Flip Up Process

The flip-up process simply means moving our Turkish business from Turkey to the US. There may be many reasons for this desire. Low taxes, ease of access to customers/investors, the target audience of the start-up being mostly in the American market, etc. are the first ones that come to mind. When it comes to how the flip-up process works, there are several methods for this. The most popular method is to exchange the shares of the investors in the Turkish business for the shares of the start-up in the US. What the share exchange means is this: The shareholders in the Turkish start-up offer their shares to the US start-up, and in return they receive shares in the US start-up. As a result of this transaction, in short, the company established in the US takes over the company in Turkey by acquiring all of its shares. The dominant undertaking relationship, which we are familiar with from Turkish Company Law, comes to the fore. In other words, the company in the US becomes the parent company and the company in Turkey becomes the subsidiary. The key point to keep in mind here is that the agreements between the Turkish company and the shareholders under Turkish Company Law should be terminated and the agreement between the US company and the shareholders should be designed according to the US Company Law, but it should be reserved that the points in the agreement made under Turkish Law can be optionally protected to the extent permitted by US law.

The advantage of a flip-up is this: You start by establishing a company in the US and you do not need to be a US citizen, have a permanent address in the US, or have a work permit. However, establishing a company in the US does not mean becoming a US citizen, it can only be advantageous in terms of the procedures required for this. The most important point to be mentioned here is the following: As a Turkish citizen, it is possible to be a member of the Board of Directors of a company established in the USA, but it is not possible to work without a work permit and accordingly, it is not possible to receive a salary, it is reserved to receive dividends as a shareholder and to pay taxes depending on this income. However, not being able to earn a salary in the US without a work permit does not mean that you cannot work in a subsidiary in Turkey and earn a salary.

As an additional information, the companies established in Turkey are known as Limited Liability Companies (LLC) in the US and the most preferred state in terms of state is Delaware. The reason why the LLC type is preferred is the principle that the partners are not liable for the debts of the company with their personal assets, which is generally encountered in Joint Stock and Limited Liability Companies in Turkey, along with tax advantages. The reason why Delaware is the center of attention for entrepreneurs is the state’s development in terms of Corporate Law.

As an added advantage, some US institutional investors may be prohibited from buying securities from foreign companies, and through the flip-up, entrepreneurs can benefit from these investors as well.

There are also some situations where the flip-up process can become disadvantageous. For example, the “unflip” process is very difficult and costly. The meaning of the unflip process is, in its simplest form, a reinstatement. In order to avoid this, it is important for entrepreneurs and investors to conduct a good market research to find the best candidate for a flip-up. Flip-ups do not only have to be in the US, Lisbon (Portugal), Budapest (Hungary), Bangalore (India), Kigali (Rwanda), Skolkovo (Russia) and Shenzhen (China) are also important centers in this regard. In this respect, it is important to make the right assessment and seek advice. It is also recommended by advisors that entrepreneurs receive signed contracts or letters of commitment during the investment process. At the point when entrepreneurs decide to switch to a flip-up, it is important that they design their strategies to develop the intellectual assets of the existing start-up such as trademarks, patents and copyrights. Experts recommend keeping the intellectual rights in the Turkish subsidiary and entering into a license agreement with the US company. It should also be noted that if the Turkish company has allowed a termination clause in its agreements with third parties regarding control or restructuring in the contract, the Turkish company may be subject to penalties as this flip-up process will violate the contract.