Due diligence, EB-5 basics, Offering documents
Feb 11, 2015
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Kurt Reuss
Kurt Reuss
Kurt Reuss is a registered securities broker who has been specializing in EB-5 since 2012. He offers advice on investment structuring and market conditions related to EB-5 investments.

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Removal of EB-5 Manager and a Succession Plan

Darren Ofsink: In EB-5 it's likely that when investing in a limited partnership or a limited liability company, there isn't much in the way of statutory law that describes what the investor's rights are. 

There are basic fiduciary obligations of the company as well as management of the limited partners interest, but it's the limited partnership agreement and the operating agreement that are going to be the source of the primary rights of the investors. And so, it's important to understand that what is within the four corners of those documents is really going to be the sum total of the rights that you have.

When talking about removing the manager it's important to talk about who or what the manager could be. In the EB-5 context, the manager or a general partner could be a person, but the more likely scenario is that it's going to be an entity. And that entity is often going to be a management team. So when you think about removing a manager or succession from one manager to another, what you're really talking about is a replacement of the entire management team and not just one person. 

The operating agreement or limited partnership agreement is going to dictate exactly how this happens. And so with respect to removal, typically there's going to be a provision that describes what the requisite vote of the limited partners or members needs to be. And typically, that's going to be more than a majority; sometimes a super majority like two-thirds or even 80%. A vote will be required and the operating agreement or limited partnership agreement is also going to prescribe what the logistics are and what kind of notice is required, and to whom. 

With respect to a legacy plan, sometimes an agreement is going to describe a succession that's possible, although, it's unlikely. And the succession plan, I think, is more for when there's an individual and not an entity containing the whole management team.

But you could actually have sort of a succession plan even with respect to the management team, if there are one or two key people. And the EB5 project documents may describe that. I think it is important to look at these things, like any other investment, the horse you're betting on quite frequently is management. And if things don't work out with that management team, I think you want to be able to do something about it as an investor.

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