Most entrepreneurs won’t want to be saddled with an unfamiliar U.S./Delaware structure unless their U.S.-centric financing will close. Flip-ups can be complex, difficult to unwind and involve significant expense. However, in our experience, most companies who intend to flip-up will wait until immediately before the closing of their financing – this is especially true if the reason for the flip-up is because of U.S. This is generally because a flip-up becomes more complicated as the capital structure of the company become more complex and the company grows. When is the best time to flip?Ī flip-up is more common during early-stage investment and less so during growth-stage financing. Based on existing Australian tax law, ideally some of the Australian-based directors of OldCo will actually move to the United States in connection with a flip-up (for more information on this see below under “Other issues/considerations”). employees may prefer the familiarity and tax advantages of U.S.-style stock options. customers may feel more comfortable dealing with a U.S.-headquartered entity, and U.S. Secondly, a U.S./Delaware corporation can be an advantage if you expect that the “center of gravity” of your future business (customers and employees) will be in the United States – U.S. (or a short list of other jurisdictions) as part of the program. Some incubator and accelerator programs (such as Y Combinator and LAUNCH) require Australian companies to flip to the U.S. companies to receive up to a 100% capital gains tax exclusion under certain circumstances. That allows eligible holders of eligible U.S. corporation that Australian investments don’t qualify for, such as the Qualified Small Business Stock (QSBS) exemption. investors may also receive special tax advantages from investing in a U.S.
investors feel more comfortable with the corporate mechanics and standardised forms of U.S. venture capital firms are willing to invest in Australian companies, most U.S. The principal advantage of a flip-up is that it makes your company much more attractive to U.S.
Other securities of OldCo, such as share options, convertible notes and SAFEs (simple agreements for future equity), are also exchanged for similar securities of NewCo. Existing shareholders of OldCo exchange their shares for newly issued shares of NewCo, and if all shareholders make that trade, then OldCo becomes a wholly owned subsidiary of NewCo. What is a flip-up?Ī flip-up is a reorganization in which an existing company (OldCo) becomes a subsidiary of a newly formed parent company (NewCo) in the desired new jurisdiction. This article seeks to demystify the flip-up process for Australian founders, and outline tax and other considerations that can prove costly if not considered. While a flip-up can bring significant advantages, the process can be complicated and unfamiliar to entrepreneurs used to Australian startup structures. If your Australian company is pursuing United States investors or seeking to grow its presence in the United States, you may want (or need) to consider a “flip-up” to a U.S.
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