Canadian Startup and Video Game Law Blog

Y Combinator No-Longer Accepts Canadian Companies

Canadian startups! Y Combinator no-longer accepts Canadian companies.

For years, Y Combinator permitted its cohort to incorporate in the US, Canada, Singapore or Cayman. Now, for the most recent cohorts of YC companies, Canadians are being forced to reincorporate in the US.

This fundamental shift in deal policies places Canadian founders in an awkward position by creating personal and corporate tax issues (downsides) without any perceived upside for the company.  Specifically, Canadian founders will: (1) miss out on the Capital Gains Exemption (~$1.25 million tax free in certain exits); (2) face challenges trying to take full advantage of Canadian tax credit programs such as SR&ED (there are solutions, but they require sophisticated structures); and (3) face unnecessary cross-border complexities, both legal and tax, due to the company spanning both countries.

We’ve built our practice on assisting tech companies with cross-border matters and are well versed in crafting solutions to all of these issues and, while we love the increased business, never like seeing cross-border complexity without a reason for it.

Going forward, our advice remains the same: Canadian startups should incorporate in Canada but, if you’re planning on applying to YC, keep in mind that a corporate reorganization will be needed if accepted.