June 16, 2024

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Purchase Of Existing Business As EB-5 Investment – Immigration

8 min read

When and under what conditions can the purchase of an existing
business qualify an investor for EB-5 purposes? Although the
question is rather basic, the answer is rather elusive.

In fact, USCIS has studiously avoided answering this question
and has failed to elucidate any standards or guidance which can be
used to advise investors. Both anecdotally and based on reported
cases, very few purchases of existing businesses have resulted in
approved EB-5 petitions.

The purpose of this article is to review and analyze existing
law and suggest guideposts for both USCIS and counsel to use in
evaluating these cases.

INA § 203(b)(5)(A) provides EB-5 classification to aliens
investing the requisite amount of capital in a “new commercial
enterprise” that will create full-time employment for 10 US
workers.  We will evaluate the purchase of an existing
business both for its qualification as a “new commercial
enterprise” and for its qualification as creating the
requisite employment.

8 C.F.R § 204.6(h) creates three possibilities for
“establishing a new commercial enterprise:”

  • Create an original business;

  • Purchase an existing business and
    “simultaneous or subsequent restructuring or reorganization
    such that a commercial enterprise results;”

  • Expand an existing business such that
    a 40% increase either in the net worth or the number of employees

Is it significant that, although the third option (expansion) in
the regulation expressly requires creating full-time employment for
10 qualifying employees, the second option does not have such an
express requirement?  USCIS apparently does not think so.

The focus of this article is on the second option, which by its
very terms does not require a 40% increase in net worth or number
of employees.

The purchase of an existing business may be accomplished through
the purchase of the assets of the business or the purchase of the
stock of the business.  However, despite some apparently
contradictory adjudications, the purchase of the assets of a
business is actually not the purchase of an existing business but
rather an investor using the assets of an existing business either
to create an original business or to expand the investor’s
existing business.  Therefore, an investor purchasing the
assets of an existing business should be able to qualify for EB-5
either if he uses the assets in a new business that employs 10
full-time US workers or if he uses the assets in an existing
business that results in a 40% expansion of that business. 
Without ever articulating its concern for such a transaction, USCIS
seems to have a discomfort with its own regulation that would allow
this result, possibly because it appears that the net result of the
transaction could either be that the same employees who worked at
the business whose assets were acquired could now be employed at
the new business or because 10 new employees could be employed by
the new business while at the same time the 10 employees who were
employed by the business whose assets were acquired are now
unemployed.  Denying such a case appears to be contrary to the
language of the regulation.

The other option for the purchase of an existing business is the
purchase of the stock of the business.  When that happens, the
business remains the same entity but just with a different
owner.  The question is whether a “new commercial
enterprise” results, after which we must analyze whether the
requisite employment was created.

In order for the purchase of the stock of an existing business
to qualify as a new commercial enterprise, the business must be
“restructured or reorganized such that a commercial enterprise
results” (unless, of course, the investment results in meeting
the 40% expansion test).  One searches in vain for a
definition of this phrase in the EB-5 regulations.

Without such a definition, EB-5 adjudications appear to write
out of the regulations the purchase of a business that is not an
expansion and not a troubled business.  This article will
attempt to fill that vacuum.  We will do so through the use of
three examples:

Example 1:

Mr. Chen buys the stock of Wang’s Chinese Restaurant. 
He continues to run the restaurant (perhaps he changes the name to
Chen’s Chinese Restaurant), using the same basic menu and not
expanding the business in any way.  We might agree that such
an investment does not qualify as a “new commercial

Example 2:

Mr. Chen buys the stock of Wang’s Chinese Restaurant. 
He changes the restaurant from a mostly fast food and take-out
restaurant to an upscale Chinese and Asian food restaurant. 
He engages in no corporate restructuring.  Whether this
qualifies as a new commercial enterprise depends upon whether the
facts constitute “reorganization such that a new enterprise

In the absence of a regulatory definition, we can look at a
precedent decision and a non-precedent decision of the AAO for
guidance.  The precedent decision is In re: Soffici, 22
I&N Dec. 158, (BIA 1998).  In that case, the investor
purchased a Howard Johnson’s Motor Lodge.  He continued to
run it as a Howard Johnson’s Motor Lodge.  The Board held
that this did not constitute a qualifying
“reorganization.”  The entirety of the Board’s
language on this subject is as follows:

The petitioner has not shown the degree of restructuring and
reorganization required by 8 C.F.R § 204.6(h)(2); the hotel
has always been a Howard Johnson and is still a Howard Johnson
today.  A few cosmetic changes to the decor and a new
marketing strategy for success do not constitute the kind of
restructuring contemplated by the regulations, nor does a simple
change in ownership.  Therefore, it could not be concluded
that the petitioner has created a “new commercial

