As previously written, the Chinese EB-5 backlog creates a real age-out problem for Chinese children whether acting as the primary beneficiary or the derivative beneficiary of a Form I-526 petition. With the waiting line was established only a year ago and the Form I-526 adjudications taking over one year, the EB-5 community may not know USCIS’ position on the new and untested issue of whether minors may file as the EB-5 principal applicant.
- At the recent July 28, 2016 EB-5 Stakeholder Engagement, USCIS was asked specifically whether a minor may file as the principal applicant. USCIS indicated that there is no minimum age requirement in the EB-5 regulations and that a minor principal applicant can sign the Form I-526 without a parent’s or guardian’s signature required, which is consistent with its rule and policy regarding the Form I-485 Application to Register for Permanent Residence or Adjust Status. See 8 CFR 245.2(a)(3)(i). However, USCIS also indicated that there are “practical issues” with regards to the capacity of a minor principal applicant to enter into contracts, which could call into question whether the contract is actually binding. USCIS also cautioned that the evidentiary burden is on the minor principal applicant (or his/her legal guardian) to prove contractual capacity. (emphasis added) USCIS IPO Director Nic Colucci has indicated that further guidance will be forthcoming on this issue in the next few weeks.
This is no longer a hypothetical issue. Due to the Chinese EB-5 backlog, some Regional Centers and projects have begun accepting minors as the primary EB-5 applicants. Chinese parents confronted with this problem who seek green cards to better position their children are now having minor children serve as the principal applicant. To the best of our knowledge, no EB-5 investor has been denied approval of their I-526 petition solely on the grounds that the investor is not of legal age to sign a contract. However, there is a heightened risk for the minor investor as USCIS may deny the child’s application, and the client must understand and accept that risk. Below are some practical steps about how this is being accomplished.
- The first step is locating an escrow agent that will accept investment from minor investors. In cases where the escrow agent will not permit minor investors, the Regional Center and project will need the minor to sign a “Minor Investor Escrow Waiver Letter” to allow funds to bypass the escrow account and be invested in a project account.
- The Regional Center and new commercial enterprise will modify terms of the investment offering for internal compliance as they relate to the acceptance of minors as EB-5 principal These documents include the escrow agreement, subscription agreement, and operating agreement, as well as a PPM supplement which explains the changes and lists additional risk factors associated to both the minor EB-5 investors and all other EB-5 investors.
- Some projects have selected to use Chinese law as source of law for purposes of contract execution and will require both the parent and minor to sign in the investment documents (and any amendment providing for PRC law). Parents will sign certifications indicating that they approve of the child’s investment decision and are co-signing all investment documents indicating their consent for their child to make the investment.
- For those projects not electing to use Chinese law as source of law, they are requiring parents and the minor to both sign a guardianship form, in which the parties certify that they’ve reviewed the PPM and investment contracts together and that the child fully understands the investment decision. The project may require the parent, as guardian, to sign the investment contracts on behalf of the minor. Additionally, the project will require the minor to re-execute the investment contracts upon reaching the age of majority.
- For parent investors with pending Form I-526s whose funds are currently in escrow but now wish to gift his/her EB-5 capital to a minor child and refile a Form I-526 petition with the child as the principal applicant, it is important to communicate with the project (or its general partner or manager) on how to proceed. The ideal way of doing this is: (1) the Regional Center returns the investment funds to the original principal applicant; (2) the original principal applicant gifts the money to the child; (3) the child wires the money back to the project and signs the subscription documents as an EB-5 investor; (4) child files a new I-526 petition as the principal applicant; (5) parent withdraws his/her Form I-526 petition.
- However, it is likely that the project will reject a change of principal applicant because, in most cases according to the subscription contract, the EB-5 investment can only be returned if the Form I-526 is denied. Some projects may allow a change of principal applicant if the money stays in the project, in which case it will be more difficult (yet still possible) to show the gifting of capital and cancellation of the LLC membership of the original principal applicant.
If you have any questions about this cutting-edge issue or want to schedule a professional consultation, please contact a Wolfsdorf Rosenthal LLP attorney to discuss your case.
This post is designed to provide practical and useful information on the subject matter covered. However, it is provided with the understanding that no legal, tax, accounting, or other professional services are being rendered or provided. If legal advice or other expert assistance is required, the services of a competent professional should be sought.