Can F-1 student have equity in a C-Corporation (startup)?

[mykhailo]

What is the name of your state (only U.S. law)? California


Hi everyone,

so for the few months I have been volunteering at this startup, and since they cannot pay me, they decided to give some equity in the company. After doing some research, looks like there is nothing that legally stops them from doing so (might bring some complication on my side when I fill out my taxes), but I want to seek some legal advice first (I cannot afford to pay a lawyer). I will also be meeting with the representative of my school's Internation Student Office.

 

[PayrollHRGuy]

You are being paid for work while not legally able to receive it. The company could be in danger and so could your F-1 visa.

Employment

F-1 students may not work off-campus during the first academic year, but may accept on-campus employment subject to certain conditions and restrictions. After the first academic year, F-1 students may engage in three types of off-campus employment:

Curricular Practical Training (CPT)
Optional Practical Training (OPT) (pre-completion or post-completion)
Science, Technology, Engineering, and Mathematics (STEM) Optional Practical Training Extension (OPT)
M-1 students may engage in practical training only after they have completed their studies.

For both F-1 and M-1 students any off-campus employment must be related to their area of study and must be authorized prior to starting any work by the Designated School Official (the person authorized to maintain the Student and Exchange Visitor Information System (SEVIS)) and USCIS.

For more information on the Student and Exchange Visitors Program, see the “Student & Exchange Visitor Program, Immigration & Customs Enforcement” and the Study in the States “Training Opportunities in the United States” pages.

 

[Zigner]

What is the name of your state (only U.S. law)? California
The state of C-Corp registration: State of Delaware
My country of origin: Ukraine

Hi everyone,

so for the few months I have been volunteering at this startup, and since they cannot pay me (unless they hire me as intern which would require me to pay a decent amount of money to the school I am at), they decided to give some equity in the company. After doing some research, looks like there is nothing that legally stops them from doing so (might bring some complication on my side when I fill out my taxes), but I want to seek some legal advice first (I cannot afford to pay a lawyer). I will also be meeting with the representative of my school's Internation Student Office.

Thanks,
Mykhailo

In other words, you've been working illegally in this country and/or the company has been illegally employing you while not paying wages. You cannot "volunteer" at a company.

 

[LdiJ]

What is the name of your state (only U.S. law)? California
The state of C-Corp registration: State of Delaware
My country of origin: Ukraine

Hi everyone,

so for the few months I have been volunteering at this startup, and since they cannot pay me (unless they hire me as intern which would require me to pay a decent amount of money to the school I am at), they decided to give some equity in the company. After doing some research, looks like there is nothing that legally stops them from doing so (might bring some complication on my side when I fill out my taxes), but I want to seek some legal advice first (I cannot afford to pay a lawyer). I will also be meeting with the representative of my school's Internation Student Office.

Thanks,
Mykhailo

A person who is not a legal resident or citizen may own shares in a C-Corp in the United State. That is absolutely not a problem at all. However, its problematic for you to work for the corporation, here in the US, if you are not receiving a salary. There are short term ways around that but not long term ones. You are probably going to want a consult with an accountant (not an attorney unless that attorney is a tax attorney) who has some specialty in international issues. You might want to talk to an immigration attorney as well.

 

[Taxing Matters]

What is the name of your state (only U.S. law)? California
The state of C-Corp registration: State of Delaware
My country of origin: Ukraine

Hi everyone,

so for the few months I have been volunteering at this startup, and since they cannot pay me (unless they hire me as intern which would require me to pay a decent amount of money to the school I am at), they decided to give some equity in the company. After doing some research, looks like there is nothing that legally stops them from doing so (might bring some complication on my side when I fill out my taxes), but I want to seek some legal advice first (I cannot afford to pay a lawyer). I will also be meeting with the representative of my school's Internation Student Office.