In other words, the Soffici facts really fit within Example 1

The only non-precedent AAO decision of which this author is
aware that found a qualifying reorganization is an AAO decision
from July 11, 2001 (copy of decision available with the
author).  In that case, the enterprise bred and sold a few
untrained horses to trainers.  The investor who purchased the
stock of the business provided a business plan involving running a
breeding and training program and selling well trained dressage and
show jumping horses with a considerable value.  The investor
hired trainers and contracted for significant construction of
training facilities and employee housing.  The AAO held that
the investor had “fundamentally restructured and
reorganized” the farm “such that a new commercial
enterprise resulted.”  The AAO stated:

“The breeding and sale of a few untrained foals to
professional trainers hardly compares to the major breeding and
show training business contemplated in the petitioner’s
business plan, which is in the process of being implemented. 
The proposed business reflects a clear change in mission and
dramatically expands the services of .the farm.  In addition,
the investor not only obtained land use rights.but he also
purchased additional farm land.. As the evidence demonstrates a
qualifying restructuring, we conclude the petitioner has
established a “new commercial enterprise.”

Although this is a non-precedent decision, it appears to be all
we have to go on regarding the mentality of the AAO on this
subject.  The AAO appears to be looking for “a clear
change in mission” and “a dramatic expansion of
services,” even without any formal corporate
restructuring.  This contrasts with the “few cosmetic
changes to the decor” and the “new marketing
strategy” that failed in Soffici.  Using this analysis,
arguably the clear change in mission of Mr. Chen from a primarily
take-out and fast food Chinese restaurant to an upscale Chinese
restaurant and presumably the expansion of services required in
order to implement such a plan should qualify as creating a new
commercial enterprise.

Example 3:

Mr. Chen buys the stock of Wang’s Chinese Restaurant,
continues to run it as Wang’s Chinese Restaurant, but merges
the company with another company that he owns.  Arguably this
is not a reorganization, but is it a
“restructuring?”  Neither the regulations nor any
reported decision provides guidance on this question. The USCIS
Policy Manual states that “a simple change of ownership”
does not qualify as restructuring.

In the absence of any EB-5 law, we may look at other areas of
immigration jurisprudence.  By doing so, we find that
restructuring is defined as a merger or acquisition for purposes of
successor in interest; E visa changes; H-1Bs; and I-9s. 
Specifically, INA § 214(c)(10), which deals with successors in
interest, explains that a corporate restructuring includes, but is
not limited to, “a merger, acquisition or
consolidation.”  The E visa regulation, 8 C.F.R
214.2(e)(8)(b), includes a merger as a form of
“restructuring.”  The Department of Labor regulation
at 20 C.F.R 655.730(e), entitled “Change in Employer’s
Corporate Structure or Identity” states: “Where employer
or corporation changes its corporate structure as the result of an
acquisition, merger, ‘spin off,’ or other such
action,” it need not file new LCAs and H-1B petitions. 
If we want to go further afield, the IRS includes any change in
identity, form or place of organization of a corporation as a
“reorganization,” 26 USC § 268.

Clearly using this analysis Example 3 constitutes the creation
of a new commercial enterprise.

Now let’s assume that the new entity created by the merger
has 10 employees, all of whom were employed by the predecessor
entity, Wang’s Chinese Restaurant.  Is the employment
creation requirement satisfied?  Arguably it is since the
“new commercial enterprise” had 0 employees before Mr.
Chen’s purchase and has 10 employees now.  Would USCIS
agree?  Although the strict language of the regulations is
satisfied, there are informal indications that USCIS believes that
there is an overriding, superseding, extra-regulatory requirement
that the net impact of the investment must be expanding employment,
even if the new commercial enterprise resulting from the purchase
of the existing business meets the regulatory requirement by having
10 employees.  Such an interpretation would violate not only
the regulations, but also the precedent decision Matter of Hsiung,
22 I&N Dec. 169 (1998) (purchase of existing business cannot
result in “net loss of employment”).

Therefore, if the result of the restructuring or reorganization
is to add 10 additional jobs, meeting the definition of new
commercial enterprise together with the addition of 10 new jobs
should clearly qualify the purchaser of the existing
business.  However, if the definition of new commercial
enterprise is met, and the new commercial enterprise has 10
employees but not 10 additional employees, the result is less
certain.  If the petition is denied, the investor may have to
be prepared to appeal and go to court if necessary.

This article originally appeared on www.klaskolaw.com on July 24, 2009. It has
been updated to reflect current immigration policy.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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