The EB-5 Limited Partnership agreement: terms and investor rights

The EB-5 Limited Partnership Agreement (LPA) is the foundational legal document defining the relationship between the investor and the business receiving the investment in EB-5 Regional Center projects. It is not a simple contract but a complex document with many terms on capital contributions, profit distribution, exits and corporate governance.

For Vietnamese investors, signing an LPA without fully understanding its terms is like handing 800,000 USD or 1,050,000 USD to someone else with no protection mechanism. This article analyses in detail the structure, the core terms and the points to watch when assessing an EB-5 Limited Partnership agreement before committing capital.

The Limited Partnership in the EB-5 structure

The Limited Partnership (LP) is the legal form most commonly used for the New Commercial Enterprise in EB-5 Regional Center projects. It is governed by state law and is popular in Delaware, Nevada and Florida because of the flexibility of those states’ corporate laws.

The EB-5 Limited Partnership agreement governs the relationship between two types of partners:

• General Partner (GP): the general partner, who manages and runs the Limited Partnership and has unlimited liability
• Limited Partners (LPs): the limited partners — the EB-5 investors, who are liable only up to the amount of capital they contributed

In the EB-5 structure, the GP is usually a subsidiary entity of the Regional Center or an entity designated specifically for the project. The LPs are EB-5 investors each contributing between 800,000 USD and 1,050,000 USD. Details of theEB-5 project structure with the NCE and JCEare analysed in a separate article.

Why the Limited Partnership is popular in EB-5

The popularity of the LP in EB-5 projects comes from several legal and practical advantages:

• Limited liability protection for investors — they can lose at most the capital they contributed
• It gives the GP comprehensive control, which suits the management of complex projects
• A “pass-through” tax structure — profits and losses flow directly to the partners, avoiding double taxation
• Flexibility in designing the profit distribution mechanism
• Compatibility with the “investor must be passive” requirement for EB-5 through a Regional Center
• Meets the “at-risk investment” standard ofU.S. Citizenship and Immigration Services (USCIS)

Compared with an LLC, an LP has the advantage of legal clarity in management roles (GP vs LP), which is important for demonstrating the investor’s passive status in an EB-5 petition.

Capital contribution: the contribution terms

Capital contribution is the first and most important term of an EB-5 Limited Partnership agreement. It sets out each investor’s capital obligation and the schedule for transferring funds.

Minimum capital contribution

Under the rules of thevisa EB-5programme following the EB-5 Reform and Integrity Act 2022 (RIA), the minimum capital contribution is:

• 800,000 USD if the project is in a Targeted Employment Area (TEA), including Rural, High Unemployment Area and Infrastructure
• 1,050,000 USD if the project is outside a TEA

The LPA must state each investor’s capital contribution and the total capital the project expects to raise. Additional information usually set out in this clause includes:

• The schedule for transferring capital (usually in several tranches)
• The account receiving the capital (escrow or the LP’s own account)
• The transfer currency and conversion
• Transaction fees and who bears them

Management and subscription fees

Besides the main investment, investors usually also pay a subscription fee to join the LP and an annual management fee.

The subscription fee usually ranges from 50,000–90,000 USD and is used to pay legal fees, marketing, audits, Regional Center operating costs and a portion to the GP. Under the USCIS definition, this fee does not count as at-risk capital and therefore does not affect the requirement to keep 800,000 USD/1,050,000 USD at risk.

The annual management fee is usually deducted directly from profits before distribution to investors. It ranges from 0.5–2% of the invested capital per year depending on the project.

Distribution waterfall: the profit distribution mechanism

The distribution waterfall is the structure that governs how profits are distributed among the parties in order of priority. This is the term that decides how much investors actually receive out of the project’s total profits.

A typical waterfall structure in an EB-5 Regional Center project includes the following tiers:

1. Tier 1 — Senior debt payments: paying interest to other lenders (banks, mezzanine lenders)
2. Tier 2 — GP fees: management fees and other incentive fees
3. Tier 3 — Return of capital to LPs: repaying the 800,000–1,050,000 USD principal to EB-5 investors
4. Tier 4 — Returns to LPs: paying a preferred return to investors, usually 0.25–2% a year
5. Tier 5 — Splitting the remaining profits: dividing the remainder between the GP and LPs in the agreed proportions

The LPs’ position in the waterfall directly affects their financial risk. Important terms to check:

• Senior position: the LPs rank ahead of the GP in the waterfall (good for investors)
• Subordinated position: the LPs rank behind certain other creditors (higher risk)
• Pari passu: the LPs rank equally with another class of creditor

A good LPA must be transparent about the order of the waterfall and the split at each tier. Vague terms, or terms letting the GP change the waterfall without the LPs’ consent, are warning signs.

Voting rights: the Limited Partners’ voting rights

In a traditional Limited Partnership structure, Limited Partners have limited voting rights in order to remain passive as EB-5 requires. However, some core rights are still protected by law.

Voting rights usually reserved for LPs:

• Approving or removing the GP in cases of serious breach
• Approving the dissolution of the Limited Partnership
• Approving changes to the main business purpose
• Approving amendments to the LPA that affect the LPs’ rights
• Approving major transactions affecting the project’s main assets (above a certain threshold)

Investors should note that overly broad voting rights may breach USCIS’s “passive investment” requirement. Conversely, overly narrow voting rights leave investors with no mechanism to protect themselves against misconduct by the GP.

Some modern LPAs include a Limited Partner Advisory Committee (LPAC) — an advisory committee of LPs that oversees the GP’s activities without interfering in day-to-day management, preserving the necessary passive status.

