For European startups, a flip into a U.S. holding company (usually in Delaware) has become a recurring topic. This type of deal structuring is primarily driven by American venture capital funds. While a US flip may unlock capital and facilitate expansion into the U.S. market, it also introduces an additional layer of legal, tax, and structural complexities that can quietly destroy value if handled poorly or left opaque.
When founders consider a US flip, it is crucial that they understand the pros and cons. In such conversations, we often highlight common pitfalls as well as key do’s and don’ts.
1. Employment & IP falling into legal limbo
The mistake
Many startups flip into a U.S. parent company while their team continues to work in Europe. While the U.S. TopCo owns the OpCo shares, the people, payroll, and development remain local.
Founders may try to bridge this gap with:
- Employer-of-Record (EOR) providers
- Contractor agreements
- Informal arrangements
Sometimes, in the spirit of digital nomadism, these matters are not considered at all.
This creates serious risks:
- Ownership of code and other IP rights created by the founder are not duly transferred over to the company, which may potentially breaching agreements and triggering tax consequences later on
- Employment law may not apply correctly or becomes unclear
- Social security and payroll taxes may be misallocated
Example: If developers are not properly employed by the correct operating company under local law, the U.S. parent may not actually own the technology that investors believe they are investing in.
How to prevent it
A proper US flip requires:
- A clean operating subsidiary structure
- Local-law employment contracts
- Explicit IP assignment from every employee (and potential contractors) to the correct entity
- A documented flow of IP into the U.S. parent and a pricing arrangement for such services
Specialized cross-border advisors coordinate these workstreams together with the company to ensure employment law, tax law, and IP ownership align.
2. Option plans that break when they cross borders
The mistake
Founders often hear that “U.S. options are better” and may want roll out American-style stock option plans to European employees after or during the flip.
The problem: employees are taxed where they live, not where the company is incorporated.
This means U.S. stock options granted to Swedish, German, or French employees are often taxed as salary rather than capital gains. What was meant to be a powerful incentive can become an expensive tax liability – leaving employees feeling misled and potentially harming culture, loyalty, and performance.
How to prevent it
Experienced US-flip advisors help founders implement appropriate equity and incentive plans. This ensures employees are properly incentivized without creating unintended tax burdens.
3. Flip to the U.S. for the wrong reasons
The mistake
When a trend like US flips emerges, founders may assume that a Delaware TopCo alone signals success, or that it automatically eases access to U.S. capital. Copying others without discussing the fundamentals with advisors can be an expensive mistake.
Creating a U.S. parent company while operations remain in Europe introduces legal and administrative complexity. Companies that complete a US flip often face:
- Higher advisory costs
- Duplicated compliance requirements
- More complex governance
Some may thus argue that the strategic gain is limited, especially if the flip is driven by investor preference rather than the company’s best interests.
“Personally, I think we should stop defaulting to demanding US flips from European founders. It’s a strategic company-level decision that should be driven by what’s in the company’s best interest – not by investor preference or what is most convenient to the fund”, says Sofia Tångelin, senior associate at Synch.
How to prevent it
A proper U.S. flip is more than completing administrative formalities. The advisors are crucial to help founders:
- Align the corporate structure with actual operations
- Ensure IP, tax, and employment arrangements are correctly allocated
- Make the U.S. parent “look native” to American investors and buyers, while maintaining investor-ready governance and equity structures
Reactive founders who postpone these considerations often discover that fixing a poor structure during a live financing or M&A process is far more expensive – and gives leverage to the counterparty.
Bottom line
A US flip can be a powerful growth and exit tool – but only if executed with precision. The biggest risks hide in employment law, tax rules, option plans, and IP flows. Startups that treat a US flip as a checkbox exercise often find, too late, that they have built their global company on unstable legal ground.
Working with experienced cross-border advisors ensures that when U.S. capital or exit opportunities arrive, the company’s structure is an asset – not the thing that breaks the deal.
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