Choosing the right corporate legal structure depends on your local market, the investors you want to attract and the markets you want to expand to. Among other things.
It is easier to do business in a market, if your legal entity is based in that market. Partners, suppliers and customers will trust you more and you can easily integrate into the financial, payment and tax system. For the early days, it is a great advantage.
But what if you don’t want to operate in just one market or you don’t know which market you want to operate in? 🤔
Then you will begin considering other factors, including flexibility of corporate laws and investor demand.
Ideally you have an operating entity in your first main market. Let’s say that’s Germany. However, your investors are two US pre-seed VCs. They want a Delaware C-corp or LLC. In that case, you will have a Delware topco for investors and a German opco for operations. Perfectly fine.
Many, if not most, European VC funds have EIF as a limited partner. That means they have to deploy a certain % of their funds to European companies or least companies that have their main market in Europe. It might be difficult to get funding from them, if you are not operating in Europe or have a European topco
Professional angel investors are generally open for various corporate structures as long as they are relatively common (like a Delaware topco with a local opco). Less professional angels might prefer that you have a local topco 😇
So keep the topco open until you know, which investor you are most likely to get onboard.
If you are going for professional VCs and angels, you can safely consider a Delaware topco. It comes with very flexible corporate laws.
The laws that governs how you manage a legal entity. In some countries those laws are very rigid and require a lot of paperwork. It may slow you down. Germany, Spain, Brazil and Poland are examples of countries with quite bureaucratic approaches.
One of most flexible corporate laws exist in the state of Delaware, United States. It’s not only founder friendly. It’s also investor friendly. And finally, cherry on top, tax friendly.
If you have a Delaware entity, you can also tap into all the fintech, HR-tech etc. that exists in the US. Making your life running the admin side of a company a lot easier.
The great people at Latitud are promoting the Delaware Tostada 🌮 and the Cayman Sandwich🥪. The Tostada is a LatAm version of having a European opco and a Delaware topco, specifically a LLC instead of a c-corp. The Sandwich is even more advanced by putting a Cayman entity on top as topco, the LLC as flow-through and finally a local opco.