Post Offering Obligations for EB-5 Issuers “You Closed, Now What”

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Post Offering Obligations for EB-5 Issuers “You Closed, Now What”

May RCBJby Bruce C. Rosetto, Shareholder Greenberg Traurig; Bracha Pollack, Associate, Greenberg Traurig (PDF

Congratulations! You have subscribed EB-5 investors, closed your offering, and provided the EB-5 funds to the project. Now what? As a general matter, EB-5 investors are either non-managing members of a limited liability company or limited partners of a limited partnership. In either situation, the EB-5 investor has limited managerial and voting rights, yet does have protections under either the Operating Agreement or Limited Partnership Agreement (the “NCE Agreement”), as may be applicable. The rights provided to EB-5 investors under the NCE Agreement must be adhered to as a binding contract between the new commercial enterprise (the “NCE”) and the EB-5 investor. Likewise, under state law, the EB-5 investor has rights and protections under the limited liability company act or limited partnership act. Finally, under federal and state law, the NCE will have ongoing securities law obligations, which may require supplements or updates to the offering documents.

The NCE Agreement

The first step in determining your obligations to an EB-5 investor is the examination of the NCE Agreement. The NCE Agreement should clearly state what actions you must take and what information that you must provide to the EB-5 investor. EB-5 transactions generally include similar deal terms. Examples of the obligations of management and the rights of an EB-5 investor pursuant to a generic NCE Agreement are as follows:

  • Provision of all relevant documentation for petition to USCIS to EB-5 investors;
  • Inspection of books and records of NCE;
  • Preparation and mailing of Schedule K-1s no later than 120 days after the end of the NCE’s fiscal year;
  • Voting rights concerning dissolution; disposal of NCE assets outside the ordinary course of business; amendment to NCE Agreement; redeployment; removal of and appointment of Manager; etc.;
  • The ability to provide management with advice concerning the business of the NCE, including the use of the EB-5 funds and other investments.

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May 15th, 2019|Categories: Financial Services, Membership, Research / Analysis, Securities Law|

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