USA Company Formation

Delaware's dominance in US company formation is driven by three factors: its Court of Chancery — a specialist business court that has produced centuries of clear, predictable corporate case law; the flexibility of the Delaware General Corporation Law (DGCL), which is the most sophisticated corporate statute in the US; and familiarity — US investors, lawyers, and M&A advisors are deeply experienced with Delaware entities. When a US VC fund receives a term sheet request, their legal team expects Delaware C-Corp documents. Using any other structure creates friction and legal cost.

The LLC is a pass-through entity by default — US federal tax law treats it as transparent, with profits and losses flowing to the members' personal returns. The C-Corp is a separate taxpayer subject to the 21% US corporate income tax, and shareholders pay a second layer of tax on dividends. Despite this apparent disadvantage, the C-Corp is overwhelmingly preferred for venture-backed companies because: only C-Corp shares can qualify for QSBS (Section 1202, up to 100% capital gains exclusion); US institutional VC funds often cannot hold LLC interests; C-Corps can issue multiple share classes (Common and Preferred) required by investors; and ISO stock option plans (the most tax-advantaged option for US employees) are only available in C-Corps.

QSBS stands for Qualified Small Business Stock, governed by Internal Revenue Code Section 1202. Shares issued by a domestic C-Corp can qualify if: the company had total gross assets of USD 50 million or less when the stock was issued; the shareholder acquired the stock at original issue (not through a secondary market purchase); the shares were held for more than 5 years; and the company is engaged in a qualifying active business (not real estate, finance, hospitality, or professional services such as law, medicine, or financial services). Qualifying shareholders can exclude up to 100% of the capital gain on sale from US federal income tax (subject to the greater of USD 10 million or 10x the investor's basis per issuer). For founders who hold stock for 5+ years before an acquisition, QSBS can represent a multi-million dollar tax benefit.

Any Indian resident individual or Indian company making an investment in a foreign entity must comply with the Foreign Exchange Management (Overseas Investment) Rules, 2022. Under the Automatic Route (which covers investments in most countries including the US), an Indian person can invest up to 400% of their net worth in foreign entities without RBI approval. The investment must be routed through an Authorized Dealer Bank, which reports it to the RBI's FIRMS portal. After the US entity is formed and funded, an Annual Performance Report (APR) must be filed by 31 December each year. Missing the ODI pre-investment reporting or the APR constitutes a FEMA violation that requires compounding with the RBI — which involves penalties and legal costs.

The APR is an annual report that each Indian resident who has made an ODI must file through their Authorized Dealer bank, reporting the financial position of the foreign entity (balance sheet, profit/loss, net worth in INR equivalent) as of the end of the foreign entity's financial year. It must be filed by 31 December of each year. The APR must be certified by a Chartered Accountant in India, confirming that the figures are based on the audited or management-certified financial statements of the foreign entity. PNPC prepares and certifies the APR for all clients with US entities — this is a recurring annual service.

Yes. An Indian company can invest in a foreign entity under FEMA ODI Rules, 2022, provided: the investment is permitted under the Automatic Route (US is on the Automatic Route for most sectors), the financial criteria are met (investment not exceeding 400% of net worth of the Indian company as per last audited balance sheet), the Indian company is not on the RBI caution list, and all prior FEMA compliance of the Indian company is in order. The Board of the Indian company must pass a resolution authorising the investment, and the investment must be routed through an AD bank with proper purpose coding. Annual APR must be filed by 31 December for each year.

Delaware imposes an annual franchise tax on corporations. The tax can be computed under two methods: the Authorized Shares Method and the Assumed Par Value Capital Method. Under the Authorized Shares Method, a company with 10 million authorized shares pays a flat minimum of USD 175. However, a company with, say, 100 million authorized shares (common for startups that issue millions of options) can face a USD 85,000+ annual franchise tax bill under this method. The Assumed Par Value Capital Method typically produces a far lower tax for startups — often the minimum USD 175 or a few hundred dollars — and any company can elect to use the lower-result method. Delaware does not automatically calculate using the lower method; if you do not know to request it, you pay the higher amount.

