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I think that is exactly what the OP was suggesting. Cayman holding company with US operating subsidiary.

MichaelBurge 10y ago
I think the confusion here is whether the existing US shareholders would own shares in the Cayman company or the US company. Some are talking about the former, and some are talking about the latter. Why would the existing shareholders want to move their shares to the Cayman company?
- philiphodgen 10y ago
  The existing shareholders would like to own Cayman shares because of future corporate inversions. There may also be questions of "which entity should own the IP?" If the shareholders own holding company stock they are assured of ownership of IP even if the IP is parked in a separate corporation. Then you look at the exit. If this company is ever sold, what exactly will be sold? If you are a shareholder you do not want to be left behind with an orphaned element of the business. Owning stock at the top tier helps avoid this. OTOH if this is a "keep it forever and milk the cash flow" business, you have to think through the tax outcomes there too. U.S. shareholders in foreign corporations are punished by the IRS TaxBot for their impudence. The paperwork and accounting cost overhead are daunting. That is a significant reason to avoid a structure such as this. It ain't easy. Startups don't usually have the cash to get the thinking done correctly at the front end. So later on they are boxed in -- change may trigger massive tax costs that are unacceptable. IP ownership and exploitation is a major offender here.
- rahimnathwani 10y ago
  Correct. The foreign investor could own 100% of the shares in a Cayman company, which owns x% of the shares in the Delaware company. Existing shareholders continue to hold shares in the Delaware company. This has the same effect on the new investor's estate tax as changing the corporate structure. So it's not worth if that's the only reason.

I think the confusion here is whether the existing US shareholders would own shares in the Cayman company or the US company. Some are talking about the former, and some are talking about the latter. Why would the existing shareholders want to move their shares to the Cayman company?

philiphodgen 10y ago
The existing shareholders would like to own Cayman shares because of future corporate inversions. There may also be questions of "which entity should own the IP?" If the shareholders own holding company stock they are assured of ownership of IP even if the IP is parked in a separate corporation. Then you look at the exit. If this company is ever sold, what exactly will be sold? If you are a shareholder you do not want to be left behind with an orphaned element of the business. Owning stock at the top tier helps avoid this. OTOH if this is a "keep it forever and milk the cash flow" business, you have to think through the tax outcomes there too. U.S. shareholders in foreign corporations are punished by the IRS TaxBot for their impudence. The paperwork and accounting cost overhead are daunting. That is a significant reason to avoid a structure such as this. It ain't easy. Startups don't usually have the cash to get the thinking done correctly at the front end. So later on they are boxed in -- change may trigger massive tax costs that are unacceptable. IP ownership and exploitation is a major offender here.
rahimnathwani 10y ago
Correct. The foreign investor could own 100% of the shares in a Cayman company, which owns x% of the shares in the Delaware company. Existing shareholders continue to hold shares in the Delaware company. This has the same effect on the new investor's estate tax as changing the corporate structure. So it's not worth if that's the only reason.