Considerations for Korean Startups Entering the United States

May 24, 2019

Each U.S. state has its own corporate law, so you must choose a state of formation and obtain its approval to establish the company. Startups often want to operate in California, home to Silicon Valley, but incorporate in Delaware, which investors prefer and where raising investment can be easier. Forming a California company and forming a Delaware company that operates in California each have advantages and disadvantages. Choose the state after reviewing the Korean parent’s ownership structure, the purpose of the U.S. entity, and future operating plans.

If the main objective is to attract U.S. venture capital, forming a Delaware company is common. If the company will operate solely with Korean capital, without U.S. investment, or receives Korean government startup support, forming a California company is generally more advantageous in cost and operations.

U.S. venture capital investors often require a flip that makes the U.S. entity the parent company. For Korean shareholders, this may be treated as selling Korean shares and buying U.S. company shares, potentially generating substantial tax. After the flip, Korean government startup support may no longer be available under the policy of supporting only companies headquartered in Korea. Keep these points in mind when planning future operations.