When founders receive shares that are subject to a vesting schedule (i.e., the company has a right to repurchase unvested shares if the founder leaves), the IRS treats the vesting as a series of taxable events — the founder recognizes ordinary income each time a tranche vests, at the FMV of the shares minus the price paid. An 83(b) election is a filing with the IRS that allows the founder to elect to recognize the entire taxable amount at the time of grant (when the FMV is typically near zero because the company has no value yet) rather than at each vesting event. This effectively converts what would be ordinary income at a high rate into capital gains at a lower rate (and potentially QSBS exclusion). The election must be filed with the IRS within 30 days of the share grant — a deadline that has no exceptions in the US tax code.

Form 5472 is an IRS Information Return of a 25% Foreign-Owned US Corporation or a Foreign Corporation Engaged in a US Trade or Business. Since 2017, the IRS has extended this requirement to single-member LLCs (which are otherwise 'disregarded entities' for tax purposes) that are owned by a non-US person. A foreign-owned disregarded LLC must file a pro-forma Form 1120 with Form 5472 attached annually, reporting all transactions between the LLC and its foreign owner. The automatic penalty for failure to file or for filing an incomplete Form 5472 is USD 25,000 per form per year.

Yes. A US corporation (C-Corp) must file Form 1120 annually with the IRS regardless of whether it has revenue, income, or even a bank account balance. A US LLC taxed as a partnership must file Form 1065. A foreign-owned single-member LLC disregarded entity must file Form 5472 with a pro-forma Form 1120. These are information returns that track the company's existence and ownership even in zero-activity years. The IRS does not grant exemptions for zero-revenue companies. Additionally, the Delaware Annual Report and franchise tax must be paid every year regardless of activity.

The EIN (Employer Identification Number) is the US federal tax ID for business entities, issued by the IRS — analogous to an Indian PAN. It is required for US bank accounts, tax filings, payroll, payment processors, and most business contracts. US citizens and permanent residents with a Social Security Number (SSN) can apply for an EIN online on the IRS website (same-day issuance). International applicants without a SSN must apply by mailing or faxing IRS Form SS-4 to the IRS. Processing time for international fax applications is typically 4–8 weeks. PNPC prepares the SS-4 and manages the IRS correspondence.

Traditional US banks (Chase, Bank of America, Citibank) generally require in-person branch visits for non-US-resident account holders. However, several fintech banking providers now offer remote account opening for foreign-owned US entities: Mercury (widely used by international founders, accepts Indian nationals), Relay, Brex (requires US-based founders or specific revenue profiles), and First Internet Bank. These services offer FDIC-insured accounts with wire transfer, ACH, and international payment capabilities. Requirements typically include: the EIN confirmation letter, Certificate of Incorporation, Bylaws or Operating Agreement, and valid passport for each beneficial owner. PNPC advises on the current best option for your specific profile.

A 'Delaware flip' (also called a flip or inversion) is a restructuring in which an Indian company becomes a wholly-owned subsidiary of a newly formed Delaware C-Corp. The Indian founders swap their Indian company shares for shares in the Delaware C-Corp. After the flip, the Delaware entity is the parent company that receives investment from US VCs, and the Indian entity continues to operate as the execution subsidiary. This structure is required by most US institutional VC funds who want to own shares in a Delaware C-Corp rather than an Indian private limited company. The flip involves: FEMA FDI compliance in India (the Delaware entity is now a foreign owner of the Indian subsidiary), capital gains tax analysis for the founders on the exchange of Indian shares, and ODI/FEMA compliance for the Indian founders who now hold shares in the Delaware entity.

As an Indian resident, your worldwide income — including income from the US company — is taxable in India under the Income-tax Act. Obligations include: Schedule FA (Foreign Assets) disclosure in your annual ITR — mandatory even if no income is received; any dividends received from the US company are taxable in India at the applicable slab rate (credit for US withholding tax may be available under the India-US DTAA); any salary or fees received from the US company are taxable in India; if you sell your US company shares, the capital gain is taxable in India (long-term if held more than 24 months for unlisted foreign company shares, taxed at a flat 12.5% without indexation under the capital gains regime effective from 23 July 2024). The India-US DTAA may provide treaty relief on some income streams.

