You might be wondering what is a “Delaware Flip?” While a feat of acrobatics performed in the State of Delaware might also qualify as a Delaware Flip, taken in a business context it means something different.
December 14, 2022
What is a Delaware flip?
You might be wondering what is a “Delaware Flip?” While a feat of acrobatics performed in the State of Delaware might also qualify as a Delaware Flip, taken in a business context it means something different. Specifically, it is a popular strategy that many early-stage startup founders employ to save on taxes, protect their assets, and more easily receive investments from US investors.
Why choose Delaware?
The process involves incorporating a holding company in the State of Delaware. Why Delaware? Well as the epicenter of corporate law in the United States, Delaware is generally regarded as having favorable tax laws and a well-established legal system that is business friendly. Once the holding company is incorporated in Delaware, the founders can exchange shares in the foreign company for shares in the Delaware company, as well as transfer the assets of the foreign company to the new corporation. This effectively "flips" the company from the original country to Delaware, with the foreign company now being a subsidiary of the Delaware holding company.
Advantages for the Delaware flip
There are several advantages to using the Delaware Flip for early-stage startup founders. First, Delaware has a favorable tax structure for businesses, which can save founders money on their taxes. Second, the state's legal system is well-established and business-friendly, which can provide added protection for founders and their assets. Third, the Delaware Flip allows founders to more easily receive investments from US investors, since many investors prefer to invest in a US parent company (this is especially true for early-stage companies). Finally, the Delaware Flip allows founders to take advantage of the favorable tax laws and legal protections in their home country, which can be especially beneficial for founders who live in countries with less favorable business environments.
Overall, the Delaware Flip is a popular and effective strategy for early-stage startup founders looking to save on taxes, protect their assets, and more easily receive investments from US investors. If you're an international startup founder considering incorporating your company in the United States, the Delaware Flip may be worth considering as a way to maximize the benefits of doing business in the United States.
DISCLOSURE: This article is intended for informational purposes only. It is not intended as nor should be taken as legal or tax advice. If you need legal or tax advice, you should consult an attorney or tax professional in your geographic area.
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