How to Form a SPAC Entity and Where to Incorporate
Chris Cottone explains how to properly form a SPAC entity and why incorporation choice matters. He breaks down the pros and cons of Delaware, Nevada, and Cayman structures, highlighting tax considerations, litigation risk, and cost differences sponsors should understand before launching a SPAC.
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The views, opinions, and statements expressed by the guest are solely their own and do not necessarily reflect the views of The SPAC Podcast, its hosts, or affiliated organizations. This content is for informational purposes only and should not be construed as investment, legal, tax, or accounting advice.
Michael J. Blankenship is a licensed attorney and is a partner at Winston & Strawn LLP. Joshua Wilson is a licensed Florida real estate broker and holds FINRA Series 79 and Series 63 licensure. The content of this podcast is intended for informational and educational purposes only and should not be interpreted as legal, financial, or compliance advice. The views and opinions expressed by the hosts and guests are their own and do not necessarily reflect the official policies or positions of any regulatory agency, law firm, employer, or organization.
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Mike B: Chris, how, how do I start a SPAC entity and, and, and where would I incorporate that in your view?
Chris C: Starting a SPAC entity, there are two main destinations that we see for, uh, for domestic SPACs. We're seeing those formed in, in either Delaware or Nevada. Now, I particularly like Nevada because you don't have the same tax rules there.
Delaware has a, a very unfriendly franchise tax scenario and they've also had some unfriendly litigation for SPACs. If you Google SPAC litigation in Delaware, you'll see some very surprising scenarios where, um, litigation was allowed to continue in. Delaware for seemingly, you know, bad reasons, at least most, most people would think they're bad reasons.
So I preferred Nevada. For any SPAC team that is going to be looking for a domestic target, then you're just dealing with, you know, federal taxation issues as opposed to state taxation issues. Now for SPAC issuers that are looking to do perhaps a target that is international. Most of those SPACs are getting formed as a Cayman entity.
And, uh, you know, to your question about how to form an entity, obviously forming an entity in Nevada is very easy. You can. You can do that through most, uh, corporate origination services for, you know, hundreds of dollars. It's not very hard. Uh, Cayman on the other hand, there is a, a, it, it's a bit more complex and you have to set up the charter and typically use a Cayman attorney.
So you are probably looking at five to 10,000 in expenses to set up the Cayman entity. But again, still far better than finding yourself in. Uh, we've seen issuers in. Delaware that have received surprising bills of a hundred fifty, two hundred, two hundred $50,000 in franchise taxes when they go to do their tax return.
VP of Greentree Financial Group, Inc.
Robert C. (Chris) Cottone graduated from Florida Atlantic University with a Bachelor’s degree in Business Administration. Chris co-manages Greentree’s internal emerging growth fund and oversees the capital markets policies and procedures implemented by the firm including new project origination. Chris has experience working on new public listings, SPACs, bridge financing and PIPEs. In this role, Chris has been involved in several business combinations that have exceeded $1 billion in enterprise valuation.
Chris is also responsible for monitoring legislative activities effecting securities issues. With more than two decades of service to the business community, Chris has been instrumental in guiding the careers of many of the nation’s new entrepreneurs. Chris heads many of Greentree’s community awareness programs that contribute to the Global Vision maintained at the firm. He is a frequent contributor to various publications and periodicals and lectures to professional organizations.