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TTL Capital
Article 4 min read

The Delaware flip, from Central Asia: when to do it and what it costs

Almost every founder raising from US investors restructures eventually. Doing it late turns a routine reorganisation into a six-figure problem.

By · Partner, North America

COMPANY STRUCTURE Do it early, or pay for it later

A founder in Almaty, Tashkent or Bishkek who wants US or EU capital will, sooner or later, be asked the same question: where is the company? Not where the team sits — where the shares are.

The usual answer is a reorganisation, most often into a Delaware C-corporation, with the existing local entity becoming a wholly-owned subsidiary that keeps employing the team. Founders call it “the flip”. It is routine, it is well-trodden, and almost nobody gets the timing right.

Company structure before and after a Delaware flip Before: the founders and early investors hold shares directly in the local operating company. After: the same holders, in the same proportions, own a Delaware C-corporation, and the local company becomes its wholly-owned subsidiary, still employing the team. Before After Founders and early investors hold shares directly Local operating company team · IP · customers · contracts Same holders same proportions exchange shares for Delaware C-corporation the entity investors buy into owns 100% of Local entity wholly-owned, still employs the team
The flip in one move. Founders and early investors exchange their shares in the local company for shares in a new Delaware C-corporation, in the same proportions. The local company becomes a wholly-owned subsidiary and carries on employing the team. Nothing about the business changes; only who owns what, and where.

Why investors ask for it

It is not snobbery about your jurisdiction. It is three specific, boring problems.

Their fund documents. Many US funds are restricted in where they may hold securities, and a partner who wants to back you may simply not be permitted to buy shares in a Kazakh LLP. This is the one that kills deals silently: you never hear “we cannot hold this”, you hear “we’ve decided to pass”.

The instruments. SAFEs, convertible notes, preferred stock with liquidation preferences and standard protective provisions are ordinary in Delaware and awkward or unavailable elsewhere. Reinventing them under local company law is expensive, and the result is unfamiliar to every subsequent investor.

The exit. An acquirer’s counsel will run diligence on the holding company. A structure they recognise shortens that by weeks; one they do not adds risk they will price in.

The window

Here is the part that matters, and it is a sequencing problem rather than a legal one.

Flipping is cheap while the company is small and gets rapidly more expensive as it grows. Early on it is a handful of documents: founders exchange their shares in the local entity for shares in a new parent, and the local entity becomes a subsidiary. Three founders, no employees with equity, no revenue, no outside shareholders — this is a fortnight of counsel’s attention.

Each of the following makes it harder:

  • Employees holding equity or options. Every one of them has to be dealt with, and some of them will want advice before signing.
  • Revenue in more than one country. Transfer pricing and permanent-establishment questions arrive, and the tax analysis stops being a formality.
  • An existing outside shareholder. Anyone who will not sign can hold the whole reorganisation hostage — including a friendly early investor who has simply become hard to reach.
  • Appreciated value. In several jurisdictions the exchange of shares is a taxable event for the founders personally. When the company is worth very little, that tax is very little. When it is worth something, it may be real money owed by individuals who have not sold anything and have no cash.

That last point is the one that catches people. The flip that would have cost a few thousand dollars before the first real round can cost a six-figure sum and several months after it.

What we tell founders

If US or EU capital is anywhere in your plan, flip before you need to. The right moment is usually before the first priced round, and frequently before the first SAFE — not when a term sheet is already on the table and the investor is waiting.

If it is genuinely not in your plan, do not flip. A Delaware parent brings ongoing cost: US filings, franchise tax, a registered agent, accounting in a second jurisdiction and a second set of deadlines to miss. A company selling domestically and raising locally gains nothing from any of it.

Do not let residency drive the decision. Astana Hub and IT Park Uzbekistan residency are operating decisions about tax and hiring (see our comparison). They sit comfortably underneath a foreign parent, and neither is a substitute for one.

Do not do it from a template. The mechanics are standard; the tax consequences for the founders personally are not, and they turn on where each founder is resident. This is the part to pay a professional for.

The honest summary

The flip is not a milestone or a sign of seriousness. It is plumbing. The only real decision is when, and the cost curve is steep enough that the answer is nearly always “earlier than feels necessary”.

If you are looking at this now, we are happy to talk it through — including the case for not doing it at all. We have been on both sides of the reorganisation and have no interest in selling you one.

General guidance, not legal or tax advice. The consequences of a reorganisation depend on your specific structure and on each founder’s tax residency — take professional advice before acting.