Response to RFE on Ownership and Control of U.S. Entity
For purposes of L-1 Classification, the foreign entity must present evidence of ownership and control of the U.S. Entity in order to prove that a qualifying relationship exists. My client’s business immigration attorney received a lengthy Request for Evidence, and I was asked to draft a letter addressing the ownership and control issue, as well as governance and contributions. After all, I created the business structure, so it seemed natural that I was tasked with explaining the parent-subsidiary relationship from a limited liability company law viewpoint.
By way of background, my client’s structure is as follows: Venezuelan owned foreign entity which owns 100% of the U.S. entity which is managed by the Venezuelan executive, who is the nonimmigrant intracompany transferee. This structure is not complicated, especially when the company documents—operating agreement, articles of organization and membership interest certificate—are self-explanatory on the ownership and control issue, but alas USCIS seemed to need some help connecting the dots. What follows is a redacted portion of the letter I wrote explaining these issues for USCIS:
I am the attorney who drafted the U.S. Entity’s operating agreement, which unequivocally establishes that the Foreign Entity has 100% ownership and control of the U.S. Entity. This is so because the Florida Revised Limited Liability Company Act (the “LLC Statute”) specifically states that the operating agreement governs membership, or ownership, of the LLC.[efn_note]See § 605.0401(1) and 3(a), Fla. Stat. (2019).[/efn_note] In this case, the U.S. Entity’s operating agreement specifically states that the Foreign Entity is the sole and exclusive owner of the U.S. Entity, i.e. that it holds a 100% ownership and controlling interest in the U.S. Entity.[efn_note]See primarily Section 5.1 of the U.S. Entity’s operating agreement, and generally Section 3.1 and the signature page of the same.“Ownership Interest” is comprised of an owner’s transferable interest, which is the rights to profits, and the voting interest, which is control of the company.[/efn_note]
In further support, the operating agreement requires the U.S. Entity to issue physical certificates to its owners in consideration for their contributions.[efn_note]See Section 5.2 of the U.S. Entity’s operating agreement.[/efn_note] In this case, the Foreign Entity possesses the only certificate issued by the U.S. Entity, which states that “[Foreign Entity] is the owner of a 100% Membership Interest in [U.S. Entity], and as such enjoys absolute and exclusive member voting authority and ownership in the company.”[efn_note]See Certificate of Membership Interest.[/efn_note] The issuance of certificates to evidence ownership is also supported by the LLC Statute.[efn_note]See § 605.0502(4), Fla. Stat. (2019).[/efn_note] The certificate, of course, is evidence not only of ownership but also of the Foreign Entity’s contribution.[efn_note]See Section 5.2 of the U.S. Entity’s operating agreement, which states that certificates shall be issued in consideration of the contribution made by the member.[/efn_note]
Pursuant to the LLC Statute, a “contribution” may consist of a benefit conferred to a limited liability company, which may include money, services, or both,[efn_note]See § 605.0402, Fla. Stat. (2019).[/efn_note] which is provided by a person to become a member, or owner, of the limited liability company.[efn_note]See § 605.0102(10), Fla. Stat. (2019).[/efn_note] In other words, a member must make a contribution to the LLC in order to become an owner, and it is not necessary that such contribution consist solely of money. Applying the law to this case, the U.S. Entity’s operating agreement incorporates the LLC Statute’s definition of “contribution” in its operating agreement,[efn_note]See Section 1.3 of the U.S. Entity’s operating agreement.[/efn_note] which unambiguously states that the Foreign Entity has contributed money and services to the U.S. Entity in return for its 100% ownership and controlling interest, such contribution conferring a benefit upon the U.S. Entity.[efn_note]See Section 5.2 of the U.S. Entity’s operating agreement.[/efn_note] Specifically, the Foreign Entity made the following contributions as per the operating agreement:
- $100,000 in cash;
- Duty to perform support services for subsidiary entity;
- Obligation to capitalize the operations of the company; and
- To transfer its executive to the U.S. Entity to manage the U.S. operations.
Regarding the $100,000 in cash, please note that the Foreign Entity borrowed these funds pursuant to a duly signed Promissory Note and Corporate Resolution and had the lender, […], directly deposit this amount into the U.S. Entity’s business bank account. This was done for logistics reasons and more so because of restrictions on wire transfers and currency controls stemming from Venezuela.
Therefore, in consideration of the Foreign Entity’s contribution, coupled with all of the foregoing evidence, the Foreign Entity unequivocally has 100% ownership and control of the U.S. Entity.
Lastly, ownership and control of the U.S. Entity exists because the Foreign Entity has the indirect right to possess and dispose of the assets of the U.S. Entity, as well as the indirect right to direct the establishment, management and operation of the U.S. Entity. Both rights are indirect because the U.S. Entity is a manager-managed LLC, meaning that the company manager, or executive, i.e. […], is the person that operates the day-to-day affairs of the LLC,[efn_note]See the Cover Page and Recitals, Section A, of the U.S. Entity’s operating agreement, as well as Sections 2.1 and 4.1.[/efn_note] although the Foreign Entity must consent and give permission to the manager to act concerning certain decisions.[efn_note]See Section 4.10, “Limitation on Power and Authority of Managers,” of the U.S. Entity’s operating agreement.[/efn_note] This is similar to the structure of a corporation wherein the officers/directors handle the day-to-day affairs, certain actions of which are subject to shareholder approval.
Thus, the operating agreement provides for explicit limitations on the power and authority of the manager’s ability to act, such that without the consent of the Foreign Entity, the U.S. Entity’s manager shall have no authority to possess, control or dispose of the U.S. Entity’s assets[efn_note]For example, without the consent of the Foreign Entity, the Manager cannot possess property of the U.S. Entity, 4.10(b); cannot sell all or substantially all of the assets, 4.10(c); cannot place title to any LLC asset or property in the name of a nominee or sell, lease, pledge, hypothecate, or grant a security interest in any LLC asset or property, 4.10(h); Commingle LLC funds, 4.10(j); and, among many other matters, cannot use the LLC assets as collateral to secure payment of a loan, 4.10(s).[/efn_note] nor make unilateral decisions concerning the establishment, management and operation of the U.S. Entity,[efn_note]For example, without the consent of the Foreign Entity, the Manager cannot dissolve the U.S. Entity, 8.1(a) and 4.10(n); cannot do any act in contravention to the operating agreement, 4.10(a); cannot admit new members to the company, 4.10(d); cannot increase the operating debt of the company, 4.10(e); cannot enter into any agreements that would obligate the company to find additional capital or to guarantee loans, 4.10(f); cannot alter the company’s business purpose, 4.10(g); cannot make tax election, 4.10(p); cannot engage in transactions over $5,000, 4.10(q); cannot change or merge the LLC into another legal entity, 4.10(l); and, among many other matters, cannot file a petition for bankruptcy on behalf of the U.S. entity, 4.10(m).[/efn_note] as specifically set forth in Section 4.10 of the U.S. Entity’s operating agreement. Moreover, all of the management powers granted to the manager are subject to the Foreign Entity’s approval, as per the operating agreement.[efn_note]See Section 4.9 of the U.S. Entity’s operating agreement.[/efn_note]
In conclusion, after review of all the corporate documents of [U.S.Entity], including the company operating agreement and certificate, and the LLC Statute, [Foreign Entity] owns and control 100% of [U.S. Entity].
Post: Response to RFE on Ownership and Control of U.S. Entity
Ronald C. Iacone Jr., Esq.
Ronald Iacone is the managing and founding partner of Iacone Law. He focuses his practice on asset protection representation, business and international law, and appeals to the interrelatedness of the three to best discuss your issue and solution.