Risk and compliance
Side letter
Also called side agreement, side letters.
A side letter is a separate written promise between an EB-5 project and one investor, sitting outside the main offering documents and changing what those documents say for that investor alone. It is a securities practice term rather than a USCIS one, and whether it costs the investor the petition depends on which promise it carries.
What it decides
Side letters are where a promise that could not sit in the private placement memorandum gets written down. The format is not what disqualifies an investor; the term inside it is. For petitions filed on or after 15 March 2022 the test is statutory. Capital does not include an investment carrying a guaranteed rate of return, nor one subject to any agreement between the investor and the new commercial enterprise that gives the investor a contractual right to repayment, such as a mandatory redemption or a put or sell-back option held by the investor, even where that right is contingent on the project having sufficient cash flow (8 U.S.C. 1153(b)(5)(D)(ii)(III)). A buyback by itself is not fatal: the same definition expressly includes capital subject to a buy back option exercisable solely at the discretion of the new commercial enterprise (subclause (IV)). The line is whether the investor can demand repayment. For petitions filed before 15 March 2022, USCIS applied Matter of Izummi and treated an enterprise-held option as impermissible where ancillary provisions or agreements obliged the enterprise to exercise it, or, failing that, to liquidate the assets and refund the investor a specific amount (6 USCIS-PM G.2(A)). USCIS does not use the phrase side letter in that chapter or on Form I-956F. It does not need to: 8 U.S.C. 1153(b)(5)(F)(i)(IV) requires a regional center to file any investment and offering documents, and Part 6 of Form I-956F repeats that demand, wording wide enough to reach a separate agreement with one investor.
Where this is explained properly
Pages here that go into side letter rather than mentioning it.
Related terms
- Subscription agreementA subscription agreement is the contract by which an investor buys an interest in the new commercial enterprise, carrying the price, the investor's representations, the closing conditions and, where the offering uses one, the terms on which money leaves escrow.
- Operating agreementAn operating agreement is the contract that governs a limited liability company serving as the EB-5 new commercial enterprise, setting voting, management, distributions, transfers and redemption. A limited partnership uses a limited partnership agreement for the same purpose. Neither is defined by the EB-5 statute or regulations, but the immigration rules test what they say.
- Completion guarantyA completion guaranty is a promise by the project sponsor or a creditworthy affiliate to fund cost overruns and finish construction, made to the lender or the project entity rather than to the individual EB-5 investor. It guarantees the building, not the investor's capital and not the jobs.
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