# The Delaware flip

> A new Delaware parent over a company formed abroad, by share exchange — and tax questions in both countries.

Source: https://lopifi.com/learn/us-company-for-foreign-founders/delaware-flip
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**What is a 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](https://lopifi.com/md/glossary/subsidiary). Founders call it a flip.

> **Two countries' tax law, not one.** The exchange is a disposal of shares in the home country, and whether it is taxed there depends on that country's rules. On the US side, the new parent now owns a foreign subsidiary, and its US shareholders and officers may have Form 5471 to file. Get advice in both countries before signing.

> “Certain U.S. citizens and residents who are officers, directors, or shareholders in certain foreign corporations file Form 5471 and schedules to satisfy the reporting requirements of sections 6038 and 6046, and the related regulations.”

— [IRS, About Form 5471](https://www.irs.gov/forms-pubs/about-form-5471), Form 5471 — US persons with interests in foreign corporations

1. **Form the parent.** Form the Delaware corporation, with a charter authorizing the classes of stock the round needs.
2. **Exchange shares.** Shareholders exchange their shares in the home company for Delaware shares, in the same proportions.
3. **Run two entities.** The home company keeps operating as a wholly owned subsidiary; intercompany agreements cover IP and services between the two.
4. **File in both places.** The parent files Form 1120, Delaware's annual report and franchise tax; the subsidiary files at home.

A flip, in outline.

## Where this page's rules come from

- [IRS, About Form 5471](https://www.irs.gov/forms-pubs/about-form-5471) — Form 5471 — US persons with interests in foreign corporations (irs)
- [Form 5471 (Rev. December 2025)](https://www.irs.gov/pub/irs-pdf/f5471.pdf) (PDF) — Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations (PDF) (form)
- [Wikipedia, “Holding company”](https://en.wikipedia.org/wiki/Holding_company) — Holding company (reference)
- [Wikipedia, “Subsidiary”](https://en.wikipedia.org/wiki/Subsidiary) — Subsidiary (reference)

## Read further

- https://lopifi.com/md/docs/domain/09-multi-entity-and-fx

- **Track:** [Entity types](https://lopifi.com/md/learn/entities)
- **Part of:** [US companies for founders abroad](https://lopifi.com/md/learn/us-company-for-foreign-founders) — 4 min
- **Terms taught:** [Subsidiary](https://lopifi.com/md/glossary/subsidiary)
- **Previous:** [US companies for founders abroad](https://lopifi.com/md/learn/us-company-for-foreign-founders)
- **Next:** [A foreign-owned LLC](https://lopifi.com/md/learn/us-company-for-foreign-founders/foreign-owned-llc)
- **The course:** https://lopifi.com/md/learn