Flipping Your Business into the United States: Meet the Delaware C Corporation

Louis Lehot Attorney, Delaware flip

So How Does a “Flip” Work?

  • Consider tax implications resulting from how the technology will be either shared or sold from one entity to the other via a licensing agreement or sale agreement, respectively.
  • Can the Delaware “flip” be accomplished on a tax-free basis?
  • Ensure that the share exchange between HomeCo and Topco is completed in the same proportion as the way in which shares are held in HomeCo. It is important not to treat shareholders differently in this case.
  • A non-US based company will stand to benefit tremendously if it conducts a “flip” in the early stages of its operations. The longer the non-US based company waits, the “flip” will become more costly and legally complicated.
  • Consult local tax and legal professionals of the jurisdiction where the non-US based company is incorporated.
  • Are executives and stockholders also relocating as part of the “flip”? If so, consider whether an exit tax will be applied by the home country. France is well known for imposing an exit tax on entrepreneurs expatriating and flipping to third countries.
  • A share exchange agreement must be entered into by each shareholder of the non-US based company and the US company.
  • Shares are not usually available immediately, as there is a waiting period in non-US based countries to register shares in Topco.

Tax Considerations

A Few Disadvantages

  • There can be tax implications of the “flip” that require further detailed analysis. A company’s failure to comply with the precise requirements may result in valuable tax benefits or create other consequences.
  • By forming a parent company in Delaware, the company could become exposed to the risk of litigation in the US earlier in the process than would otherwise be the case.
  • US corporate and income taxes will apply to your new entity.
  • Delaware applies a franchise tax to corporations.
  • Individual states where a permanent establishment is maintained will also apply income, sales and payroll taxes.
  • Litigious environment for doing business.

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Louis Lehot is a partner and business lawyer with Foley & Lardner LLP, based in the firm’s Silicon Valley office. Follow on Twitter @lehotlouis

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Louis Lehot

Louis Lehot

Louis Lehot is a partner and business lawyer with Foley & Lardner LLP, based in the firm’s Silicon Valley office. Follow on Twitter @lehotlouis

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