US Incorporation

US Incorporation: complete guide

Introduction

The United States is the largest market for many Indian software, technology, services and consumer businesses. A US entity lets Indian founders and companies contract directly with American customers, accept payments in US dollars through US payment systems, hire in the US, and in many cases raise money from US investors who prefer to invest in a US company. For Indian SaaS startups in particular, a US company is often expected by venture capital funds and accelerators.

There is no single national company registry in the US. Companies are formed under the law of an individual state, with the state's Secretary of State or equivalent office. The two most common entity types are the corporation, usually a C corporation for tax purposes, and the limited liability company, or LLC. Delaware is the most widely chosen state for venture-backed corporations because of its well-developed corporate law and specialised business court. Wyoming and some other states are often chosen for LLCs because of their low ongoing costs. A business that operates physically in another state may also need to register there as a foreign entity.

For an Indian resident, forming and funding a US entity is an overseas investment under India's Foreign Exchange Management Act, 1999 and the Overseas Investment Rules and Regulations, 2022. The remittance must be made through an authorised dealer bank and reported, and annual reporting continues while the investment is held. Indian income tax law also applies, including disclosure of foreign assets, the place of effective management test, and transfer pricing for transactions between the US entity and any Indian company.

Professional help matters because the choices made at the start, such as corporation or LLC, the state of formation, how founder shares are issued and whether to "flip" an existing Indian company under a US parent, have long-term tax and regulatory consequences in both countries. US federal tax filing obligations for foreign-owned entities are also strict, with significant penalties for missed information returns. Our team coordinates the US formation through US-based registered agents and service providers and handles the Indian overseas investment and tax steps.

This page explains who should consider a US entity, the requirements in both countries, the step-by-step process, documents, timelines, our fee and the ongoing compliance after incorporation.

Who Needs It

A US entity is commonly set up by:

• SaaS and technology startups. Founders building products for US customers often need a US company to sign contracts, accept card payments and open US bank accounts.
• Startups planning to raise US venture capital. Many US investors and accelerators invest only in US corporations, usually Delaware C corporations.
• IT and software service companies. Indian service companies with US clients set up US subsidiaries to contract locally, employ staff and manage client relationships.
• E-commerce and consumer brands. Indian brands selling to US consumers online may use a US entity for marketplace accounts, fulfilment and sales tax.
• Exporters and distributors. Businesses that import goods into the US and sell to American buyers sometimes need a local importer of record.
• Freelancers and consultants with US clients. Some professionals form a US LLC, although this needs careful Indian tax planning to be worthwhile.

A US entity should be set up for genuine commercial reasons. If the business is effectively run from India, Indian tax and regulatory rules will continue to apply in important ways.

Key Benefits

• Access to the US market. A US entity can contract with US customers, open US bank accounts and use US payment systems more easily.
• Investor readiness. A Delaware C corporation is the standard structure for US venture capital investment, with familiar documents such as SAFEs and preferred stock.
• Limited liability. Both corporations and LLCs protect owners from the entity's debts, subject to exceptions.
• No US residency requirement. Indian residents can be shareholders, members, directors and officers.
• Choice of entity and state. Founders can choose between a corporation and an LLC, and between states, based on their plans.
• Credibility with US customers. Many US customers and partners prefer to deal with a US entity.
• Tax treaty with India. The India–US tax treaty can reduce double taxation on certain cross-border income, subject to its conditions.

Corporation compared with LLC. A C corporation is a separate taxpayer for US federal income tax and pays corporate tax on its profits, and dividends to shareholders may be subject to withholding. It is the standard choice for startups planning to raise venture capital or grant stock options. An LLC is flexible: by default, a single-member LLC owned by a non-US person is disregarded for US income tax purposes, and a multi-member LLC is treated as a partnership, although an LLC can elect to be taxed as a corporation. LLCs are common for smaller businesses, but the interaction with Indian tax law can be complex, and India may not treat an LLC as transparent in the same way the US does. We help you choose with both countries in mind.

Why Delaware is often chosen. Delaware has a large body of corporate case law, a specialised court for business disputes, and investors and lawyers are familiar with its rules. It does carry an annual franchise tax and a requirement for a registered agent. For a business that has no investors in view, another state may be more practical.

