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What is an existing business and how can it count as an NCE for EB-5 purposes?

By May 10, 2023EB-5 Visa
A business professional considering their business options on a tablet in front of them

One of the fundamental requirements for an EB-5 green card is that the applicant must invest in a new commercial enterprise, or NCE. That NCE must then create at least ten jobs for U.S. workers. For more information on the EB-5 visa requirements, see here.

What is a New Commercial Enterprise, or NCE?

The regulations at 8 CFR 204.6(e) define a commercial enterprise as any for-profit activity that has been organized into a lawful business. The definition is broad and can include a corporation, an LLC, a sole proprietorship, a holding company, or a number of other forms.

The regulations also define the term “new,” defining it as anything established after November 29, 1990. This was the date that Congress created the EB-5 visa category.

Combining both definitions, a new commercial enterprise is any for-profit business that was established after November 29, 1990.

Is the EB-5 applicant required to have created the new commercial enterprise?

The EB-5 applicant only needs to invest in the new commercial enterprise – they are not required to have actually started the business.

If the EB-5 applicant can show either that they established a for-profit business after November 29, 1990, or that they invested in a for-profit business that was established after November 29, 1990, they satisfy the NCE requirement. They would then move on to show that they have invested the required amount (either $800k or $1,050,000 depending on whether the business is in a targeted employment area), and that their investment led to the creation of at least ten jobs for U.S. workers.

Can a business created before November 29, 1990 qualify as an NCE?

Yes. 8 CFR 204.6(h)(2) says that the NCE can be an “existing business” that was purchased and then restructured or reorganized. Existing business, when used here, is a business that was created before November 29, 1990. This option is discussed in the 1998 case Matter of Soffici. Restructuring or reorganizing must entail substantial changes, such as fundamentally changing the business’s mode of operation, business structure, or the product or service offered so that a new business has truly resulted. A few cosmetic changes, a new marketing strategy, and a simple change in ownership are not sufficient to show sufficient restructuring or reorganization.

8 CFR 204.6(h)(3) offers another option for an “existing business” that was expanded through the required investment amount so that the net worth or number of employees of the existing business has increased substantially. The government defines a substantial change as a 40 percent increase in either the net worth of the business or in the number of employees it has.

This expansion would not exempt the applicant from either the EB-5 investment requirement or the job creation requirement – the applicant would still need to invest the required minimum amount, and would need to show that the investment amount led to the creation of at least ten US jobs. For example, if an investment of $500,000 increases the net worth of the existing business by 40% or leads to a more than 40% increase in the number of workers the existing company employs (for example, by bringing the number of employees from three to eight), this might allow the existing company to qualify as an NCE. However, the applicant would still need to meet the EB-5 investment requirement by investing at least $800,000 or $1,050,000 into the business; and that investment would need to lead to the creation of at least ten jobs for US workers.

What is the definition of an “existing business?”

Again, “existing business,” when used in the EB-5 regulations, is any business formed before November 29, 1990. A business formed after November 29, 1990, is not an “existing business.”

Our experience is that many people are confused about this, and believe that an existing business is any business that they did not start. As a result, some EB-5 applicants believe that if they invest in any business that they did not start – even if the business was created long after 1990 – they must restructure, reorganize, or substantially expand the business in order to qualify for an EB-5 visa.

This is not correct. Again, if the business was created after November 29, 1990 – whether it was created by the applicant or someone else – it qualifies as an NCE and does not need to be restructured, reorganized, or substantially expanded.

Changes to the EB-5 Program After Matter of Izummi

Part of the reason for this confusion is an often-cited case called Matter of Izummi, which was decided in 1998 by the Administrative Appeals Office. The decision in Matter of Izummi said that the applicant must establish the new commercial enterprise. The decision also said if an applicant invests in a business created after 1990, that business could be deemed to be an NCE if the applicant restructures, reorganizes, or substantially expands it.

It is important to know that four years after Matter of Izummi was decided, President George W. Bush signed a law that changed several EB-5 requirements. Among other things, the 2002 law removed the requirement that the EB-5 applicant actually establish the commercial enterprise.

A policy memo issued by the US Department of Justice in 2003 made the impact of these changes clear, explaining that the provisions at 8 CFR 204.6(h) about restructuring, reorganizing, or substantially expanding the business only apply to an existing business (a business that was created before November 29, 1990).

Risks When Purchasing an Existing Business

There are a number of risks to be aware of if an applicant plans to purchase or invest in a business that was created after 1990. Even though that business would qualify as an NCE, the applicant must nonetheless carefully show that they invested the required amount ($800,000 or $1,050,000) into the NCE, and that the required amount was dedicated to the creation of jobs. For example, if the applicant transferred the funds directly to the former business owner rather than investing them directly into the entity that will actually be creating jobs for US workers, the government would likely not count the funds toward the required investment amount.

Also, it is important to keep the NCE requirement separate from the job creation requirement. An EB-5 applicant must show that their investment led to the creation of at least ten jobs for US workers. For example, if the applicant were to purchase a business that had fifty workers before it was purchased, the investment would still need to create an additional ten jobs – the fifty positions that existed before your investment do not count toward the job creation requirement.

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