India and the United States have a comprehensive DTAA (effective since 1990) that determines which country has the right to tax various types of income earned cross-border. Key provisions relevant to Indian founders with US companies: dividends paid by the US company to an Indian resident shareholder are taxed in both countries, but the US withholding tax on dividends paid to Indian residents is capped at 25% in general, reduced to 15% where the Indian recipient is a company owning at least 10% of the US company's voting stock; interest and royalties have specific withholding rates under the treaty; capital gains on sale of shares in the US company are generally taxable only in India for Indian residents (not in the US) if certain conditions are met. The treaty also includes a Limitation of Benefits (LOB) clause that restricts treaty shopping.

A US C-Corp is subject to US federal income tax on its worldwide income regardless of where the income is earned. This is a fundamental difference from many other jurisdictions. However, if the US entity is a pass-through (LLC taxed as partnership or disregarded entity), the US tax rules depend on the nature of the income and the status of the members. For a foreign-owned single-member LLC with all income earned outside the US and no 'effectively connected income', the LLC may have limited US tax exposure — but the Form 5472 reporting obligation still applies regardless. The US Tax Cuts and Jobs Act of 2017 introduced GILTI (Global Intangible Low-Taxed Income) rules that tax US C-Corp shareholders on income earned by foreign subsidiaries — this can apply in reverse for US-owned foreign entities.

A Registered Agent is a person or entity designated in the company's public formation documents to receive legal notices, government mail, and service of process (i.e., lawsuit filings) on behalf of the company. Every US state requires a Registered Agent with a physical address in the state of formation (not a PO Box). For non-US resident owners, the RA is the domestic contact for all state communications. If the RA resigns (due to non-payment of annual fees or other reasons) and is not replaced promptly, the state considers the company to have no valid RA — which can result in the company losing 'good standing', being unable to file state documents, and potentially being administratively dissolved.

A company in 'good standing' with its state of formation has filed all required annual reports, paid all franchise taxes and fees, and maintained an active Registered Agent. A certificate of good standing is a document issued by the state confirming this status. Banks, investors, counterparties in significant contracts, and foreign qualification states (where you want to register the company to operate) require a certificate of good standing. Loss of good standing — from missed annual reports, unpaid franchise tax, or lapsed RA — is curable but requires paying all arrears plus penalties and professional fees for reinstatement.

For a single-member LLC (owned by an Indian company or Indian individual) with income sourced entirely outside the US and no US employees, US office, or US customers: if there is no 'effectively connected income' (ECI) — income connected to a US trade or business — the LLC should have minimal US income tax liability. However, the Form 5472 reporting obligation for foreign-owned disregarded LLCs applies regardless of income level. If the LLC earns income from US sources (US customers, US real estate), it may have ECI and be subject to US taxation. State-level tax obligations depend on where the LLC operates or has employees.

Nexus, in US tax law, is the level of business activity in a particular state that triggers that state's tax obligations — income tax, sales tax, and employment registration. States have the authority to tax income, sales, and employment activities within their borders regardless of where the company is incorporated. Nexus is created by: having an employee or contractor in a state (the most common trigger for Indian tech companies hiring US-based engineers), having an office or warehouse in a state, making more than a threshold volume of sales to customers in a state (economic nexus — post the 2018 South Dakota v. Wayfair Supreme Court decision, most states have economic nexus thresholds as low as USD 100,000 in annual sales to state customers), or even just attending trade shows in some states.

Yes — this is a common structure for software, SaaS, and tech IP-heavy businesses. The US entity holds the IP (patents, trademarks, copyrights, trade secrets) and licenses it to the Indian operating entity for a royalty. The Indian entity pays royalties to the US entity, which are deductible in India (subject to withholding tax under Section 195 and treaty rates) and taxable in the US. However: this structure is subject to transfer pricing scrutiny in both India and the US; the arm's length royalty rate must be documented and defensible; the IP must have genuine economic value assigned to the US entity (not just a paper transfer); and the Indian DTAA source rule for royalties applies. The OECD BEPS framework has made IP holding structures without substance in the holding jurisdiction much riskier.