Exit terms: the exit provisions

Exit terms set out how and when investors can get their invested capital back. This is an especially important term because it relates to the EB-5 at-risk requirement and the schedule for repaying investors.

Minimum at-risk period

Under USCIS rules after the RIA and the updated announcement of 11/10/2023, the investment must remain at risk for at least 2 years from the date the qualifying investment was transferred into the NCE and placed at risk. The LPA must include terms ensuring this principle:

• A ban on withdrawing capital during the 2-year at-risk period
• Clearly defined start and end dates of the at-risk period
• A mechanism for handling the case where the project becomes profitable in less than 2 years

Exit methods

Once the at-risk requirement is met and theI-829 EB-5is approved, investors can exit through the following methods:

• Refinancing: the project takes out a new loan to repay capital to the LPs
• Sale of the project: the project is sold to a new owner and the capital is repaid from the sale price
• Orderly liquidation: the project ceases operations and its assets are sold and distributed
• Hold to maturity: the project continues operating and investors keep their LP role

A good LPA must state the expected exit timing (typically 5–7 years) and how it will be carried out. However, “expected” does not mean “guaranteed” — any unconditional repayment commitment may be treated by USCIS as a breach of the at-risk requirement.

GP fees: the General Partner’s fees

GP fees are the total of all fees the General Partner charges the LPs while managing the project. Investors often overlook them, but they can significantly affect the final return.

Common types of GP fees in EB-5 projects:

• Management fee: an annual management fee, usually 0.5–2% of the invested capital
• Acquisition fee: a project acquisition/deployment fee, charged once at launch
• Asset management fee: an asset management fee, as a % of asset value
• Disposition fee: a fee on exit/sale of the project
• Carry/Promote: the share of profits the GP receives after the LPs reach their preferred return
• Loan origination fee: a loan origination fee (for the loan model)
• Administrative fee: administrative, accounting and audit fees

Total GP fees can amount to 5–15% of the total capital raised over the life of the project. Investors should ask for a summary of all GP fees before signing the LPA.

Reporting and transparency

The EB-5 RIA 2022 strengthened the GP’s reporting and transparency obligations towards the LPs. A modern LPA must include mandatory reporting provisions.

Periodic reports usually required:

• Annual audited financial statements of the Limited Partnership
• Quarterly project progress reports (construction, operations)
• Job creation reports against the schedule (important for the I-829)
• Updates on market conditions and newly emerging risks
• Form I-956G reports to USCIS with copies sent to the LPs
• Notices of material changes requiring USCIS approval

The right of inspection allows LPs to ask to see the accounting records, project contracts and other legal documents. This is an important mechanism for overseeing the GP.

Conflict of interest

Conflicts of interest between the GP and LPs are an inherent risk in the Limited Partnership structure. The LPA must include provisions for disclosing and handling these conflicts.

Common sources of conflicts of interest:

• The GP is also the owner of, or related to, the JCE (developer)
• The GP has financial interests in competing projects
• The GP receives commissions from service providers to the project
• The GP and the Regional Center belong to the same corporate group
• The GP can adjust fees at its own discretion without the LPs’ consent

The EB-5 RIA 2022 requires all conflicts of interest to be disclosed in Form I-956F and the LPA. Concealing conflicts of interest can lead to withdrawal of the Regional Center designation and legal prosecution.

Securities compliance trong LPA

Selling LP interests to foreign EB-5 investors is a securities transaction under US federal law and must comply with Securities and Exchange Commission (SEC) rules.

Typical securities compliance provisions in an EB-5 LPA:

• A statement that LP interests are sold under Regulation D Rule 506(c) or Regulation S
• A requirement that investors be “accredited investors” as defined by the SEC
• Restrictions on transferring LP interests during the lock-up period
• Risk warnings clearly set out in the Private Placement Memorandum (PPM)
• Representations and warranties

Vietnamese investors are usually classified as Regulation S investors (foreign investors), with the corresponding requirements. A breach of securities law can lead to the transaction being rescinded and the capital returned to the investor — which could affect the EB-5 at-risk requirement.

Important notes when assessing an LPA

Before signing an EB-5 Limited Partnership agreement, investors should assess the core points with the help of an immigration lawyer and a corporate lawyer.

Mandatory checkpoints:

• The LPs’ position in the waterfall — the more senior, the better
• Total GP fees and their percentage of the capital raised
• The LPs’ voting rights on important decisions
• The exit mechanism and expected timing of capital repayment
• Loan security (for the loan model) — which assets serve as collateral
• Whether conflicts of interest have been disclosed and addressed
• Rights to information and periodic reporting
• The dispute resolution mechanism (governing law, arbitration)
• The GP’s track record on previous EB-5 projects

An LPA of 100–200 pages is normal. Reading every clause carefully takes a lot of time but cannot be skipped, because 800,000–1,050,000 USD depends on the contents of this document.

Conclusion

The EB-5 Limited Partnership agreement is the most complex legal document an investor signs on the entire EB-5 journey. A clear understanding of the capital contribution structure, distribution waterfall, voting rights, exit terms and GP fees is essential for protecting your rights and optimising the return on the investment.

Vietnamese investors should not sign an LPA based solely on the reputation of the Regional Center or developer. Independent review by an EB-5 immigration lawyer and a US corporate lawyer is a small investment compared with the risk to 800,000–1,050,000 USD. The combination of a good LPA and a high-qualityBusiness Plan EB-5is the foundation for a successful EB-5 project, taking investors to a permanentUS permanent resident cardon a reasonable timeline.