If you’ve decided a Delaware flip is right for your company, you’re probably wondering: what does this actually involve?
The mechanics aren’t as complicated as they sound, but they do require coordination. Here’s what to expect.
The High-Level Process
- Planning (Weeks 1–2): You meet with Abrams Law, discuss the structure, identify any issues in your current setup.
- Preparation (Weeks 3–4): Audit your cap table, review shareholder agreements, identify any potential complications.
- Structuring (Weeks 5–6): Abrams Law (in coordination with your tax advisors) designs the actual flip structure.
- Documentation (Weeks 7–8): Legal documents are drafted (shareholder resolutions, option exchange agreements, etc.).
- Execution (Weeks 9–10): Shareholders sign documents. Filings are made. The flip closes.
- Post-flip (Weeks 11+): Ongoing compliance (annual filings, governance, etc.).
Total timeline: 10–14 weeks for a straightforward flip (longer if your situation is complex).
Phase 1: Planning & Due Diligence
What Abrams Law does:
- Reviews your current corporate structure
- Identifies your shareholders and equity holders
- Asks about your cap table, employee options, convertible notes, etc.
- Asks about any agreements that might be affected by a restructuring
What you provide:
- Cap table (a complete list of who owns what)
- Shareholder agreements
- Employee option grants or equity agreements
- Loan documents (if any)
- Major contracts that might have change-of-control clauses
Why this matters: Abrams Law needs to understand your current situation before designing the flip. Any gaps or ambiguities now will come back to haunt you later.
Phase 2: Identifying Issues
Common issues that come up:
- Unlicensed IP: Intellectual property that hasn’t been formally assigned to the company. Solution: Before flipping, get assignments documented.
- Informal equity: Shares or options that were issued verbally, with no documentation. Solution: Retroactively document them before the flip.
- Shareholder agreements: Some older shareholders might have rights or preferences that need to be addressed. Solution: Work with them in advance to ensure smooth restructuring.
- Contracts with change-of-control clauses: Some customer or supplier contracts might be triggered by the restructuring. Solution: Review them in advance. You may need to notify counterparties or get consent.
None of these are deal-killers, but they need to be addressed before closing. Abrams Law will identify them and help you resolve them.
Phase 3: Structuring the Flip
There are a few different ways to structure a flip legally. The right one depends on your situation:
Direct reincorporation:
- A new Delaware entity is created.
- Shareholders exchange UK shares for Delaware shares.
- This is the most common structure.
Merger-based structure:
- A Delaware entity is created.
- The UK company merges into it.
- Shareholders receive Delaware shares.
- This structure may have different tax implications (your tax advisors will advise).
Holding company structure:
- A Delaware holding company is created.
- It acquires the UK company.
- Shareholders own the Delaware parent.
Abrams Law will recommend the right structure for your facts. The key point: there’s not one “right” way; it depends on your situation.
Phase 4: Documentation
Once the structure is agreed, Abrams Law drafts the necessary documents:
- Shareholder resolutions: Formal approval from all shareholders of the restructuring.
- Option exchange agreements: If you have employees with options, they need to sign new option agreements in the Delaware entity.
- Bylaws and corporate documents: The Delaware company’s bylaws, certificate of incorporation, etc.
- Exchange agreements: Documenting how shares are exchanged (typically 1:1).
All of this needs to be in writing and signed.
Phase 5: Execution & Closing
Once documents are ready:
- Shareholders sign the resolutions and exchange agreements.
- The Delaware company is officially incorporated.
- Shares are exchanged. You now own shares in the Delaware company instead of the UK company.
- Filings are made with UK Companies House (to notify them of the restructuring).
- US filings are made with the IRS (to register the Delaware company and obtain an EIN).
Closing is the moment the flip actually happens. After that, the Delaware company is live and operational.
Phase 6: Post-Flip Compliance
After the flip closes, there are ongoing obligations:
Annual filings:
- Delaware franchise tax (due annually)
- US federal income tax return (Form 1120, due annually)
- UK filings (if the UK company remains as a subsidiary)
Corporate governance:
- Board meeting minutes (for major decisions)
- Stockholder records
- Option grant tracking
Banking and service provider updates:
- Update your bank on the new entity
- Update insurance providers
- Update any service contracts
Cap table updates:
- Your cap table system (Carta, Pulley, or spreadsheet) needs to reflect the new Delaware ownership.
Abrams Law won’t do all of this, but they’ll ensure it’s on your radar and help coordinate with accountants and bookkeepers.
Key Takeaway
A Delaware flip is a structured but manageable process. The key is starting with experienced legal guidance (Abrams Law) and giving yourself enough time to do it right.
Rushing leads to mistakes. Planning ahead leads to a clean restructuring.
Ready to flip? Abrams Law can guide you through each phase and ensure the process is smooth and legally sound.
