Shares in Chinese startup company
Setting up an entity that is partially foreign owned is not that difficult. It takes an additional 1-1.5 months in total, and in this particular case, you guys would be formed as a Joint Venture. It will cost a bit more (about 3-5000). If you're serious about owning a part of a business in China, you should carefully examine what he means by 'more complicated'. From my point of view, I have set up my own WOFE in China, and examined the possibilities of a JV and even considered using a friend to set up the company under their personal name as a domestic company (which is what your supervisor is doing), any difference between the three are not really a big deal anymore, and comes down to the competency of the agencies you are using and the business partner themselves.   It cost me 11,000 for a WOFE including the agency and government registration fees (only Chinese speaking).  You should also consider the other shareholders who may be part of this venture as well. If there are other shareholders, and you are not providing further tangible contribution, you will end up replaced and penniless (unless of course you trust them too...), because they are actually paying money to be part of the business and you are not. They will not part with equity for you.  I'm not a lawyer, but think you should not rely on any promises other than what it says on a company registration paper. Good luck!
You will probably never see it.  The startup at some point may start issuing dividends to the shareholders (which would be the owners, including you if you are in fact getting equity), but that day may never come.  If they hire others with this method, you'll likely lose even that 5% as more shares are created.  Think of inflation that happens when government just prints more money.  All notes effectively lose value. I wouldn't invest either, most startups fail. Don't work for free on the vague promise of some future compensation; you want a salary and benefits.  Equity doesn't put food on your table. yeah but most likely, it's a 1x liquidation preference. The startup isn't going to generate cash flows enough to pay off the initial investment to the investor. Technically it isn't exactly specified as only triggered on a liquidation event because OP didn't specify the real legal language but it seems likely that's the case. Point 2 is exactly what a liquidation preference is. No way the owner of the company is participating in anything until the investor gets his initial investment back. "This is the best tl;dr I could make, [original](http://www.reuters.com/article/us-usa-china-artificialintelligence-idUSKBN1942OX) reduced by 90%. (I'm a bot) ***** &gt; WASHINGTON The United States appears poised to heighten scrutiny of Chinese investment in Silicon Valley to better shield sensitive technologies seen as vital to U.S. national security, current and former U.S. officials tell Reuters.  &gt; AI&amp;#039;S ROLE IN DRONE WARFARE. Concerns about Chinese inroads into advanced technology come as the U.S. military looks to incorporate elements of artificial intelligence and machine learning into its drone program.  &gt; &amp;quot;When the Chinese make an investment in an early stage company developing advanced technology, there is an opportunity cost to the U.S. since that company is potentially off-limits for purposes of working with,&amp;quot; the report said.   ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6h3wj2/the_united_states_appears_poised_to_heighten/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ ""Version 1.65, ~143518 tl;drs so far."") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr ""PM's and comments are monitored, constructive feedback is welcome."") | *Top* *keywords*: **technology**^#1 **us**^#2 **investment**^#3 **China**^#4 **Chinese**^#5" "they are entirely free to do whatever they want with the shares. In particular, they can sell them to whomever they choose No. Restrictions on who can sell when and to whom are a common thing with startups. ""Publicly traded"" companies are regulated in a much stricter way than private companies, so until the IPO the sales are limited to the OTC markets. But even that can be restricted by bylaws - for example ownership can only be limited to a group of investors approved by the board. As an employee - your grant was approved by the board, but when you come to sell, the buyer was not and the company may not agree to vet them. Bottom line is that it is not illegal to impose all kinds of restrictions on what the employees can do with their shares, as long as the shares are not listed on a public stock exchange (even after the company goes IPO with one class, other classes may remain restricted)." If you check out China Stock Markets Web provides details on all things that trade on there. It covers the Hang Seng Index, SSE Index, and SSE Component Index. There is also tons of information for investors on the exchange website here. I think examining the effects and potential implications of China's involvement with the stock market may be productive. Some interesting examples would be the failed market circuit breakers and the restrictions of short-selling in 2016.  Not sure that this would qualify as a real topic, but may give you food for thought. If the company is non-public, your hands are tied. Most startups have a Stock Option Plan with specific rules on the shares. In almost all cases, they have a Transferability clause preventing transfers of options and shares unless approved by the company (who would almost always say no). Additionally, they usually have a Right of First Refusal (ROFR), which states that if shares are going to be transferred, the company gets the chance to buy it first. In your case, the company may argue your friend would sell you the shares for free and the company would exercise their ROFR and buy back the shares for free. There is not much you can do in this case. You may be able to write up a contract between your friend and you, but it would be costly and possibly not worth the effort. You may be better off asking for a lump sum or some other sort of compensation. Additionally, your friend might want to be careful with this idea. You could potentially gain access to sensitive company tools/documents which could get them in a lot of trouble. I wonder in this case if it might be easier to look for an emerging markets fund that excludes china, and just shift into that.  