Can I set up a US startup as an Indian resident?
Yes. But the structure matters, the India-side compliance is non-negotiable, and a few decisions made on day one are very difficult to undo later.
There is no citizenship or residency requirement to own or found a US company. An Indian resident can incorporate a Delaware C-Corp, hold shares, serve as a director, and raise capital from US investors without ever setting foot in the United States.
The part that trips most founders up is the distinction between ownership and employment. You can own 100% of a US company while living in India. What you cannot do without the appropriate visa is work in the US, draw a US salary, or be employed by the US entity. Ownership and employment are legally separate, and conflating the two is one of the most common early mistakes.
This blog focuses on venture-track startups planning to raise from US institutional investors. Bootstrapped founders and businesses serving the Indian market have a different calculus, and a different set of tradeoffs worth evaluating separately.
Why the answer for venture-track founders is almost always Delaware C-Corp
If you are planning to raise from US VCs, most of this decision has already been made for you. US institutional investors require a Delaware C-Corp. This is not a preference or a suggestion; it is typically a condition of the term sheet. The entity structure is not something you negotiate.
There are three reasons Delaware specifically. First, investor familiarity: US VCs have spent decades working with Delaware corporations and their counsel is deeply familiar with Delaware corporate law. Second, the established case law from the Delaware Court of Chancery makes outcomes predictable in a way that other jurisdictions cannot match. Third, preferred stock mechanics: the preferred share structures that VC financings require are well-developed and tested in Delaware in ways that have not been replicated elsewhere.
Why not an LLC
The LLC is often the first structure Indian founders consider because it appears simpler and cheaper. For a venture-track startup with foreign founders, it creates a significant problem. An LLC is a pass-through entity for US tax purposes, which means the entity’s income and losses flow directly to the owners. For an Indian resident owning a US LLC, this creates Effectively Connected Income exposure, potentially triggering US tax filing obligations at the individual level. This is one of the most overlooked issues when Indian founders choose LLC for simplicity, and it tends to surface at the worst possible moment, usually when US investors are doing diligence.
DIY incorporation versus a lawyer
Platforms like Stripe Atlas and Firstbase handle the mechanics of incorporation competently. They will get the paperwork filed, the registered agent appointed, and the EIN process started. What they will not do is catch founder-specific issues that arise before or immediately after incorporation.
The cost of skipping proper legal review at this stage is typically not visible until later. A botched 83(b) election, for example, cannot be undone regardless of how much money you are willing to spend to fix it. A wrong share structure discovered before a priced round requires legal work and investor consent to remedy. Saving $2,000 to $3,000 on legal fees at incorporation can cost six figures later. For venture-track startups, using a startup-experienced lawyer for the initial setup is not optional; it is part of the cost of doing it correctly.
The India side: what most incorporation guides skip
Every guide covering US incorporation for Indian founders covers the Delaware C-Corp mechanics. Almost none of them cover what Indian law requires when an Indian resident acquires foreign shares. This is where most Indian founders make the mistakes that create problems later.
FEMA and why it matters
FEMA, the Foreign Exchange Management Act, governs any Indian resident acquiring shares in a foreign company. India controls how money leaves the country. Any time an Indian resident buys shares in a foreign entity, even founder stock at nominal value of one dollar, that transaction needs to go through an approved channel and requires regulatory notification. Ignoring this on the assumption that the amounts are too small to matter is not a defensible position; the obligation exists regardless of the transaction size.
The LLP structure: the primary path for founders
For Indian founders acquiring a significant stake in a US entity, the most common and preferred structure is not for the founder to hold shares directly. Instead, the founder sets up an Indian LLP (Limited Liability Partnership) which holds the US shares on behalf of the founder. The RBI permits a step-down subsidiary structure through this route, making it the cleaner and more compliant path for founders who will hold a meaningful ownership percentage.
This structure is distinct from the LRS and ODI routes, which are more commonly used by investors rather than founders. The LLP approach avoids several of the complications that arise when an Indian individual attempts to hold foreign shares directly at significant ownership levels.
LRS, ODI, and OPI: understanding the framework
The Liberalised Remittance Scheme allows Indian residents to remit up to $250,000 per person per year for permitted capital account transactions, including acquisition of foreign shares. Founder stock at nominal value almost always fits comfortably within this limit.
The classification of the investment as either ODI (Overseas Direct Investment) or OPI (Overseas Portfolio Investment) determines what filings are required. ODI generally applies when the Indian resident holds 10% or more of the foreign entity or exercises control, and requires Form FC filing through the Authorised Dealer bank along with annual performance reports. OPI applies to holdings below 10% with no control and carries lighter compliance requirements.
The subsidiary catch
One restriction that founders need to plan around is that an Indian resident generally cannot make ODI into a foreign entity that has a subsidiary controlled by the same Indian resident. This matters because the most common structure for a venture-track Indian startup involves a US C-Corp that later sets up an Indian subsidiary for the engineering team. If the Indian resident holds shares in the US entity directly under the ODI route, opening an Indian subsidiary creates a compliance complication that is difficult to unwind.
The LLP structure described above is one way to manage this: the Indian LLP holds the US shares, and the Indian subsidiary is a separate entity in the structure, avoiding the direct conflict.
Round-tripping
When the US C-Corp sets up an Indian entity, which is common as the team grows, the RBI and FEMA rules on fund flows between the two entities need to be understood before the structure is put in place. Round-tripping restrictions govern how capital moves between the US parent and the Indian subsidiary, and these rules affect everything from how the Indian entity is funded to how intercompany payments for services are structured.
The cost of skipping compliance
FEMA penalties include compounding of the violation amount and potential blocking of LRS remittances. The regulatory cost of non-compliance is real and in most cases significantly higher than the cost of getting the structure right at the start. This is not an area where founders should assume they can regularise the situation later.