Eligibility and Legal Requirements

US requirements (general, varying by state):

• Formation document. A corporation files a certificate of incorporation, sometimes called articles of incorporation, with the state. An LLC files a certificate of formation or articles of organisation.
• Registered agent. Every entity must have a registered agent with a physical address in the state of formation to receive legal notices.
• Name. The name must be distinguishable from existing entities in that state and must include an appropriate designator, such as "Inc.", "Corporation" or "LLC".
• Owners and officers. There is no residency requirement for shareholders, members, directors or officers. A corporation must appoint a board and officers, and an LLC is managed by its members or managers as set out in its operating agreement.
• Internal documents. A corporation adopts bylaws and issues shares to founders through stock purchase agreements. An LLC adopts an operating agreement.
• Employer Identification Number. The entity obtains an EIN from the US federal tax authority for tax filings, bank accounts and hiring.
• Foreign qualification. If the entity does business in a state other than its state of formation, it may need to register there.
• Federal reporting. Foreign-owned US entities have specific information reporting obligations, such as reporting transactions with related foreign parties on the applicable federal form. Beneficial ownership reporting rules have changed recently, and their application depends on the type of entity.
• State taxes and annual reports. Most states require an annual report or franchise tax filing.

Indian requirements for Indian resident investors:

• Overseas investment rules. Investment must comply with the Overseas Investment Rules and Regulations, 2022 and related directions of the Reserve Bank of India.
• Authorised dealer bank. Share capital is remitted and reported through an authorised dealer bank within the time allowed.
• Limits. An Indian company can invest within limits linked to its net worth. A resident individual can invest within the overall Liberalised Remittance Scheme limit, subject to restrictions on financial services entities and on certain layered structures.
• Founder shares. Shares issued to Indian resident founders, including sweat equity or shares at nominal value, must still fit within the overseas investment rules.
• Indian tax. Resident owners must disclose foreign assets and income in their Indian return, consider the place of effective management of the US entity and document transactions with Indian related parties.

Rules in both countries change from time to time. We check the current position at the time of formation.

Step-by-Step Guide

1. Consultation and planning. We discuss your business model, customers, team, ownership, funding plans and whether you need a corporation or an LLC.
2. Choice of state. We help you choose the state of formation based on fundraising plans, where operations will be, and ongoing costs.
3. Indian regulatory and tax review. We plan the overseas investment route and identify Indian tax issues, including whether a flip of an existing Indian company is being considered.
4. Name check. We check name availability in the chosen state.
5. Registered agent. We arrange a registered agent in the state of formation through a US service provider.
6. Filing the formation document. We prepare and file the certificate of incorporation or formation with the state. State fees are paid at actual.
7. Internal documents. We coordinate bylaws, initial board resolutions, founder stock purchase agreements or an operating agreement, as applicable.
8. EIN application. We help apply for the Employer Identification Number with the federal tax authority. For applicants without a US social security number, this is usually done by a paper or fax application and can take some time.
9. Bank account and compliance setup. We guide you on opening a US bank account and on initial filings such as foreign qualification, any applicable beneficial ownership reporting and elections such as an S or C corporation status where relevant.
10. Indian reporting and handover. We help complete the remittance of capital and the overseas investment reporting through your bank in India, and hand over a compliance calendar for both countries.

Documents Checklist

For each individual shareholder, member, director or officer:

• Passport copy
• Residential address proof, such as a recent bank statement or utility bill
• PAN card, for Indian residents
• Email address and mobile number
• Details of proposed ownership percentage and role

For a corporate owner (such as an Indian parent company):

• Certificate of incorporation
• Memorandum and Articles of Association
• Board resolution approving the investment and appointing an authorised representative
• Details of directors and ultimate beneficial owners

For the Indian overseas investment process:

• Board resolution of the Indian investing company
• Latest audited financial statements of the Indian company
• Valuation report, where required
• Forms and declarations required by the authorised dealer bank

Business information:

• Description of the business and its main activities
• Proposed name and state of formation
• Proposed share capital, number of authorised shares and par value, for a corporation

How Long It Takes

A US entity can usually be formed within two to seven working days once the information is final, depending on the state. A typical timeline:

• Consultation and structuring: one to three working days.
• State filing: from same day to several working days, depending on the state and whether expedited processing is chosen.
• Internal documents: a few working days after formation.
• EIN: for applicants without a US social security number, this can take from a few days to several weeks.
• Bank account: varies by bank and can take from a few days to several weeks.
• Indian overseas investment reporting: done through your bank within the time allowed after remittance.

Pricing

Our professional fee for US Incorporation is $299.

