The Delaware flip
A new Delaware parent over a company formed abroad, by share exchange — and tax questions in both countries.
Founders who incorporated at home and then raise from US investors are often asked to put a Delaware corporation on top. The usual mechanism is a share exchange: the shareholders of the existing company exchange their shares for shares of a new Delaware corporation, so the Delaware company becomes the parent and the original company its subsidiary. Founders call it a flip.
Step 1: Form the parent
Form the Delaware corporation, with a charter authorizing the classes of stock the round needs.
Step 2: Exchange shares
Shareholders exchange their shares in the home company for Delaware shares, in the same proportions.
Step 3: Run two entities
The home company keeps operating as a wholly owned subsidiary; intercompany agreements cover IP and services between the two.
Step 4: File in both places
The parent files Form 1120, Delaware's annual report and franchise tax; the subsidiary files at home.
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Background reading explains; it is never the authority for a rule. Anything marked as a convention is ours, not the rule-maker's.
- IRS guidance
- IRS, About Form 5471 (opens in a new tab)Form 5471 — US persons with interests in foreign corporationsFree to read
- Official form
- Form 5471 (Rev. December 2025) (opens in a new tab)Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations (PDF)PDF · Free to read
- Background reading — not an authority
- Wikipedia, “Holding company” (opens in a new tab)Holding companyFree to read
- Wikipedia, “Subsidiary” (opens in a new tab)SubsidiaryFree to read
The words this page teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.