‘Golden’ Advice for Indian Founders Wanting to Start a Business in the US

Sandeep Srinivasa, a well-known face in the startup ecosystem, has shared some essential advice for Indian founders looking to register in the U.S. His Twitter thread, based on the collective experience of hundreds of YC India startups, provides key guidelines to avoid compliance pitfalls, especially when it comes to the Foreign Exchange Management Act (FEMA). Here’s a rundown of his key points:

Founders from India cannot use services like Stripe Atlas or Deel to register in the US. This violates FEMA regulations, as Indian citizens have to go through the Overseas Direct Investment (ODI) process — which requires approval from the Reserve Bank of India (RBI) — to legally own shares in a US company. Srinivasa stressed that failure to do so could lead to irreversible compliance issues. If founders have already used such platforms, it is advisable to close down the company and start the process again.

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Every Indian founder needs to form a Limited Liability Partnership (LLP) in India, as individuals cannot directly buy shares in a US company without a lengthy process. This is commonly known as the “LLP route.” The previously available gift route is no longer legal, with serious consequences for non-compliance, potentially triggering an Enforcement Directorate (ED) check.

ICICI Bank is recommended for processing the $20 ODI required to start a business in the US. While the bank charges INR 15,000 for this, it is well-versed in the needs of startup founders, unlike many other banks that are not familiar with the process.

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The ODI process typically takes about two months, and founders can’t sign YC SAFE agreements or receive funding from investors until it’s complete. Srinivasa stressed the importance of communicating this timeline to Indian and global venture capitalists to avoid compliance issues.

To avoid regulatory issues like round-tripping, founders should open a separate bank account in the US for Indian investors. These funds cannot be mixed with funds from US investors. Srinivasa mentioned that there are options to manage this process and issue options in a US entity without breaking compliance rules.

Once the company is formed in the US, the founders should set up an Indian subsidiary (Pvt. Ltd.) and ensure that it is bought out by the US parent company. This subsidiary will be the entity where the founders and Indian employees will receive their salaries, as receiving direct salaries from the US in India can lead to tax complications.

Once these steps are complete, founders can consider setting up put-call agreements between their US and Indian entities to raise capital directly in India. However, Srinivasa advises founders to consult with lawyers and tax professionals before taking any further action.

This advice is critical for Indian founders navigating the intricacies of US incorporation, but the reader is advised to exercise caution. The views expressed are solely those of the author.