a/k/a Not Putting All Your Eggs in One Basket.
I’ve been asked some variation of the following question from investors looking to create a Direct EB-5 venture a number of times: “Can I create two companies, for example, a trucking company and a software company, invest $1 million or $500,000 depending on the location of the companies, and then create 10 jobs 2.5 years later? I’m not sure about the exact split of the jobs between the two companies, and I’m not sure if both of the companies will be around; but at least I am doubling my chances of hiring 10 full-time workers. Plus I really don’t think I can hire 10 full-time workers with just one company anyway.”
The USCIS has previously said that as long as the jobs are created within a single New Commercial Enterprise (NCE), and the Job Creating Enterprises are wholly-owned subsidiaries of the NCE, this was acceptable. This position was made crystal clear in the May 30 Policy Memo.
An immigrant investor may diversify his or her total EB-5 investment across a portfolio of businesses or projects, so long as the minimum investment amount is placed in a single commercial enterprise.
But it is the interaction of this flexibility with the USCIS abandoning the “Material Change” rule that opens the door for more successful Direct EB-5 projects. The Material Change Rule introduced in 2009 in a nutshell is as follows: The original business plan filed with the I-526 must serve as the basis for determining at the I-829 stage whether the investment has been sustained AND a business plan may not be materially changed after the petition has been filed. Because of this rule it has been hard to advise on what would or would not pass muster with the USCIS at the I-829 stage in the multiple business Direct EB-5 scenario. For example, if the original business plan said that a total of 10 jobs would be created in the trucking company and the software company and at the I-829 stage, it turned out that 10 workers were hired in the trucking company but the software company had to shut its doors after one year – would this be a material change?
Thankfully, the May 30 Memo has done away with the uncertainty surrounding the Material Change rule:
USCIS will no longer deny petitions to remove conditions solely based on failure to adhere to the plan contained in the Form I-526 or to pursue business opportunities within an industry category previously approved for the regional center….USCIS recognizes the fluidity of the business world and therefore allows for material changes to a petitioner’s business plan made after the petitioner has obtained conditional lawful permanent resident status.
These changes, of course, affect Regional Center projects as well. But the combination of the USCIS allowing diversification and the elimination of the material change rule really throws open the doors for potential investors looking to invest in Direct EB-5 projects as the rules are becoming more about helping people succeed and not trying to make them fail.