Starting or expanding business to USA

If you want to start business in USA or any country outside of India, there are quite a few India side of the regulatory requirements that requires your attention.

Overseas Direct Investment (ODI) is governed by Reserve Bank of India (RBI) guidelines. As of date, upto USD 125,000 can be remitted by resident Indians for various purposes including acquisition of shares, under the Liberalized Remittance Scheme. Resident of India and Indian citizen are different terms.

The guidelines have always been that resident Indians cannot remit money to ‘incorporate’ a company. However, Overseas Direct Investment (ODI) in joint ventures (JV) or wholly owned subsidiary (WOS) is permitted under automatic route. Here’s the relevant RBI circular if you wish to read more.

Since it is a little easier to raise venture capital money in the USA and perhaps at better valuations, founders would like to have the US entity as the holding entity, or, if the market for the startup’s business is in the US. It then is a function of these objectives, that the holding entity will own the IP and customer contracts.

Since August 2013, the JV or WOS, to be acquired or set up by a resident individual, shall be an operating entity only and no step down subsidiary is allowed to be acquired or set up by the JV or WOS.

So, that leaves very specific ways on how Indian resident individual can set up an entity outside India- (a) either a non-resident sets up the entity and later there is a gift of shares or (b) the Indian resident sets up a JV/WOS which later cannot have a step-down subsidiary.

If (a), the flow of funds, allotment process, reporting compliances, has nuances that the India lawyer’s advice has to be sought. If (b), then there are other decisions to make (i) team to carry on development in India (ii) ESOP eligibility (iii) visa, if the India team has to travel to US and (iv) showcasing the value creating team to the investors.

The US side of the story is rather easy, compared to the India side.

At US, most attorneys do help with an entire set-up package i.e. setting up, employer identification number, physical address, initial stock holding certificates and the like. With the new KYC norms (know your customer) banks open an account, if the founder is personally present in US or had a personal bank account in the US earlier. Silicon Valley Bank, is one of the banks that has been very supportive to the founders in opening a bank account from India.

While the India side of compliances are same, whether the expansion is in US, Singapore or other parts of the world, the country specific nuance of US or Singapore will vary. You can read one of our earlier posts here.

An Indian company can set up a JV / WOS, which can be through holding 100% of equity, preference shares, convertible preference shares, loan and other ways.

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