Money and structure
Redemption and buy-back option
Also called redemption right, put option, sell-back option, mandatory redemption.
A redemption or put right is a contract term letting the investor demand that the new commercial enterprise repay or repurchase the investment, and by statute it takes the money out of the definition of capital. A buy back option is the mirror image, exercisable by the enterprise rather than the investor, and it is the one such term the statute allows.
What it decides
8 U.S.C. 1153(b)(5)(D)(ii)(III)(dd) excludes from capital any investment subject to an agreement between the investor and the new commercial enterprise that gives the investor a contractual right to repayment, naming as its examples a mandatory redemption at a certain time or on the occurrence of a certain event, and a put or sell-back option held by the investor. The exclusion applies "even if such contractual right is contingent on the success of the new commercial enterprise, such as having sufficient available cash flow", so tying the right to the project doing well does not save it. Subclause (D)(ii)(IV) is the only carve-out, and it has two parts that must both hold. The buy back option must be exercisable solely at the discretion of the new commercial enterprise, and the arrangement must result in the investor withdrawing the petition unless the investor has fulfilled the sustainment period and the other requirements of the paragraph. A discretionary buy back drafted without that withdrawal term does not fit the carve-out. For petitions filed before 15 March 2022 the outcome is the same but the authority differs. 8 CFR 204.6(e) defines "invest" to exclude a contribution of capital made in exchange for a note, bond, convertible debt, obligation or any other debt arrangement; 8 CFR 204.6(j)(2)(iv) provides that stock "may not include terms requiring the new commercial enterprise to redeem it at the holder's request"; and Matter of Izummi treats an investor side redemption right as an impermissible debt arrangement, which also defeats the at risk requirement in 8 CFR 204.6(j)(2). Under Izummi neither delaying the repurchase to a future date, nor conditioning it on funds being available, nor the possibility that the investor never exercises the right cures the defect: what disqualifies the money is the investor holding the right to demand repurchase at all. USCIS reads Izummi as reaching redemption agreements generally, not only those where the investor holds the right to repayment, so the pre-RIA test is broader than the statutory one.
Where this is explained properly
Pages here that go into redemption and buy-back option rather than mentioning it.
Related terms
- Guaranteed returnA promise that the investor will earn a set return, or will get the principal back, which the EB-5 statute strikes out of the capital that counts, to the extent of the amount guaranteed.
- Preferred returnA claim to be paid first out of an EB-5 project's distributions, ahead of the sponsor, up to a stated rate. Immigration law does not define the term, which EB-5 borrows from private fund practice, and the rate an offering quotes is a priority rather than a promise: capital carrying a guaranteed rate of return is excluded from the statutory meaning of capital. Rates quoted in EB-5 offerings typically sit far below what a commercial lender or ordinary equity investor in the same project would require.
- Capital accountThe ledger a limited partnership or LLC keeps for each investor, recording capital contributed, profit and loss allocated, and anything distributed back out. It is an accounting term, not an immigration one.
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