Cofounder · Equity contracts

Foreign cofounder

Irina Vishnevskaya

March 20th, 2017

I've got an awesome team member who is now on the path to equity with the classic 1 year cliff, 3 year vesting deal. When we discussed this together, we really had real equity in mind, however I've had a few people mention that we might want to consider going the route of phantom stock for her instead because of tax implications... help! Our accountant is blissfully unaware (which is terrifying to me, in the process of finding someone new... however tax season is clearly not the time to do this).

So, tell me:

1- with a foreign part owner (max 15%) of an American (Minnesota registered) LLC, what are the tax implications? Am I right in assuming that it will be 30-35% taxed?

2- Is there any reason why a phantom stock plan would be better from a tax, paperwork, logistics perspective?

Many thanks!

Dane Madsen Organizational and Operational Strategy Consultant

March 20th, 2017

Additionally., what are you basing the valuation on? Unless you have a tangible transaction that provides value (such as an outside investment in the similar security - e.g. common instead of preferred) then you can argue very low value for the grant. You should find a CPA that knows these things well.

Paul Nielsen

March 20th, 2017

You need to check with a good business lawyer. It's my understanding that only C Corp's can have foreign shareholders.