I am US-based and my partners are in India and China. We have all agreed that the company will be incorporated in the US; we have agreed on equity for each and vesting schedules. We have an MVP and lined up potential seed funders.
Here is the problem:
Personally, I can use an 83(b) election to avoid US taxes when my equity vests according to our vesting schedule. In both India and China, each vesting event will be taxable as "ordinary income" based on the company's value when their equity vests.
So, when we get funding (and hopefully revenue!) during the 3-year vesting period, my partners have to pay taxes on an illiquid, phantom valuation of a company as "ordinary income" in their countries.
One option we've considered is for them to set a US-based LLC (with pass-through taxation), so that the LLC file an 83(b) and vest in the US; since the LLCs won't have any income (because of the 83(b)), my partners will have no pass through income or taxes either in US or their countries until a liquidation event. The problem with this is a lot of complication when we go for funding; not to mention the grey area of an LLC with an 83(b).
A second option we have considered is for them to vest their equity as options; The problem with this is that, although it gets around taxes, it does not give them real ownership or voting rights.
So, here are is my question: Has anyone else dealt with the problem of founders from different countries and how you've handled it; any recommendations for a lawyer who can help?