The Delaware Flip: Unlocking Opportunities for Global Startups

What is a Delaware Flip?

A Delaware flip, also known as a “domestication” or “reincorporation,” involves restructuring the shareholding of a UK incorporated company to insert a new US parent corporation—registered in Delaware— which becomes the owner of the original UK entity.

Key Considerations for Founders

A Delaware flip is a potentially powerful strategy albeit bringing some complexities:

• Legal and Tax Planning: Requires meticulous coordination between US and UK advisors to ensure compliance and maintain SEIS/EIS benefits for UK investors where applicable.
• Costs: Legal and administrative expenses are non-trivial and must be weighed against the potential benefits. Founder should either have an offer of US investment or admission to a US accelerator (e.g. YC) generally to justify undertaking a flip.
• Compliance: Precise documentation and adherence to regulatory standards are essential to avoid complications.

Is a Delaware Flip Right for Your Startup?

This structure isn’t suitable for every business. It is most beneficial for:

• Tech Startups with Global Ambitions: Companies targeting international markets and looking to establish a transatlantic presence.
• Startups Seeking US VC Investment: If your growth strategy hinges on attracting US-based funding, a Delaware flip may be a required step in that journey. The expansion of US funds to the UK as well as their increasing familiarity with UK corporate structures has made what was a prerequisite for many funds historically now a ‘nice to have’ for US investors.
• Businesses Planning for Expansion: Companies eyeing large-scale international operations can benefit from the streamlined fundraising and credibility that come with Delaware incorporation.

Benefits of the Delaware Flip: 

For UK tech startups planning to scale globally, incorporating in Delaware offers several strategic benefits:

1. Investor Magnet:
   • US Venture Capital Preference: Many US investors, particularly Silicon Valley VCs, require their portfolio companies to be Delaware corporations. A Delaware flip positions your company to access these funding opportunities.
   • Timing is Key: The process incurs costs, so most startups wait until they have a term sheet for a significant investment from a US investor before initiating the flip.
2. Legal Clarity
   • Business-Friendly Laws: Delaware’s corporate laws are globally recognised for their sophistication and predictability.
   • Specialised Court of Chancery: A dedicated court system ensures efficient and consistent legal resolution for corporate matters, reducing potential uncertainties.
3. Tax Optimisation
   • While a Delaware flip doesn’t eliminate tax obligations, it can offer more flexible and strategic tax planning opportunities compared to some other US states.
4. Global Credibility
   • A Delaware incorporation enhances your company’s international reputation. Combined with a UK presence, the dual structure positions your startup to leverage two of the world’s largest VC ecosystems.
5. Simplified Fundraising and M&A
   • Delaware structures streamline equity management, stock option programs, and future mergers or acquisitions in the US, making your company more appealing to domestic investors and acquirers.

Next Steps: Turning Complexity into Opportunity

A Delaware flip can seem daunting, but with the right guidance, it becomes a strategic breakthrough. To start: 

1. Consult with Experts: Engage both US and UK legal (e.g. Seven Legal!) and tax advisors experienced in Delaware flips. 
2. Plan Strategically: Align the timing of your flip with funding or growth milestones to maximise ROI. 
3. Ensure Compliance: Maintain SEIS/EIS eligibility for UK investors by following strict legal and tax requirements.

Final thoughts

The preceding information does not constitute legal advice and should not be relied upon for making business or legal decisions.