Inbound Flip Transaction

Inbound Flip Transaction

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  Inbound “Flip” Transactions PreparingYour Foreign Entity for US Venture Funding October 2012
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  The Inbound “Flip”Scenario • Forco is a foreign corporation. It has identified and filled a market need and has accelerating year-over-year growth. With proper funding, Forco can rapidly improve its short-term profitability and long-term viability. Without proper funding, Forco remains vulnerable to better-funded emerging competitors. • Forco needs venture capital funding to continue growing.
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  Venture Capital Fundingin the US Global Venture Capital and Private Equity Country Attractiveness Index ranks the US as the venture capital leader overall and in the following five categories: Size of the Economy • Gross Domestic Product, 2011: $15.1 trillion Size of the Stock Market • Stock market cap, 2011: $15.6 trillion Stock Market Liquidity • Daily trading volume, 10/11/2012: $4.7 billion IPO Market Activity • Number of IPOs, 2012 first half 71 M&A Market Activity • Number of M&A deals, 2012 first half: 3,159 Sources: Global Venture Capital Statistic: Ernst & Young, Globalizing Venture Capital: Global venture and insights and trends report; Rankings: The Global Venture Capital and Private Equity Country Attractiveness Index 2012, Alexander Groh, Heinrich Liechtenstein and Karsten Lieser, http://blog.iese.edu/vcpeindex/unitedstates/; “Size of the Economy”: http://www.imf.org/external/pubs/ft/weo/2012/01/weodata/index.aspx; “Size of the Stock Market”: http://data.worldbank.org/indicator/CM.MKT.LCAP.CD; “Stock Market Liquidity”: http://online.wsj.com/mdc/page/marketsdata.html; “IPO Market Activity”: http://www.pwc.com/us/en/press-releases/2012/q2-ipo-watch-press-release.jhtml; “M&A Market Activity”: http://www.marketwatch.com/story/ernst-young-us-ma-activity-falling-2012-07-02.
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  Global Venture CapitalHub: Silicon Valley 2011 Venture Capital Totals: Global: $48.7 billion United States of America: 67% of Global Venture Capital Silicon Valley: 41% of US Venture Capital Source: Statistics: Ernst & Young, Globalizing Venture Capital: Global venture and insights and trends report; https://www.pwcmoneytree.com/MTPublic/ns/nav.jsp?page=historical.
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  The Problem • USangel investors and venture capital fund managers’ discomfort or unfamiliarity with foreign entity structures and governing laws may dissuade investment in such entities, rendering them less likely than a similarly situated US company to secure funding.
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  The Solution: Inbound“Flip” Transactions Stock in Forco Domco Shareholders Shareholders (US) Stock in Domco Domco (US) Forco Forco (Foreign) (Foreign) Description: The shareholders create a new US entity (“Domco”), and exchange their Forco stock for Domco stock. After the exchange, the shareholders will own Domco, and Domco will own Forco. Angel investors and venture capital funds would invest at the Domco level.
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  Results and Details •Angel investors and venture capital funds are much more likely to invest in the corporate Shareholders group at the new Domco level. • Royse Law Firm has been performing inbound Domco “flip” transactions since 2006. (US) • “Flips” can typically be achieved tax free, with only entity creation and legal document costs. Forco • “Flips” are generally executed quickly, and can (Foreign) be completed within about three weeks.
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  Perks of aPhysical Move: Silicon Valley Customers, Employees, Acquirors Adobe Systems AMD Apple Cisco eBay Facebook Google HP Intel Intuit Nvidia Oracle Sun Microsys. Yahoo! YouTube Source: Statistics: https://www.pwcmoneytree.com/MTPublic/ns/nav.jsp?page=historical; Graphics: http://en.wikipedia.org/wiki/Silicon_Valley.
• 9.
  Additional Resources www.RoyseUniversity.com Providing business, tax, and personal finance ideas to founders and executives. www.RoyseLink.com Connecting founders with investors. www.rroyselaw.com/ijuris_login_jp.html Offering legal document templates and more.
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  Contact Us Palo Alto Office: 650-813-9700 PALO ALTO LOS ANGELES SAN FRANCISCO 1717 Embarcadero Road 1150 Santa Monica Blvd. 135 Main Street Palo Alto, CA 94306 Suite 1200 12th Floor Los Angeles, CA 90025 San Francisco, CA 94105 www.rroyselaw.com Twitter: RoyseLaw
• 11.
  Circular 230 Disclosure Thediscussion of tax consideration was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding tax penalties that may be imposed by the Internal Revenue Service. Each party should seek advice based on the party’s particular circumstances from an independent tax advisor. In accordance with Section 6694 of the Internal Revenue Code of 1986, as amended (the “Code”), we hereby advise you that the positions set forth herein may lack substantial authority and, therefore, may be subject to penalty under Code section 6662(d) unless adequately disclosed on IRS Form 8275.