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I was working for quite a time with US company which is S Corporation. Now we are planning to continue as partners and I should get 10% of the company. As far as I understand I cant be a shareholder of S Corp as I'm not a US citizen.

What is best way to resolve this? We cant start a new company at this stage as we have big clients base already.

I would appreciate any useful comments on this as I have no previous experience dealing with US businesses.

I'm also looking for a good books to read to better understand types of businesses, operations with shares etc. I'm more a technical person with no experience in running business.

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Why not convert to a C corp? – TimJ♦ Feb 13 '12 at 19:12
My (more senior) partner doesn't willing to, due to double taxation for C corps, as far as I understand at the moment. – Igor Romanov Feb 13 '12 at 21:25
That's a non-issue for most small companies. There is no "double taxation" if you are not keeping profits in the company. – TimJ♦ Feb 13 '12 at 21:31
Tim thanks, that a useful comment. I definitely need to understand details better. – Igor Romanov Feb 14 '12 at 18:00
You and your partners need to talk to an accountant and possibly an attorney to do what makes sense for you. – TimJ♦ Feb 14 '12 at 19:07

2 Answers

up vote 2 down vote

You can be an S corporation shareholder if you are a resident alien (a green card holder).

If you are a non-resident alien, you can be a shareholder - then the corporation will automatically convert from S to C.

You cannot solve your problem by creating an intermediate entity, because that entity cannot be an S corporation shareholder.

Disclaimer: This information does not constitute legal advice and does not establish an attorney-client relationship.

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up vote 1 down vote

You're right, non-US citizens can't be a shareholder of an S Corporation.

You always have the option of converting your S Corp to a C Corp, where non-citizen shareholders are allowed. Converting from one type of business to another is not trivial, and there's a lot to think about, financially and legally, but people do it. (Just be sure to talk to all of the important people that you should before making this leap--your lawyer, accountant, shareholders, etc.)

And if you're going to do this, it has more implications beyond just allowing non-citizen shareholders, so take the time to learn those differences, and figure out what kind of impact those differences would have on your business.

Converting from one type to another is not equivalent to starting a new company, so don't worry about that; you'll keep all of your existing clients. Just make sure you've got all your shareholders on board.

This page over here has some more advice on this.

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I dont think conversion is a good choice here, but will definitely investigate on this. I'm more like thinking now on possiblity to own share via some intermediate entity, say via my own company (registered im my home country). Not sure if that is possible, or resrictions for S Corp are applied to persons and companies as well. – Igor Romanov Feb 12 '12 at 19:42
I'm not an expert, but I'm under the impression that corporations cannot be shareholders in an S Corp. That it's for individuals and possibly trusts and estates, where those trusts and estates are essentially a person (not another business). I'd imagine that the same non-citizen restrictions would apply in those cases as well. See smallbusiness.chron.com/can-s-corp-shareholder-4184.html – rbwhitaker Feb 12 '12 at 20:28
I can't figure out what you mean by "not trivial". What aspects of dropping the S status are complex and what is complex about a C corp? (that an accountant can't handle). – TimJ♦ Feb 13 '12 at 19:04
When I say it is non-trivial, I'm referring to the fact that you don't just sit down one day with your startup buddies and say, "Let's change our corporation type for the heck of it." It has an impact on how you do taxes, what investors may think of you, and other things, and you want to make sure you understand how those changes will affect you before making the leap. You're right though, dropping your S status is pretty easy to do, and once you've made the change, I don't think it is much more complicated than an S Corp. – rbwhitaker Feb 13 '12 at 19:30

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