There’s confusion around what legal structures make sense for Latin American startups. Founders, VCs and even lawyers can make decisions that can cost upwards of $100M if you get it wrong.
This post is the result of investing in 80+ startups from 15+ Latin American countries since 2014 via Magma Partners, and speaking to and working with countless lawyers across LatAm, US, UK, Europe and multiple offshore jurisdictions. I wrote a version of this that I’ve been sharing with Magma Partners founders internally and decided to open source it with the hope that founders save themselves time and money and make themselves more investable.
There are fairly clear outlines that most Latin American startups should likely follow. Every startup’s case is different, and each founder should get legal advice from a lawyer and tax advice from an accountant with relevant US and Latin American venture capital experience before following this guide or anyone else’s ideas.
To be clear, this is not legal or tax advice. You should always work with a lawyer and accountant when thinking about corporate structures. The money you’ll spend getting good advice will save hundreds of thousands or even hundreds of millions of dollars down the road. I can’t stress this enough. Don’t just follow these guidelines. Your situation is unique. Talk to an experienced lawyer and accountant.
Let’s start with a story. Brian Requarth, cofounder of Vivareal and Latitud had a big exit in 2020. His structure cost him and his investors $100M:
In the early days of a startup, money is tight and it’s common to cut corners. I created a California LLC for my company because of my local accountant’s advice. He had zero experience with VC or Latin America. Later, I hired a my hometown law firm that had no VC experience, which advised me to create a C-Corp, which seemed like good advice at the time. We later realized that even though our business had no operations in the US, we would be subject to US taxes upon an exit. We had raised VC money and at this point it was cost prohibitive to restructure. We later merged with our competitors. We retained top lawyers & accountants to help us manage our extremely complex deal. The deal took an unnecessarily crazy amount of time and effort because of our original structure. But we finally came up with a solution we thought worked. When we ended up selling our combined business to OLX Brasil, we signed a term sheet, but during the due diligence they opted to buy our local entities because they saw our restructuring as a huge risk. We paid millions of dollars to lawyers & accountants to get this deal done. We finally completed the transaction, but our company paid over $100M to the United States government despite our business having zero revenue in the US. Via https://twitter.com/brianrequarth/status/1345063197146017798 Lightly edited for clarity.
Brian’s story is only unique in two aspects:
The $100M in taxes his company paid is really high because he was so successful
He’s willing to share his story publicly
I know many other Latin American companies that have gone through this nightmare that ended up paying millions of dollars to the US government even though they never had US clients, US operations or even spent time in the US. Or they spent hundreds of thousands or even millions of dollars on lawyers and accountants trying to fix their original structures.
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