In years past I know there were a variety of 'Asian tiger' funds that excluded Japan for much the same reason, so these days it would not surprise me if there were similar emerging markets funds that excluded China.  I can find some inverse ETF's that basically short the emerging markets as a whole, but not one that does just china.  (then again I only spent a little time looking) "BigCo is selling new shares and receives the money from Venturo. If Venturo is offering $250k for 25% of the company, then the valuation that they are agreeing on is a value of $1m for the company after the new investment is made.  If Jack is the sole owner of one million shares before the new investment, then BigCo sells 333,333 shares to Venturo for $250k.  The new total number of shares of BigCo is 1,333,333; Venturo holds 25%, and Jack holds 75%. The amount that Jack originally invested in the company is irrelevant.  At the moment of the sale, the Venturo and Jack agree that Jack's stake is worth $750k.  The value of Jack's stake may have gone up, but he owes no capital gains tax, because he hasn't realized any of his gains yet.  Jack hasn't sold any of his stake.  You might think that he has, because he used to hold 100% and now he holds 75%.  However, the difference is that the company is worth more than was before the sale.  So the value of his stake was unchanged immediately before and after the sale. Jack agrees to this because the company needs this additional capital in order to meet its potential. (See ""Why is stock dilution legal?"") For further explanation and another example of this, see the question ""If a startup receives investment money, does the startup founder/owner actually gain anything?"" Your other scenario, where Venturo purchases existing shares directly from Jack, is not practical in this situation.  If Jack sells his existing shares, you are correct that the company does not gain any additional capital.  An investor would not want to invest in the company this way, because the company is struggling and needs new capital." "[Link 1] (https://www.bloomberg.com/news/articles/2017-06-12/two-chinese-provinces-falsified-economic-data-inspectors-say)  [Link 2] (https://www.ft.com/content/a5bf42e2-03cf-11e7-ace0-1ce02ef0def9)  [Link 3] (https://www.ft.com/content/0361c1a4-bcfe-11e6-8b45-b8b81dd5d080)  China has been cooking their books, just like the U.S. has been doing it the past few years.  Just google ""U.S. Central banks buying stocks and bonds"", then connect the numbers.   **Insider Information:** At my previous company we sold solar manufacturing equipment.  I went to said Chinese city that bought our equipment.  They were producing ton loads of solar panels, I asked one of the manager's where all of the panels were being sold (domestic, or international?).  To my surprise, he said they warehoused the panels they produced; because, there weren't enough customers.   And, why were they warehousing the panels?  Because, the Chinese government needed to show numbers that jobs were plenty, and manufacturing was still strong." As it stands equity contracts in startups are by default structured differently. The standard equity is shares or convertible notes.  Having equity that's structured in the way you propose is a bad idea for both sides. VC don't like equity that's not done with standard equity contracts. If the lawyer of the VC has to review your equity document and understand how the exact terms work that makes it more complicated to invest money into the startup. On your end it might not be fair because a company doesn't need to make any income to be successful. Various companies manage to reduce their tax burden to next to nothing by clever accounting that results in having no taxable income. Uber brought the uber.com domain name with 2% equity at the beginning, so there are certainly deals that get made with equity. There are also other kinds of deals where domain names don't get sold for a one-time payment but with regular payment for 8 years where the domain names goes back to the seller if the company folds or otherwise doesn't want to pay anyone. if the consolidated joint venture/sub has a negative net worth, then it is backing out the minority owner's share.    if another entity is taking the hit, or responsible for a hit/liability instead of you, then it should improve your valuation.   do not confuse net worth with net income. BS vs IS. Could well be a good work enviroment. The story widely reported back in Nov '11 before the IPO was that workers who had been given shares and options in lieu of salaries in the start-up days were then being pressured prior to the IPO to give up their shares or face possible job loss. Maybe just a few senior people were affected, but it didnt sound good. There could also be some degree of dilution at play here. If they are rapidly expanding and hiring, or if they took on another round of funding each share may have a lower amount of value though the company might be worth more than they were previously. The newly issued options may also be of a different class. of course! Currently I am running a digital media company based in Bangkok, we produce a wide array of content, some for web distribution some that is targeted for traditional distribution. I also have equity in a number of tech startups around Asia, everything from e-commerce to smart home to big data. I also recently exited a quantified self company I had built with several co-founders.