Thanks,
Mykhailo

You are getting paid. Just getting paid with stock rather than cash. I do not practice immigration law and cannot say if this would violate the restrictions on your visa. But if your visa does not allow you to work in the U.S. then this almost certainly violates your visa and could subject you to removal and possibly a bar on reentry. There is no prohibition on foreign persons owning stock in U.S. corporations.

As for the tax issues, a U.S. corporation cannot qualify for S-corporation tax status if it has any non-resident alien shareholders. Since you say the corporation is a C-corporation that will not cause a problem for your employer. If you receive dividends on the stock from the company that will be taxable income to you. The rate of tax will depend on your status at the time the dividend is received. Likewise, how the sale of the stock is handled for tax purposes will depend on your status at the time of the sale. In both cases, it will matter whether you are a U.S. citizen/resident or a non-resident alien. In addition to that, depending on the details of these shares, you may have a choice of election to make on the taxation of the shares. There are special rules for incentive stock options and restricted stock shares. It might be a good idea to meet with a tax attorney to go over the tax treatment of this so that you can do the tax planning needed to help keep your tax as low as legally permitted.

 

[PayrollHRGuy]

It isn't tax law that will get the OP and the company into trouble.

 

[LdiJ]

It isn't tax law that will get the OP and the company into trouble.

Well, tax law IS an issue, but you are correct that the primary issue is immigration law. Like I have said before, there are short term ways around that if he were not a student here on an F1...but he is, and that is where the problem lies.

 

[PayrollHRGuy]

Since he has already been working for the company it is likely too late.

For both F-1 and M-1 students any off-campus employment must be related to their area of study and must be authorized prior to starting any work by the Designated School Official (the person authorized to maintain the Student and Exchange Visitor Information System (SEVIS)) and USCIS.

 

[FlyingRon]

I should reinforce what PayrollGuy is saying. You might get approved for practical training employment if you applied through the school official, it's not a guarantee. For instance, no off-campus work is permitted in the first year of study, PERIOD. You're supposed to be here learning at the school, not spending your time working.

As alluded, both you and your employer are in deep trouble with the government. First, they should never have allowed you to work in any form without you showing them that you are authorized to do so. Second, they have to treat you as an employee. They can't just talk their way around that. In addition, the stock you were issued is TAXABLE to you, you need to pay taxes on that. The employer probably is responsible for some of that as well.

Get yourself to the school DSO (and possibly an immigration attorney) AS WELL AS a qualified tax professional.

 

[PayrollHRGuy]

Agreed. I was just pointing out that even if it makes all the other requirements of work for a F-1 visa holder it will still be a violation because it wasn't pre-approved.

 

[t74]

OP, Go and talk to the DSO at your school.

 

[LdiJ]

OP, Go and talk to the DSO at your school.

I disagree. I think that its more important to talk to an immigration attorney first.

 

[mykhailo]

sorry, I used the wrong English wording here, I guess and the situation is slightly different. When I said startup, i meant just a bunch of people getting together on coding on the project outside of school/work. Now, they are in the process of incorporation and want to give me some equity and I am trying to figure out how would that work and stuff. I am not a first year and will be graduating in about a year.

 

[mykhailo]

also, I want everyone to know that I have NOT been issued anything yet and if it brings more headache, then I will kindly refuse the offer.

 

[LdiJ]

sorry, I used the wrong English wording here, I guess and the situation is slightly different. When I said startup, i meant just a bunch of people getting together on coding on the project outside of school/work. Now, they are in the process of incorporation and want to give me some equity and I am trying to figure out how would that work and stuff. I am not a first year and will be graduating in about a year.

Well, now I am viewing things a little differently. If you use intellectual property to buy shares in the company then that might be an entirely different story.

Examples come to mind...a writer who decides to stay in Italy for a few months as a tourist while working on a novel is not "working" in Italy for the purpose of immigration law. A US photo journalist who takes pictures in a war torn country and then sells them to a US magazine is not either.

I could see viewing someone who is coding in their spare time as someone very similar to a writer or a photo journalist. However, you really need to speak to an immigration attorney to see if they would agree with that scenario.