This covers:

• Consultation on entity type and state of formation
• Name availability check
• Coordination with the US registered agent and service provider
• Preparation and filing of the formation document
• Standard bylaws and initial resolutions, or a standard operating agreement
• Guidance on the EIN application
• Guidance on the Indian overseas investment and reporting process

State filing fees and registered agent charges are payable at actual. EIN filing support, foreign qualification in other states, founder stock and investor documents, bank account assistance, US tax returns and annual state filings are quoted separately where needed.

Common Mistakes to Avoid

• Funding without Indian compliance. Sending money to a US entity, or receiving founder shares, without following the overseas investment process can lead to compounding and penalties under FEMA.
• Choosing an LLC without considering Indian tax. A US LLC's income may be taxed differently in India than founders expect, and treaty relief may not work smoothly.
• Missing federal information returns. Foreign-owned US entities that do not file required information returns can face substantial penalties, even if they have no income.
• Ignoring state annual filings. Missing franchise tax or annual report filings can cause the entity to lose good standing.
• Running the company entirely from India. The US entity may be treated as resident in India for tax if key decisions are made in India.
• Unplanned flips. Moving an existing Indian company under a US parent has Indian tax, FEMA and stamp duty consequences that should be reviewed first.
• Not documenting founder shares. Founder stock should be issued properly, with vesting where appropriate, to avoid disputes and investor due diligence issues.

What Happens After

After formation, a US entity and its Indian owners must:

• File federal tax returns each year, including the information returns applicable to foreign-owned entities.
• File state annual reports and pay franchise or similar taxes in the state of formation and any state where the entity is registered.
• Maintain the registered agent in each state where the entity is registered.
• Keep corporate records, such as board and shareholder resolutions for a corporation, and member decisions for an LLC.
• Collect and remit sales tax in states where the business has sales tax obligations.
• Handle payroll taxes and employment filings if employees are hired in the US.
• Comply with any beneficial ownership or other federal reporting that applies to the entity at the time.
• Indian annual reporting under the overseas investment rules, through the authorised dealer bank.
• Indian tax disclosure of the foreign holding and income, and transfer pricing documentation for related-party transactions.

Our team can coordinate US annual filings with service providers and the Indian reporting in one calendar.

FAQs

Can an Indian resident form a US company?

Yes. There is no US residency requirement for owners, directors or officers. An Indian resident must follow India's overseas investment rules when investing in the US entity.

Should I form a corporation or an LLC?

A Delaware C corporation is usually preferred if you plan to raise venture capital or grant stock options. An LLC may suit a smaller business without outside investors, but Indian tax treatment should be checked carefully before choosing it.

Do I need to visit the US to form a company?

No. Formation can be completed remotely through a registered agent or service provider. Some banks may ask for in-person verification, while others offer remote account opening.

What is a registered agent?

A registered agent is a person or company with a physical address in the state of formation who receives legal and official documents on behalf of the entity. Every US entity must have one.

What is an EIN and how do I get one?

An EIN is the Employer Identification Number issued by the US federal tax authority. It is needed for tax filings, bank accounts and payroll. Applicants without a US social security number usually apply by fax or post, which can take time.

Why is Delaware so popular?

Delaware has a well-developed corporate law, a specialised business court and familiarity among investors and lawyers. It is common for startups planning to raise venture capital, though it has annual franchise tax and agent costs.

Is there a tax treaty between India and the US?

Yes. India and the US have a comprehensive double taxation avoidance agreement that can reduce withholding taxes and provide relief from double taxation, subject to its conditions.

Does a US company need to file tax returns even if it has no income?

In many cases, yes. Foreign-owned US entities have federal information return obligations even with little or no activity, and states usually require annual filings regardless of income.

What is a flip?

A flip is a restructuring in which the Indian company becomes a subsidiary of a new US parent company, usually to make the business investable for US investors. It has Indian tax, FEMA and stamp duty implications that should be planned carefully.

Can a US company hire employees in India?

A US company with staff in India may create a permanent establishment and tax exposure in India. Many companies set up an Indian subsidiary instead. We review this during planning.

What reporting is required in India after investing?

The Indian investor must report the investment through the authorised dealer bank within the time allowed and complete annual reporting while the investment is held. The foreign holding must also be disclosed in the Indian income tax return.

How do I close a US company?

A US entity is usually closed by filing a certificate of dissolution or cancellation with the state, after settling taxes and filing final federal and state returns. The Indian investor must also complete disinvestment reporting.

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