New Rounds + Exits

Main concerns of the Startup – M&A and IPO

The structure of Holding C-Corporation in Delaware is preferred by American investments and is usually adopted by startups whose purpose is to attract investments in the USA and also when there is a glimpse that the company has good chances of being purchased by an American company.

A point of attention regarding this structure is that as long as the Holding C-Corporation is established in the USA, in addition to being harder to restructure, the results earned by foreign subsidiary startups will be subject to American tax rules, and may generate tax impacts in the USA.

At the time of the exit (sale of the shares of the American C-Corporation), the Income Tax on the capital gain will only accrue in the investors’ country of residence.

The Cayman Limited Holding on a Delaware LLC allows for a global fundraising, attracting investors from several markets, such as Europe, Asia, China, Hong Kong, Brazil, United Kingdom, in addition to the United States (among others).

Due to the “transparent” nature of the LLCs (pass-through Entities), this structure allows the results earned by the startups (foreign subsidiaries) to have no tax impact in the USA, as long as such results flow directly to the offshore holding.

At the time of the exit (sale of the shares of the Holding Cayman), the Income Tax on the capital gain will only accrue in the investors’ country of residence.

This structure brings a few tax impacts for American tax resident investors insofar as they own equity interest in a Passive Foreign Investment Company (PFIC). However, there are measures that can be adopted to minimize the impacts of the PFIC.

On the other hand, this model pleases Brazilian investors, since:

The transparent structure of the LLC generates no tax impact in the USA on the results earned by the Brazilian startup;

Even though the LLC is a transparent structure for American purposes, Brazil considers this type of company opaque, not being able to see the indirect investment arising from the offshore company. Thus, it is possible to avoid falling within the scope of burdensome tax rules applicable to beneficiaries domiciled in countries with favored taxation or subject to privileged tax regime.

Brazilian investors can enjoy the benefit of Income Tax deferral, up to the moment of the actual profit distribution, as mentioned in the previous section.