EB-5 immigration attorney. If one were able to successfully complete an acquisition of a Regional Center through a method approved by USCIS, one could save a lot of precious time.