Most founders treat the flip-up closing as a finish line: the share exchange is complete, the Delaware company sits at the top of the cap table, the investment has landed. In practice, closing day is the day a two-company group comes into existence, and the real work starts then. Documenting the intragroup relationships — who provides which services to whom, on what basis the money flows, who owns the code — is the work package most often postponed in flip-up projects, and the one that grows more expensive with every month of postponement.
The Turkish company is no longer a standalone venture; it is now a subsidiary of a foreign parent. The team sits on its payroll, a good part of the customer contracts sit on its books, and in most files the intellectual property still sits with it too. The parent, meanwhile, is the entity that holds the investors’ money, hosts the option pool and will sign the next round. Every flow between these two legal persons — labour, cash, rights — needs a contract and a defensible price behind it; every month without one creates a gap that will later have to be explained in a tax audit or in the due diligence for the next round.
We covered the road to closing in the five key points of the flip-up. What comes after closing boils down to four structural questions: how the services will be priced, where the IP will sit, which company employs the team, and at which layer the option plan is built.
Without a services agreement, there is no group
In the typical set-up, the parent takes on the investor agreements and, over time, the customer contracts; the Turkish company becomes a service producer housing the development, product and support teams. The legal expression of that relationship is an intercompany services agreement: which services are provided, with which team, who owns the resulting work product, the invoicing period, the currency and the payment terms all live there. Without it, the bank records the money transfer as some vague expense reimbursement, and a tax inspector records it as an undocumented cost and a disguised profit distribution waiting to be argued about.
After closing, most files play out the same way: the parent wires money to the Turkish company at irregular intervals, nobody issues invoices, and at year end the accounting team tries to produce paperwork retroactively. A back-dated agreement is weak in form and makes the pricing debate impossible to untangle. The better course is to put it on the closing checklist from the start — services agreement signed within the month following closing — and to have invoicing run regularly from the first month. The agreement can be bilingual; but the invoices and the contractual scope matching each other is a non-negotiable minimum.
Transfer pricing cannot be left on paper
The parent and the Turkish subsidiary are related parties for tax purposes; every transaction between them falls under the transfer pricing regime. The arm’s length principle in Article 13 of the Turkish Corporate Tax Law requires the intragroup price to match what independent parties would have agreed. In practice the service model is usually built on a cost-plus basis with a reasonable margin; what that margin should be is a question for a benchmarking study based on comparable data, not for intuition.
Both extremes invite questions. A Turkish subsidiary that is permanently loss-making suggests profits are being shifted abroad; a subsidiary that looks extraordinarily profitable needs explaining on the parent’s side instead. The documentation duties (an annual transfer pricing report and tax return annexes) are set out in the legislation, and that file is the first thing an inspector asks for. Commissioning the study before the first accounting period closes both makes the price defensible and produces a template that can be updated in later years. In negotiations this item tends to be waved off with “we’ll deal with it later”; later almost always arrives in the form of an audit letter.
A share exchange does not move the code: where will the IP sit?
A flip-up changes hands on the shares; it does not move the assets. If the software, the trade marks and the domain names were born in the Turkish company, they stay there after closing. Investors, however, generally want the IP owned, or at least controlled, by the company they invested in, and the IP representations and warranties in the term sheet are drafted accordingly. The decision comes down to one of three structures.
- The IP stays in Türkiye and is licensed to the parent. This avoids the cost of a transfer; in exchange, the scope and fee of the licence must be defined, and the withholding tax angle of cross-border royalty payments factored in from the start.
- The IP is assigned to the parent. Under the Turkish copyright statute, an assignment of economic rights requires a written agreement in which each transferred right is listed individually; the price must be set at arm’s length, and the fact that the transfer gain will be taxable at the Turkish company belongs in the planning.
- New development is done for the parent from day one. Through the work product clause in the services agreement, code written after closing vests directly in the parent; a separate decision is still needed for the accumulated legacy code.
Which structure to choose is as much about the next round as it is about tax. In every scenario the copyright chain (founder to company, company to group) must be documented without a break; a gap in the chain shows up as a price adjustment at the exit table.
Which company employs the team?
Closing does not change anyone’s employer: the team stays on the Turkish company’s payroll, and the employment law and social security obligations continue unchanged. Confusion begins when the de facto working arrangement and the documented arrangement drift apart. Founders usually hold officer titles at the parent while serving as managers of the Turkish company; documenting, at least at a basic level, which hat they wear for which work is also the foundation of the service invoicing between the two companies.
Two practical warnings. First, do not go around the payroll: sending a bonus or a consultancy fee from the parent directly to a Turkish employee creates separate problems in employment law and in tax; rewards should run through the Turkish payroll or a properly established option plan. Second, if you operate under a technopark or R&D centre regime, check what it means for your exemption conditions that revenue now comes mostly from invoices issued to the parent; the technopark tax exemptions are sensitive to the composition of activities and income. A founder relocating to the US triggers payroll, tax residency and work permit questions all at once; that decision should be planned before the ticket is bought.
At which layer is the ESOP built?
The natural home of the option plan is the parent. Employees receive options over the common stock of the Delaware company; since exit value forms at that layer, that is where the employees’ upside arises. Handing out shares or options at the Turkish layer splits the cap table in two and creates a genuinely hard problem of synchronising the two layers at exit. The ESOP documents (the plan, the grant notice, the exercise agreement) will most likely be in English; sharing a Turkish-language summary so employees actually understand what they are getting is good practice for both transparency and employer credibility.
The tax treatment of granting foreign-company options to Turkish employees — how the gain is characterised and at which moment it is taxed — is a subject of its own and deserves specific advice before the first grants are signed. In designing the plan, test the vesting schedule against Turkish employment law’s termination and severance scenarios, and write the good leaver and bad leaver definitions with those scenarios in mind; otherwise the plan document and the employment contract will contradict each other at the first contested departure.
Before closing the post-flip-up file, we want to see four documents completed: a signed intercompany services agreement, a transfer pricing file resting on a benchmarking study, an assignment or licence agreement showing clearly where the IP sits, and an option plan built at the parent layer with a Turkish summary shared with the team. If these four are finished within the two quarters following closing, the next round’s due diligence becomes a routine confirmation; if they are not, every round opens with a negotiation over the same gaps, and at that table gaps are always priced as a discount.
This article is provided for general information only and does not constitute legal advice. Please seek legal support for an assessment of any specific matter.
Author
If this is on your desk
Templates and checklists are free in the Founder Academy; for a specific situation, book a 30-minute intro call.
Founder AcademyBook an intro callMore from Vircon Insights
After the Flip: The Ten Mistakes Turkish Founders Make in Year One of the Delaware Topco
August 6, 2026ESOP After the Flip-Up: Migrating Turkish Option Plans into a Delaware Topco
August 5, 2026Delaware C-Corp or Turkish Joint-Stock Company: A Decision Framework
September 8, 2026Delaware, Nevada or Texas? Choosing a State of Incorporation as a Turkish Founder
September 6, 2026Venture Debt: When It Makes Sense for a Turkish Startup and What to Read in the Documents
September 4, 2026Is a Term Sheet Binding? What a Letter of Intent Is Really Worth Under Turkish Law
September 3, 2026Related Practice Areas
Employment Law
Employment contracts, ESOP, termination, non-compete, work permits.
View service →US Company Formations & Flip-Ups
Delaware C-Corp, flip-up structures, SAFE/convertible notes, 83(b).
View service →Startup Law
Incorporation, founder agreements, ESOP, term sheets, regulatory matters.
View service →