What is the Delaware Flip and how does it work for startups?

If you’re a UK startup founder with an eye on expansion to the US, then you’ll need to know about something called the Delaware Flip.

There are a few different ways a UK startup can expand to the US, such as through opening a US subsidiary, for example. But there’s also another way, one that could come with additional benefits - although it can be complicated to pull off.

This is the Delaware Flip, a way of accessing US markets, customers and crucially - investment. It all happens through the creation of a US holding company, typically in the state of Delaware.

Here in this essential guide, we’ll run through everything you need to know about the Delaware Flip as a UK founder. This includes how it works, the steps involved, the pros and cons, and crucial things you need to consider before diving in.

So, let’s get started with a look at the basics of how the Delaware Flip works.

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What is a Delaware Flip?

A Delaware Flip is the term used to describe the opening of a new US holding company in the state of Delaware by a company based in another jurisdiction - in this case, let’s say the UK.

The new US corporation is established and the UK company migrates its corporate head office there, via a process known as a share exchange. This is where all the shareholders in the UK exchange their shares for shares (usually in the same proportions) in the new US corporation.¹

The Delaware company becomes the holding company, and the UK company its subsidiary. All of this happens without any money changing hands.¹

As you’d guess from the name, the U.S. state of Delaware is the most common choice of location for a Delaware Flip. This is for a few reasons, but mainly because the state is a hub for US investors, and it has a well-established and sophisticated system of corporate law. It’s also pretty easy to incorporate a new company there.

It’s the domicile of choice for nearly 68% of Fortune 500 companies in the US, and a whopping 80% of all US initial public offerings in 2023 were registered in Delaware.²

The process of completing a Delaware Flip can be quite complex, so there’ll need to be some fairly compelling reasons for UK startups and companies to go through it. We’ll explore the benefits of the Flip next, along with some of the drawbacks.

Benefits of a Delaware Flip

So, why move your UK startup to the US via a holding company in Delaware? Here are just a few of the main benefits on offer:

• Access to funding - US investors are familiar with corporate structures in Delaware and investor confidence in the state is high
• Access to the US market - while there are other routes to US expansion, migrating to Delaware can provide easy access to the US consumer market. It also opens up the opportunity to list your company on US public markets, which is much more difficult and expensive for non-US-based companies.
• Scalability - by structuring your business in Delaware, you may have an easier route to nationwide or even cross-border expansion, as well as potential mergers and acquisitions.

What are the drawbacks of a Delaware Flip?

As well as benefits, there are also potential pitfalls and downsides to consider as a UK startup. These include the following:

• It’s irreversible - if you change your mind, it’s not usually possible to ‘backflip’ from a tax perspective
• High initial costs - you may have to shell out up to $25,000 USD or more in legal fees,³ as well as many other costs and charges
• High complexity and slow speed - it requires meticulous planning to pull off a Delaware flip, from restructuring to incorporation, as well as sorting out some extremely complicated tax affairs.
• Exposure to the risk of US litigation
• Legal compliance burdens between two countries - your company could end up being subject to legislation and regulations in both the US and the UK
• Complex tax implications

How a Delaware Flip works - step-by-step

Executing a Delaware Flip can be quite a lengthy and complex process. To help you know what to expect, here’s a quick guide to the steps involved:

1: Share classes are reviewed, adjusted and ultimately simplified

If there are multiple share classes in the UK entity, this can make the exchange process more complicated. So, all shares need to be converted into just one standard share class to make things easier later on.

2: The Shareholders Agreement is updated

It’s essential to get specialist legal advice for this step, and for updating share classes. It’s crucial to ensure that all processes are documented and the letter of the law in the Companies Act 2006 is followed.

3: A US legal team is appointed

While work is carried out to prepare the UK company and its share classes for the Flip, a legal team is appointed over in the US.

This team will carry out the steps involved in establishing the new US holding company (the ‘Newco) in Delaware. The incorporation process is started, involving drafting and signing the company formation documents

4: The Newco’s equity is prepared ready for the exchange

This step is crucial to ensure that the share exchange can take place smoothly and without unnecessary delays or complications.

5: The exchange agreement is drawn up, finalised and executed

This is the legal contract which will outline how UK shareholders will exchange their shares for shares in the Delaware Newco. It will include details such as the exchange ratio (how many Newco shares are issued for each UK share) and the technicalities and mechanisms of the transfer.

It’s crucial that the exchange agreement and how it is carried out is compliant with UK regulations. This includes notification to relevant bodies such as Companies House (if required) and the updating of the share register.

Other more complicated steps may also be conducted before the process is complete, such as:

• Putting stock restriction agreements in place
• Advising founders on the implications of having shares subject to vesting
• Ensuring full compliance with UK and US tax laws
• Addressing capital gains tax implications for founders, including claiming rollover relief.

Should UK founders consider a Delaware Flip? Key things to consider

Embarking on a Delaware Flip is no small step for a UK company, and it’s not necessarily the right choice for every business. For startups, it could potentially be a step too far on limited resources - unless the end result is well worth it.

So is a Delaware Flip the right choice for your company? Here are some of the most crucial considerations to help you make your decision:

• If your company and team is UK-focused and plans to be in the future, migrating to Delaware may not be worth the effort - unless you plan to roll out significant US operations.
• You’ll need a healthy budget, resources and expert legal advice (which doesn’t come cheap) - as well as a stable enough company to weather the potential disruption caused by the lengthy process.
• Legal support is absolutely critical at all stages of the process, especially when it comes to regulatory compliance and taxes. Mistakes and missteps can be extremely costly, and could pose a serious risk to the future of your startup.
• You should weigh up whether opening a US subsidiary or flipping to a US holding company is the right route for your startup and its goals. It can be much simpler to open a subsidiary, although you may not see the same investment benefits.
• What stage is your startup at? A Delaware Flip is best suited to those in early investment stages, such as seed funding or Series A. In later funding stages, it can be a much more complicated and expensive process - but can be worth it with the right product market fit.

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Delaware Flip FAQs

When is the right time to do a Delaware Flip?

A Delaware Flip is best suited to startups looking for early stage investment, such as seed funding or Series A. However, there are substantial costs involved in the process, so startups will need a healthy budget set aside - especially when it comes to legal costs.

Can a foreigner open a company in Delaware?

Yes, there are no restrictions preventing non-US citizens incorporating a business in Delaware - and the process is known to be relatively straightforward.

Why are so many LLCs based in Delaware?

Delaware is a popular choice for incorporating a business for a number of reasons, including⁴:

• Tax benefits - there’s no corporate income tax on income derived outside the state, and no state or local sales tax
• Cost of doing business in Delaware is generally lower than the US average
• It’s fast, simple and efficient to incorporate a business in Delaware.

Sources used:

Sources last checked on date: 12-Aug-2025