Founder paperwork that matters on day one
The structural decisions above set the foundation. What follows is the paperwork that needs to be executed correctly at or immediately after incorporation.
Stock purchase agreements with vesting
Every founder’s shares should be subject to a vesting schedule from day one. The standard is a four-year vest with a one-year cliff, meaning no shares vest until the founder has been with the company for a full year, at which point 25% vest, with the remainder vesting monthly over the following three years.
Investors require vesting schedules to protect against a co-founder leaving early and retaining all their shares. More importantly, vesting protects co-founders from each other. A co-founder who leaves in year one with 50% of the company’s shares is a scenario that has ended otherwise promising startups. Stock purchase agreements with vesting schedules are not optional paperwork; they are the mechanism that aligns founder incentives with the company’s long-term success.
Stock option paperwork
If the plan is to issue options to early employees or advisors, the option plan and grant agreements should be set up early. A standard ESOP plan for a Delaware C-Corp establishes the option pool size, the exercise price mechanics, and the terms under which options can be granted. Getting this in place before the first grants are made is significantly easier than retrofitting it later, particularly once investors are involved and any equity issuance requires board approval.
IP assignment
If the product was built before the US entity was incorporated, that intellectual property lives with the individual founder, not with the company. Assigning it to the US entity requires a written IP assignment agreement and, when the IP was created in India, has cross-border transfer considerations that may require legal advice on both sides. This is not a step to defer. Investors will ask about IP ownership in diligence, and an unresolved IP assignment is a common deal blocker.
83(b) election
When founders receive stock subject to vesting, the 83(b) election allows them to elect to be taxed on the value of the full grant at the time of grant, when the shares are worth almost nothing, rather than at each vesting event when the shares may be worth significantly more. The election must be filed with the IRS within 30 days of the stock grant. There are no exceptions to this deadline and no mechanism to make a late election regardless of circumstances.
For non-US taxpayers, the question of whether to file the 83(b) election often arises. The answer is yes, file it anyway. The reasons relate to future tax treatment if the founder later becomes a US taxpayer, and to maintaining a clean record for diligence purposes.
QSBS
Section 1202 of the US Internal Revenue Code provides for exclusion of up to $10 million or more in capital gains on the sale of Qualified Small Business Stock held for at least five years. The exclusion primarily benefits US taxpayers, making it most relevant for Indian founders who plan to move to the US or for US co-founders and early investors on the cap table. Incorporating as a Delaware C-Corp and issuing QSBS-eligible shares costs nothing extra and preserves this benefit for every US taxpayer in the structure.
Practical setup checklist
EIN without an SSN
A US Employer Identification Number is required to open a bank account, hire employees, and file US tax returns. Foreign founders without a US Social Security Number can apply for an EIN using IRS Form SS-4 by calling the IRS international line or submitting by fax. The process takes two to four weeks longer than the online process available to US residents but is straightforward.
US bank account
Mercury and Brex are the most commonly used banking options for foreign founders. Both have onboarding processes designed for this situation. Required documentation typically includes the certificate of incorporation, the EIN, and identification documents for all directors and beneficial owners. Account opening takes one to three weeks.
Registered agent
Every Delaware corporation is required to maintain a registered agent in Delaware. The registered agent receives legal and official documents on behalf of the company. Annual fees typically run between $50 and $300 per year. Most incorporation platforms include registered agent service.
Delaware franchise tax
Delaware charges an annual franchise tax on corporations, due by March 1 each year. The default calculation method, the Authorized Shares Method, produces a very high number for most startups because it is based on the number of authorized shares rather than the actual value of the company. The Assumed Par Value Capital Method almost always produces a significantly lower number and is the correct method for most early-stage startups. Founders should understand this before the first bill arrives; the difference between the two methods can be tens of thousands of dollars.
Ongoing federal and state filings
A Delaware C-Corp is required to file a federal income tax return (Form 1120) annually, Delaware annual reports, and any state filings where the company has established nexus through operations, employees, or revenue. If the company has Indian employees or contractors billing the US entity, those transactions create nexus considerations and transfer pricing obligations.
Transfer pricing
If the Indian team bills the US entity for services, those intercompany transactions must be priced at arm’s-length from the first transaction. Transfer pricing documentation requirements start when the first intercompany payment is made, not when the company reaches a particular revenue threshold. Getting the intercompany agreement in place early, and pricing it correctly, avoids a compliance problem that becomes more expensive to fix as the transaction volume grows.
A note on timing
The decisions described in this blog are not all equally reversible. Some, like the choice of entity and state of incorporation, can be changed later at significant cost and complexity. Others, like the 83(b) election window and the FEMA filing requirements, have deadlines that cannot be extended and consequences that cannot be undone.
The right time to think through this structure is before incorporation, not after. The India-side compliance in particular needs to be planned before the US entity is formed, because several of the options available to founders before incorporation are no longer available once the entity exists and shares have been issued.
Sources: FEMA regulations, RBI master directions on overseas investment; LRS guidelines, RBI circular; IRS Form SS-4 instructions; Delaware Division of Corporations, franchise tax; IRC Section 83(b); IRC Section 1202, QSBS.
Setting up a US startup as an Indian resident is entirely possible, but it involves parallel compliance obligations in two jurisdictions with deadlines that run independently of each other. Every situation is different, and the right structure depends on your ownership arrangement, your India-side team, and your fundraising plans. This blog is intended as a general guide and should not be relied upon as legal or tax advice for your specific circumstances. Numera works with Indian founders on both sides of this structure. If you want to talk through your situation before you incorporate, reach out before the decisions are made rather than after.
