Flip to the U.S. – How to Move a Startup’s Structure to Delaware Step by Step

Step 1 – Establishing a C-Corporation in Delaware

The process begins with the formation of a C-Corporation in the state of Delaware. This is the most common jurisdiction for technology startups due to its well-developed corporate law and specialized business courts (the Court of Chancery).

Venture capital funds are very familiar with Delaware corporate standards, which significantly facilitates future investment rounds. The newly created U.S. entity typically serves as the holding company (HoldCo) for the entire group.

Step 2 – Valuation of the Polish Company and Tax Analysis

The next stage involves preparing a valuation of the shares in the Polish company, usually in the form of a valuation memo. This document determines the value of the shares contributed to HoldCo and forms the basis for the subsequent share exchange.

The valuation is relevant from both a corporate and tax perspective, as it affects how the transaction will be treated in both jurisdictions.

At this stage, it is also necessary to analyze the tax consequences for the Polish shareholders and the company itself. Contributing shares of a Polish company to HoldCo in exchange for shares in the U.S. company may, depending on the transaction structure, be subject to income taxation in Poland. For this reason, a detailed tax analysis of the entire transaction is typically prepared at this stage.

From the perspective of U.S. tax law, the parties also confirm the intention to qualify the transaction as a non-taxable transaction under U.S. tax rules, most commonly pursuant to Section 351 or Section 368 of the Internal Revenue Code, which govern contributions of property to corporations and corporate reorganizations.

Step 3 – Corporate Resolutions on the U.S. Side

Once HoldCo has been established, corporate resolutions are adopted authorizing the execution of the share exchange agreement and the issuance of new shares to the existing shareholders of the Polish company.

Step 4 – Corporate Approvals on the Polish Side

In parallel, the appropriate corporate approvals must be obtained on the Polish side from the company and its shareholders.

These approvals enable the reorganization and the transfer of shares to HoldCo. In the case of a Polish limited liability company (sp. z o.o.), the transfer of shares requires a notarial deed, even if the share exchange agreement itself is governed by U.S. law.

Step 5 – Execution of the Share Exchange Agreement

The key element of the process is the execution of a share exchange agreement between HoldCo and all shareholders of the Polish company.

Under this transaction, each shareholder contributes their shares in the Polish company to HoldCo and, in exchange, receives shares in the U.S. company. After completion of this step, HoldCo becomes the owner of the Polish company, and the former shareholders become shareholders of HoldCo.

Step 6 – Reorganization of the Polish Corporate Structure

Following the share exchange, it is necessary to update the corporate documentation on the Polish side. This typically includes updating the shareholder in the share register, filing changes with the Polish National Court Register (KRS), amending or restating the company’s articles of association, and updating other corporate records.

From this point onward, the Polish company operates as a subsidiary of HoldCo.

Step 7 – Adjustment of the ESOP Program

If the company previously implemented an employee option program, it may need to be adjusted to reflect the new structure.

In practice, this often involves implementing an ESOP at the HoldCo level, typically structured to comply with Section 409A of the Internal Revenue Code, while terminating or restructuring the existing option program operating in Poland.

This stage generally requires coordination between both U.S. and Polish legal and tax advisors.

Step 8 – Adjustment of Corporate Governance at HoldCo Level

The final step may involve adjusting the corporate governance structure of HoldCo. Many startups postpone this step until they raise capital from a venture capital fund, when governance structures and investor rights are typically negotiated as part of the investment round.

At this stage, the company is usually ready to engage with investors and prepared for a financing round.

Summary

A flip to the U.S. is a common solution for Polish startups planning to expand into the U.S. market or raise capital from U.S. venture capital funds. The process requires coordination between Polish and U.S. corporate and tax law considerations and careful planning of the transaction structure.