[throwup238]

This whole move is about corporate governance. The US makes it really easy to start or manage corporations and the courts are (mostly) streamlined and predictable, especially the chancery courts in Delaware. Cayman Islands adopted much of Delaware's legal approach to corporations in 2016 to make the island more business friendly rather than just a tax haven, and they've got a foot in the Latin American market. Singapore is the SEA equivalent of Delaware.

Nothing else much to it. In reality they're all going to have to register to do business in Canada/California/whatever and pay their taxes anyway. Structuring the parent in one of those jurisdictions just makes the legal wrangling about ownership and stock classes safer and more predictable to both investor and founder.

[pjc50]

Many, many years ago I was the first non-founder employee at a UK startup. That meant hearing quite a lot (but not all) of the corporate discussions about finance, company structure etc. Fairly early on in the fundraising process we settled on "Delaware parent company, 100% owner of UK private limited company". This meant that US investors could invest in the Delaware entity happily, while the tax and employment aspects were handled locally in the UK. Stock grants were made from the US entity (under US law), but also eligible for UK tax relief (since the options were being assigned to UK residents).

While I think this was obviously more complicated than a single entity and probably required two sets of specialists rather than just one, it certainly worked and I would expect something similar is possible with Canada?

The founders were not required to move to the US, but ended up doing so anyway.

[compiledkoala]

This exactly. Canadian common law has some very odd implications for corporate governance. Much higher risk of governance deadlock due to recent rulings.

VCs are not going to know that when evaluating a company. YC as the incubator and the first check in has an obligation to vet the situation for future investors. The easiest way for them to do that at scale is to ensure they are experts in a very small number of jurisdictions that are predictable.

Honestly, it makes sense.

[am3141]

This is simply not true. Canadian founders lose massive Canadian tax benefits by incorporating in the US. The only way out of further tax complications (and it’s not because of Canada, it’s just how international tax laws work) the founders have to permanently move to the US. Source: I have founded both Delaware and Canada federal co.

[compiledkoala]

I understand how SR&D works - I've filed for it several times.

My hot take: given the 1 year delay on receipt of funds and the fact that it has the biggest impact on small teams, if you are going to scale a VC backed startup as fast as you need to - SR&D won't be the reason you succeed. If you are not scaling fast enough to make it - SR&D won't save you.

If you stay in Canada and raise from Canadian VC's you'll get half the cash at half the valuation. The government makes that up to you in SR&D a year later.

Found in Canada because it's your home and you love it. That's the only real reason. And it's a good one.

[bryanlarsen]

Banks are generally happy to factor SR&D for you if you need to get your money faster

[Onavo]

What are some of the recent rulings that make it high risk?

[snapplebobapple]

Can attest to this. I know of a shareholder dispute that is in year 11 of going through the courts and the end is just barely in sight, maybe. Canada is a terrible place to setup business. Setup somewhere less crap and colonize Canada from there if you really think it's necessary dealing with this terrible country.

[garbawarb]

I wonder if Canada needs a Delaware. Delaware's system works because they have such a small population that offering a low cost and high volume solution to the rest of the country is the right strategy. I could see a case for a smaller Canadian province like Newfoundland or PEI doing the same.

[captnFwiffo]

[flagged]