The EB-5 Immigrant Investor Program offers a direct path to a U.S. Green Card, and a frequent question is whether these investment funds can be used for a business purchase. Acquiring an existing U.S. company, with its established operations and customer base, can seem less risky than a startup. While this is a valid strategy, the transaction must be carefully structured to comply with the program’s most fundamental requirement: job creation.
The Core Principle: Meeting the Job Creation Requirement
The absolute heart of the EB-5 program is the creation of at least 10 full-time jobs for U.S. workers. Every dollar of your investment, whether the standard $1,050,000 or the $800,000 for a Targeted Employment Area (TEA), must be put to work in the service of that goal. This means the entirety of your capital must be irrevocably invested and placed “at risk” within the job-creating entity, known as the New Commercial Enterprise (NCE).
A common mistake is assuming the funds can be used to simply buy out the previous owner. A direct payment to the seller is a simple purchase transaction, not an investment at risk in the enterprise. The payment benefits the individual seller, not the business itself, and will not be counted as a qualifying EB-5 investment. Think of it this way: you are investing in the company’s future growth, not just buying its past.
How to Properly Structure an EB-5 Business Purchase
To use EB-5 funds for a business purchase correctly, your capital must be invested directly into the NCE. The NCE can then deploy these funds for legitimate, job-creating activities. For instance, the NCE can use the capital to purchase the assets of the existing business, such as its equipment, inventory, and intellectual property. The funds can also be used to expand the operations of the newly acquired company or to modernize its facilities. The critical distinction is that the capital must be used to grow the business, not simply to transfer its ownership. It is also important to note that any administrative or legal fees associated with the transaction must be paid separately from your EB-5 investment. The legal documentation, such as an asset purchase agreement, must clearly show this proper flow of funds.
A Special Case: The Troubled Business Exception
There is an important exception for an EB-5 business purchase involving a “troubled business.” This is defined as a company that has been in existence for at least two years and has incurred a net loss during the 12 or 24-month period before you file your petition. In this scenario, you can meet the job creation requirement by showing that your investment will preserve at least 10 existing jobs.
Defining a New Commercial Enterprise (NCE)
The EB-5 regulations require that your investment be made in a “New Commercial Enterprise.” For most investors, this is a simple requirement to meet, as any for-profit business established after November 29, 1990, is considered “new.” However, if you are considering an EB-5 business purchase of a company that was established before this date, it may not automatically qualify. In such a scenario, the business might need to be significantly restructured or reorganized to be considered “new.” This means more than just a name change; it typically requires you to expand the business so significantly that you increase its net worth or the number of its employees by at least 40 percent.
Key Strategies for a Successful EB-5 Acquisition
If you are planning an EB-5 business purchase, success hinges on careful planning. Your investment must be directed to the NCE, not the former owner. Your business plan, which is crucial even for an acquisition, must clearly document how the capital will be used to create the required ten new jobs (or preserve them in a troubled business). Finally, the complexity of these transactions makes it essential to work with experienced immigration attorneys and financial advisors to ensure your investment is structured for success and your path to a Green Card is secure.
If you are considering this path, sign up for our free webinar presented by our legal team where you can also ask questions, download our free EB-5 guide or schedule a consultation to ensure your investment is structured for success.
