Case 19Delaware flip for Nigerian startups
Repairing a defective Delaware flip before the next round.
A Nigerian startup had reorganised under a Delaware parent, but the flip had been executed poorly. Gaps in consideration and errors in the share transfers put its next financing round at risk.
- Client
- Venture-backed Nigerian startup (confidential)
- Sector
- Technology and startups
- Practice
- Venture & Technology
- Jurisdiction
- Nigeria and Delaware, United States
The brief
In a Delaware flip, the shareholders of a Nigerian operating company exchange their shares for shares in a new Delaware holding company, which becomes the parent. Done properly, it gives international investors a familiar structure. Done poorly, it leaves the group with a defective chain of ownership.
Our client’s flip had been completed without adequate consideration for the transfer of the Nigerian shares, with incomplete filings, and with discrepancies between the Delaware and Nigerian registers. Incoming investors’ due diligence identified these issues, and the round could not close until they were resolved.
Our advice
- 01
Diagnostic review
Reconstructing the original flip from the transaction documents, board and shareholder resolutions, and both registers to identify every defect and its consequences.
- 02
Consideration gaps
Designing and documenting corrective transactions so that each transfer of Nigerian shares was supported by valid consideration and properly recorded.
- 03
Corporate and regulatory regularisation
Completing outstanding filings with the Corporate Affairs Commission, obtaining Certificates of Capital Importation, and addressing stamp duty and tax exposure on the transfers.
- 04
Cap table reconciliation
Reconciling the Delaware and Nigerian shareholdings, including founder, employee option and early investor positions, into a single accurate record.
- 05
Investor diligence
Responding to investor counsel and delivering the corrective documents and confirmations required to close the financing.
Outcome
The defects in the original flip were corrected, the Delaware parent’s ownership of the Nigerian company was regularised, and the startup proceeded to its financing round with a cap table investors could rely on.