There a lot of matters to consider when a European company decides it wants to open operations in the U.S., and one common structure for doing so is anecdotally known as a “flip”—inserting a U.S. corporation above a European entity, often in order to attract U.S. investors. Many U.S. investors would rather invest in U.S. entities (typically Delaware C-corporations), so when a European company attracts the interest of a U.S. investor, it is often asked to do a “flip” in connection with the investment.
A “flip” is an exercise in corporate structuring when a European company creates a U.S. “topco” by having all European stockholders contribute the shares they hold in the European company to a newly-created Delaware C-corporation in exchange for shares of the topco, thereby becoming shareholders in the topco, and the European entity becomes a wholly-owned subsidiary of the topco. Therefore, a new U.S. corporation is added above the European company, moving everyone into that entity. Then, the U.S. investors invest into the newly-created Delaware topco alongside the legacy European stockholders that just “flipped up.”
Some topics to think about when considering a “flip”:
In brief sum, a “flip” is a popular transaction utilized by European companies that are seeking U.S. investors, or that have already attracted U.S. investors, and are being asked to do a “flip” in connection with the investment. While it seems simple, it is actually a complicated transaction that must involve the advice and guidance of corporate and tax lawyers in both countries. Care must be taken to avoid potentially irreversible consequences down the road.