Transfer pricing refers to the pricing of transactions between related parties — in this context, between your Indian company and your US company. Because these entities are under common ownership, the IRS and the Indian income-tax department require that any transaction between them (services, royalties, loans, purchases) be priced at an 'arm's length' price — the price that unrelated parties would negotiate in similar circumstances. In India: transfer pricing applies to all international transactions between 'associated enterprises' under Section 92 of the Income-tax Act. An accountant's report in Form 3CEB (under Section 92E), certified by a CA, must be filed annually for any international transaction with an associated enterprise regardless of value; detailed contemporaneous transfer pricing documentation under Rule 10D becomes mandatory once the aggregate value of international transactions exceeds INR 1 crore in the year. In the US: Section 482 of the IRC requires arm's length pricing for transactions between related parties.

The most frequent mistakes are: (1) FEMA ODI non-compliance — investing in the US entity before completing the ODI process at the AD bank; (2) missing the 83(b) election window — the 30-day deadline from share issuance with no exceptions; (3) Delaware franchise tax shock — forming a C-Corp with many authorized shares and then receiving a large franchise tax bill because the Assumed Par Value Capital Method was not used; (4) no IP assignment agreement — leaving IP in founders' personal names rather than formally assigning it to the company before any investors review the cap table; (5) Form 5472 non-filing — foreign-owned single-member LLCs missing the annual USD 25,000-penalty reporting obligation; (6) missing FEMA Annual Performance Report — the APR due 31 December each year for all Indian ODI investors; (7) incorrect authorized share structure — too low to support a proper option pool, too high to avoid franchise tax issues.

PNPC is an Indian CA firm — we are not US-licensed attorneys and do not provide US legal advice. For US entity formation, we manage the strategic advisory, the India-side FEMA/ODI compliance, the ongoing India tax obligations, transfer pricing documentation, and the APR filings. For the US entity itself, we work with established Registered Agent services for the state filing, and coordinate with qualified US CPAs or attorneys for US tax return preparation and US legal documents. Our value is in managing the India-US compliance bridge — the piece that no US attorney handles and that most Indian CA firms without US experience miss.

Annual US compliance for a standard Delaware C-Corp with no US employees: Delaware Annual Report and franchise tax (minimum USD 175 under the Assumed Par Value method for typical startup share structures, higher otherwise, due 1 March); Registered Agent annual fee (USD 49–299 depending on provider); US Federal income tax return Form 1120 (preparation cost by a US CPA: typically USD 500–2,500 for a simple structure); any state income tax returns where nexus exists. For an LLC: Delaware LLC Annual Tax USD 300 (or Wyoming approximately USD 60); Form 5472 with pro-forma 1120 if foreign-owned disregarded (preparation: USD 300–800). India-side: FEMA APR certified by CA (PNPC fee); Schedule FA disclosure in ITR. These figures are indicative and depend on the complexity of the entity.

Delaware LLCs offer the same mature court system and legal familiarity as Delaware C-Corps. Wyoming LLCs offer: no state income tax (Delaware also has no income tax on out-of-state income), stronger member privacy (Wyoming does not require member names in public filings), an annual fee of approximately USD 60 versus Delaware's flat USD 300 LLC Annual Tax, and Wyoming's unique charging order statute — considered among the strongest creditor protection statutes in the US, preventing creditors from seizing LLC membership interests. Wyoming is generally preferred for holding structures, real estate holdings, and privacy-sensitive owners. Delaware is preferred when legal familiarity and Court of Chancery access matter.

Section 409A of the IRC requires that stock options granted to US employees or contractors be priced at or above the fair market value (FMV) of the underlying common stock at the time of grant. For a private company, FMV is not determined by market price — it must be determined by an independent appraisal conducted by a qualified independent appraiser, typically a AICPA-certified valuator or valuation firm. This appraisal is called a 409A valuation. Options priced below FMV expose the option holder to immediate income tax at vesting plus a 20% additional federal tax penalty, regardless of whether the options have been exercised. A 409A valuation is required before any stock option grants to US employees or contractors.

A SAFE (Simple Agreement for Future Equity) is an investment instrument created by Y Combinator that provides an investor with the right to receive equity in a future priced funding round, in exchange for immediate cash. Unlike a convertible note, a SAFE has no interest rate, no maturity date, and no debt status — it is not a loan. SAFEs convert into preferred equity (typically) at the company's first priced equity round, at a valuation cap and/or discount rate agreed at issuance. SAFEs are widely used in pre-seed and seed rounds for Delaware C-Corps because they are simple to execute (a short, standardized document), require no immediate valuation, and defer complex investor rights negotiations to the Series A.

