The Pitfalls of an EB-5 Project With Friends & Family

The Pitfalls of an EB-5 Project With Friends & Family

Reported By Christina Dilbone, Esq.

“It’s not personal, Sonny. It’s strictly business.” These words echo through history from the 1972 cinematic masterpiece The Godfather directed by Francis Ford Coppola, but ring true in all instances of business. In American culture, it is long believed that when in business with family or friends, actions taken in the best interest of the business should not be taken personally. But how realistic is this when decisions can dramatically impact the friendships and relationships between partners, especially in the EB-5 context when green card eligibility is also on the line?

In a recent EB-5 Investment Voice* podcast with Rohit Kapuria of Saul Ewing Arnstein & Lehr LLP, Mona Shah discussed how many EB-5 investors, often friends and family, go into business together to qualify for an EB-5 investment and what happens when things go sour. https://mshahlaw.com/the-pitfalls-of-an-eb-5-project-with-friends-family-episode-135/

What documents should a good practitioner advise to prepare for potential conflicts? Whether investors are considering the possibility of a falling out or are currently experiencing a disagreement, the company’s operating agreement (for an LLC) or limited partnership agreement (for a Partnership) will control how to go about what Rohit calls a “business divorce.” These agreements should be incredibly detailed and consider every issue of dispute that could arise between the parties involved. As Mona points out, perhaps the worst way to begin a business venture is to acquire a basic agreement template online to save money in legal fees. In the event of a disagreement, this lack of a clear plan could result in far more legal costs to negotiate a settlement!

It is also important to remember that an EB-5 business is not just regulated by federal and state corporate laws, but also immigration regulations. USCIS conducts site visits on EB-5 Projects (and recently, the number of visits has been increasing)  and specifically looks for undisclosed changes or deviations from the submitted Business Plan, which can threaten the success of the Project. Specifically, changes that are considered “material” by USCIS can result in a denial of the I-526 or I-829 Forms associated with the Project and defining a material change is entirely discretionary to USCIS. Thus, it is imperative that any changes to an EB-5 Project be sufficiently discussed with an EB-5 attorney in order to protect the Project and all investors.

So what advice do Rohit and Mona give to investors beginning an EB-5 Project that involves family or friends? First, use an impartial third-party manager (managing member or general partner) to oversee the business operations, rather than putting one of the investors in control. The manager can be compensated based on the performance of the company and assist by providing a tiebreaker vote and arbitrate in the event of a dispute, allowing the members to get past any conflicts and do what they do best- run the business! Second, discuss the value of having a Private Placement Memorandum (PPM) for the investment offering with your corporate counsel. A PPM provides a description and risks associated with the investment, which protects against certain liabilities in the event of litigation. While PPMs are not required in most EB-5 contexts, they are imperative to protecting the parties from litigation resulting from disagreements, conflicts or project failures. While PPMs can cost thousands of dollars, these costs may be limited by incorporating the risk factors into the Subscription Agreement.

Finally, if every avenue of conflict resolution has been exhausted and the EB-5 investors are still unable to find a solution, they may demand that the problematic investor be ousted from the Project. Forcibly removing a member or manager from a company can be quite difficult and may require specific circumstances outlined in the company agreement, such as fraudulent or “bad faith” behavior. However, it is important to consult your EB-5 attorney and corporate attorney to ensure no laws or regulations are being contravened. While the company is first and foremost a business, it is also an EB-5 Project regulated by USCIS regulations and a private investment offering regulated by the Securities and Exchange Commission (SEC). If any laws are broken in the course of the removal of a member or manager, it could raise red flags with both of these federal agencies and could result in immigration, civil and monetary consequences.

While the optimistic notion that “among reasonable men, problems of business could always be solved” resonates from the pages of The Godfather novel written by Mario Puzo, it is noted that this sentiment was removed from the film adaptation, perhaps because even the most reasonable people are prone to unsolvable conflicts when money and business are involved. And in the context of EB-5 Projects, these conflicts can be very complicated and difficult to resolve while operating within the many regulations that govern EB-5 investments.


*EB-5 Investment Voice is the longest running Podcast series (with over 145 episodes over 4.5 years) that focuses on the United States immigrant investor visa, EB-5 and foreign direct investment. Mona Shah welcomes guests from the industry including: developers, regional center operatives, attorneys, legislators and politicians.

Mona Shah & Associates Global Podcast Series

About the Author:

Christina Dilbone, Esq.

Christina Dilbone specializes in EB-5 investments, private securities offerings and source of funds documentation. Her experience includes working in immigration law and international development within both law firms and intergovernmental organizations. Christina previously worked at the International Peace Institute (IPI) and was recognized for her pro bono work at the International Development Law Organization (IDLO)’s United Nations Permanent Observer office in New York. She graduated from the University of Florida’s Levin College of Law in 2019 and is admitted to the Florida Bar.

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