Advisory on Structuring a U.S. Flip Structure for an AI Startup

A technology-based startup located in a government research and development special zone requested advisory services on whether a transition to a flip structure—placing a U.S. corporation as the parent company—could be made compatible with Korea's research institute company system.

The review began with two questions. First, whether the equity ratio required to maintain research institute company status would be preserved after the transfer of shares. Second, whether the license granted under the technology transfer agreement would carry over intact under the new governance structure. Rion separated the two issues, confirmed the interpretation of each relevant regulatory authority, and presented three scenarios differing in the timing and sequence of the transition.

Ultimately, the client chose to proceed with the establishment of the U.S. corporation and the share exchange within the same quarter, while securing an equity ratio sufficient to maintain research institute company status. Rion's team then continued to support the client through foreign exchange transaction reporting and the establishment of a transfer pricing policy, and no corrective action was required at any point during the transition.

While a flip structure is widely known to be advantageous for attracting investment, for companies that must also preserve their status under Korea's domestic system, the sequence and timing determine the outcome. By confirming the relevant regulatory authorities' interpretations at the structuring stage, Rion reduces the risk of irreversible decisions.