Since the 2018 US Supreme Court decision in South Dakota v. Wayfair, states can require remote sellers to collect and remit sales tax based solely on economic activity in the state — without any physical presence. Most US states have adopted economic nexus thresholds: typically USD 100,000 in annual sales to customers in a state or 200 transactions. SaaS and digital services are treated differently by each state — some tax SaaS as a taxable service, some exempt it, and rules change frequently. A company selling USD 200,000/year of SaaS subscriptions to US customers across many states may have sales tax obligations in 20+ states, each with different registration, collection, and filing requirements.

Small Business Administration (SBA) loans are available to US business entities, but they have ownership and operational requirements that can affect foreign-owned entities. Key SBA requirements: the business must be primarily US-based and must operate in the US; the business must be for-profit; ownership by foreign nationals is permitted but specific SBA programs have different rules on alien ownership. Additionally, some US government grants and Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programmes require that the principal investigator and the company be US-based with majority US ownership. EB-2 NIW and EB-5 investor visa programmes interact with US company formation for founders seeking immigration pathways.

Form W-8BEN-E is an IRS form used by foreign entities to certify their foreign status, claim treaty benefits, and provide withholding tax information to US payors. If your US entity makes payments to a foreign entity (for example, the US C-Corp pays royalties or service fees to the Indian parent or to other foreign vendors), the foreign payee must provide a W-8BEN-E to the US entity so that the correct US withholding tax rate is applied. The W-8BEN-E also comes up when the US entity opens certain brokerage or financial accounts. The form must be renewed every 3 years or when circumstances change.

PNPC operates offices in Chennai, Bangalore, Hyderabad, and Dubai. For a client operating with an Indian company, a UAE entity, and a new US entity, we manage: the Indian company's statutory audit, MCA filings, and annual ITR; the FEMA ODI compliance and APR for the US investment; the UAE Corporate Tax registration and VAT filing for the UAE entity; the transfer pricing documentation for Indian-US and Indian-UAE intercompany transactions; and the Schedule FA and DTAA advisory for all three jurisdictions. For the US entity itself, we coordinate with qualified US CPAs for US federal and state tax return preparation. One engagement team manages the full international picture — not three disconnected advisors briefed in isolation.

US formation costs have two components: (1) State fees and third-party costs: Delaware C-Corp filing fee (typically USD 89 for standard processing); Delaware Registered Agent (USD 49–299/year); IRS EIN application fee (no fee — free); US bank account (Mercury, Relay — no monthly fee for standard accounts); optional expedited state processing (additional state fee). Total third-party cost: USD 200–600 for Year 1. (2) Professional fees: PNPC charges a fixed, agreed fee for the India-side advisory and FEMA ODI compliance. US CPA fees for the initial setup and first-year tax filing are coordinated separately. PNPC provides a written scope and fee letter before any work begins — no work is initiated without a confirmed fee agreement.

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (the Black Money Act) imposes a flat 30% tax on undisclosed foreign assets and income, plus a penalty equal to 90% of the tax (effectively a total charge of 60% on the undisclosed amount). Critically, failure to disclose foreign assets in the Schedule FA of an Indian ITR — even if the asset was acquired legitimately with tax-paid money — constitutes an offence under this Act with a penalty of up to INR 10 lakh per year of non-disclosure. A US company shareholding is a 'foreign asset' for this purpose — and must be disclosed annually in Schedule FA of the Indian founder's ITR.

Yes — a Delaware C-Corp can receive investment from investors of any nationality, subject to the applicable securities laws of each country. For investment from Indian residents into the US entity: this constitutes ODI from the Indian investor's perspective under FEMA, and they must comply with FEMA ODI Rules. For investment from US residents (VC funds, angels): standard US securities law (Regulation D private placement exemption is most commonly used for early-stage US fundraising). If the investment round includes both Indian and US investors, the documentation must be compliant with both US securities law and Indian FEMA ODI requirements. Additionally, the US company receiving investment from an Indian company may have transfer pricing implications if there are intercompany transactions.