In the USCIS engagement EB-5 stakeholder’s meeting on December 5, 2014, the general partner of a non-Regional Center sponsored direct EB-5 investment assisted living facility project asked for clarification and relief regarding the potential effects of retrogression on investors in direct projects. The questioner noted that investors in direct projects have heighted participation requirements compared to those investing in regional centers. This understanding of the ‘Active Management Requirement’ is actually a common myth circulating around the EB-5 community, which has no basis in the law.
Unfortunately, USCIS did not affirmatively answer the question, but rather said they would consider addressing it when they issue their retrogression policy guidance later this year. To not keep the EB-5 community waiting, I’ll use this opportunity to review the rules in detail and hopefully dispel these common misunderstanding.
In short, if the entity into which the investments are made are structured as a limited partnership, the code of federal regulations provides a clear pathway for how investors can satisfy the ‘Active Management Requirement’. Under 8 CFR §204.6 (j)(5) requires, as initial evidence to accompany the I-526 Petition in the context of a limited partnership, that the petitioner:
“(5) To show that the petitioner is or will be engaged in the management of the new commercial enterprise, either through the exercise of day-to-day managerial control or through policy formulation, as opposed to maintaining a purely passive role in regard to the investment, the petition must be accompanied by:
(iii) If the new enterprise is a partnership, either limited or general, evidence that the petitioner is engaged in either direct management or policy making activities. For purposes of this section, if the petitioner is a limited partner and the limited partnership agreement provides the petitioner with certain rights, powers, and duties normally granted to limited partners under the Uniform Limited Partnership Act, the petitioner will be considered sufficiently engaged in the management of the new commercial enterprise.”
According to the Adjudicator’s Field Manual (Quoted language below found at http://www.uscis.gov/iframe/ilink/do...-0-0-8263.html):
“While an alien may seek EB-5 qualification on the basis of an investment in a limited partnership, under current regulations, even he or she, as a limited partner, must have a certain level of involvement in the running of the business.
Under 8 CFR 204.6(j)(5)(iii)
, if the alien is a limited partner, he or she must have been granted all (i.e., not simply some) of the rights, powers, and duties granted to the other limited partners
in the partnership in order to be considered sufficiently engaged in the business.” [emphasis added]
Accordingly, if in the partnership every limited partner is afforded the identical rights of every other limited partner, the requirements, as interpreted by the Adjudicator’s Field Manual, are satisfied. In addition, if the partnership is structured in compliance with subsection (iii) cited, whereby it provides the Employment-Based Immigrant with the “rights, powers and duties normally afforded to limited partners under the Uniform Limited Partnership Act” (“ULPA”), then the petitioner has satisfied the management participation requirements. (Full text of the Uniform Limited Partnership Act (2001) available at http://www.uniformlaws.org/shared/do...al_2001rev.pdf.
The language in the CFR is somewhat odd in that the uniform act does not specifically deal with limited partner management rights. (See http://www.uniformlaws.org/Legislati...tnership%20Act.) Accordingly, what is ‘normal’ is a matter of context. Normally, as a matter of state’s law, a limited partner is granted active management duties, the limited partner would lose their limited liability status as a limited partner. Limited partners are generally afforded the ability to control the partnership in the case of extreme situations, such as liquidation or material adverse event in the business affairs of the partnership in question. So if the limited partnership agreement would provide the limited partner investors the right to replace the general partner (and take control of the partnership) in the case of a proposed liquidation of the partnership or some other materially adverse event (potentially including the failure to create sufficient jobs to support the investors’ I-829 petitions), then the investors would be afforded the rights, powers and duties normally afforded and they should be deemed in satisfaction of the ‘Active Management Requirement of 8 CFR §204.6 (j)(5).
© 2014 Matthew Gordon