Business people love to use jargon, but what exactly does it mean to do a “flip-up”? Not to be confused with “two-up”, our national game of chance, it refers to the migration of a company’s corporate structure to a foreign jurisdiction. This new game is more complex, and less likely to instill feelings of patriotism. And thankfully, if played strategically, it doesn’t need to be a gamble either.
With the recent strong gains on the NASDAQ and signs of a US recovery, it would appear that flip-ups are again on Australian company agendas.
But while the term is simple, the process can be daunting. Before being swept away by the allure of foreign wealth, Australian companies would be well advised to consider the suitability of this migration process as it applies their own business structure and goals.
COMMON REASONS TO FLIP-UP
- Fundraising/Foreign Investment – It is a widely held view that investors from outside Australia, and particularly US investors, will be more inclined to invest in a company if they are able to invest in a type of entity (i.e. a US corporation) that they are familiar with. As a result, a flip-up restructure can assist company efforts to raise funds from foreign investors, including strategic alliance partners, by enabling them to offer those investors equity interests in a US entity;
- Potential Sale/Listing – Given the larger size of many foreign capital markets, it is more advantageous for some companies to seek a trade sale or pursue a listing outside of Australia. For Australian companies with sales operations and alliance partners already in the US, having the operating and legal structure all within the same jurisdiction dramatically enhances that company’s ability to market itself and encourage a trade sale or listing;
- Market for Products/Services – It makes sense to have corporate headquarters in a market where sales are most likely to take place. It is also often easier for the management of the new entity to enter into contractual relationships with foreign partners and customers if there are no jurisdictional legal hurdles to overcome;
- Adoption of Industry Standard Option Plan – If a company is trying to attract and retain experienced executives from a target geographic market, it can be extremely beneficial if the board is able to offer those individuals stock options in an industry standard option plan that they are familiar with.
