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You built your company in Europe. You have customers, a team, maybe even early revenue. Now a US investor wants to put money in. There's just one problem: they won't invest in your foreign entity.
This is the moment most international founders hear the term "US Flip" for the first time. It's a corporate restructuring that moves your company's ownership into a newly formed US entity, typically a Delaware C-Corp. Done right, it's tax-free and takes 2 to 4 weeks. Done wrong, it creates tax liabilities, governance headaches, and investor trust issues that can take months to untangle.
Here's what you need to know.
Why US VCs want a Delaware C-Corp
This isn't a preference. For most institutional investors, it's a requirement.
US venture capital funds strongly prefer (and often can only invest in) Delaware C-Corporations. The reasons are structural:
- Standard NVCA financing documents assume Delaware law
- Institutional investors often cannot invest in foreign entities due to fund restrictions
- Delaware has the most developed body of corporate law in the US, which gives everyone predictability
- Only US C-Corps qualify for Qualified Small Business Stock (QSBS) treatment, which can mean up to 100% capital gains exclusion on $15M or more if shares are held for 5+ years
- Incentive Stock Options (ISOs) are only available in C-Corps, and they're the standard equity tool investors expect to see
If you're raising from US investors, this isn't optional. It's table stakes.
How a US Flip actually works
The mechanics are straightforward, but the sequence matters.
Step 1: Form the Delaware C-Corp. Incorporate a new entity. Do not issue shares to founders yet. This is critical because the share exchange needs to happen in a specific order for tax purposes.
Step 2: Execute the share exchange. The new Delaware company acquires all shares in your legacy entity. In return, it issues shares to your existing shareholders in the same percentages. This is documented in a Stock Contribution Agreement.
Step 3: Get required approvals. The new board approves the exchange. Your legacy company's board and shareholders approve under existing governance documents. Any existing shareholder agreement provisions must be followed.
Step 4: Close and file. Execute all documents, file any required registrations in the foreign jurisdiction, and update the legacy company's records to show the new US parent as sole owner.
After the flip, your original company becomes a wholly-owned subsidiary of the Delaware C-Corp. All shareholders now hold shares in the US entity.
Making it tax-free
For a tax-free flip under IRC Section 368, you must maintain control, defined as 80% or more voting power remaining the same before and after the flip.
This means if existing shareholders will not receive 80% or more of the US entity (for example, because a new investor is coming in simultaneously), the standard flip structure may not work. You may need a contribution at fair market value with a third-party appraisal instead.
The cap table in the new Delaware entity must mirror the legacy ownership: same percentages, same rights. If you have a Virtual Stock Option Plan (VSOP) in the foreign entity, those committed shares become a separate ESOP reserve in the US entity.
When to flip vs. when to start fresh
Not every international company needs a flip. Sometimes starting fresh is the better move.
Start fresh in the US if you're early stage with no meaningful contracts, IP, or assets. It's cheaper and cleaner. Just incorporate in Delaware and begin.
Flip if you have existing customers, contracts, or employees. Flip if you have existing investors with documented rights that need to be honored. Flip if you have IP registered in a foreign jurisdiction that needs proper assignment.
The decision comes down to whether your foreign entity has value that needs to be preserved and transferred, or whether you can walk away from it cleanly.
Common mistakes founders make
Using Stripe Atlas or Clerky for the flip. These services create standard Delaware C-Corps with normal founder shares. A US Flip requires a specific transaction structure where the new company acquires the legacy shares before issuing to founders. Self-serve platforms aren't built for this.
Flipping when it's not needed. If your foreign company has no IP, no contracts, and no meaningful assets, you're paying for a restructuring you don't need. Start fresh instead.
Ignoring tax implications. Flips have tax consequences in both jurisdictions. Always coordinate with tax advisors in both countries before executing.
Not updating the legacy registry. After closing, the foreign entity's shareholder registry must be updated to show the US parent as 100% owner. Missing this creates confusion during future due diligence.
Carrying forward foreign terms. When flipping, convert to US-standard terms. NVCA-style documents are universally understood by US investors. Foreign terms often don't translate cleanly to Delaware law, and you'll likely need to convert anyway at your first US financing.
What about IP and convertible instruments?
IP can remain in the foreign subsidiary. Standard practice is to use an intracompany license agreement for transfer pricing compliance. Founders should also sign a Global Confidential Information and Invention Assignment Agreement (CIIA) assigning any personally-held IP to the new US parent.
If you have outstanding convertible instruments (SAFEs or notes) in the legacy entity, you have two options: convert them before the flip, or move them to the new entity via novation, which requires investor consent.
The bottom line
A US Flip is a well-established process with a clear playbook. The founders who get into trouble are the ones who try to shortcut it with self-serve tools, skip the tax analysis, or wait until the last minute when an investor is already pushing for closing.
At Fellow, we handle flips regularly for European founders expanding to the US. The US-side work typically runs $10,000 to $14,500, covers everything from incorporation to IP assignment, and takes 2 to 4 weeks once documents are ready to sign.
If you're considering a flip, the best time to start the conversation is before you have a term sheet on the table. That way, the structure is ready when the money is.
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