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One-liner
This whole module is based on Indian Incorporation, US incorporation and cross border structures.
Details
- Indian Incorporation: Overall there are 3 major types of incorporation: Private Limited Company, LLP & Partnership Firm.
- US Incorporation: The state laws and regulations that each state in the US are highly different from one another. However, Delaware, Wyoming, and Nevada in particular offer the most favorable tax and business legislation, making incorporation commonplace for businesses. The most used types of incorporation are: C Corp & LLC.
- For Indian company, one resident director in India is mandatory. In case of US, its not mandatory but its mandatory to have a registered agent and a registered physical US location.
Key definitions
- Private Limited Company - A private limited company is a company that is privately held for small businesses. The liability of the members of a Private Limited Company is limited to the amount of shares respectively held by them. Shares of Private Limited Companies cannot be publicly traded.
- LLP - LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership. The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name.
- C Corp- Similar to a private limited company in India, a C Corp is a legal structure in the US or a corporation in which the owners, or shareholders, are taxed separately from the entity. C corporations, the most prevalent of corporations, are also subject to corporate income taxation. The taxing of profits from the business is at both corporate and personal levels, creating a double taxation situation.
- LLC - Similar to LLP in India, LLC in the US is a limited liability company (LLC) is a business structure in the U.S. that protects its owners from personal responsibility for its debts or liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship.
KPIs
- No limitations in doing any sort of transactions
- No surprises in the future regarding non-compliance
- No surprises in DD and fundraising process
- Easier and simpler workflows and methodologies in terms of operations, finance, taxes and compliances
10 best practices
- Research on Market and set up the structure for the requirements
- Understand local laws and regulations
- Establish a local presence by having a back-office or admin office approachable to the customers.
- Build a strong team and most importantly have a very strong finance and accounts team
- While setting up the US parent - Ind subs structure, keep in mind the compliance requirements. FEMA doesn’t recognize these kinds of structures and may amount to unnecessary hurdles. There is a workaround by gifting the US shares by the promoters to the founders. Bear these kinds of risks.
- Always keep in mind these 3 authorities - RBI (FEMA), Income Tax & GST department while incorporating any form of entity.
- It seems US parent & Indian Subs is the best structure from valuation, and brand creation per se but then it should be done with the workaround as mentioned above.
10 mistakes to avoid
- Blindly incorporating the company without having any futuristic plans pertaining to how compliances and finances will be managed.
- Not complying with FEMA and Income Tax Regulations.
Top Recommendations for Tools
- US incorporation
- Stripe Atlas
- Firstbase
- India Incorporation
- Vakilsearch (now Zolvit)
- Indiafilings
- Cleartax
Additional Reading
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