LRS vs ODI: how should an Indian founder hold shares in a foreign company?
LRS is the pipe, not the permission. The Liberalised Remittance Scheme moves up to USD 250,000 abroad per resident individual per financial year, but what the money buys decides your obligations: equity in an unlisted foreign company, or 10% or more of a listed one, or any stake with control, is overseas direct investment, and ODI comes with a Form FC at the start and, unless the stake stays below 10% with no control and no other financial commitment, an Annual Performance Report every 31 December after it. Most founders who are “non-compliant” never chose to be; they classified an investment as a remittance and stopped thinking about it. The gap usually surfaces years later, in the middle of a flip or a fundraise, when a bank or a buyer reads the file.
Two regimes, one remittance
India rebuilt its outbound investment law in August 2022. The Foreign Exchange Management (Overseas Investment) Rules 2022, notified on 22 August 2022, together with the Overseas Investment Regulations 2022 and the RBI's directions, since consolidated into its Master Direction on Overseas Investment, replaced the 2004 framework and drew the line that matters here: overseas direct investment against overseas portfolio investment. ODI means acquiring unlisted equity of a foreign entity, subscribing to its memorandum, taking 10% or more of the equity of a listed foreign entity, or taking less than 10% of a listed one with control. OPI is, broadly, the rest: under 10% of a listed foreign entity, no control.
The LRS sits underneath as the funding channel for individuals. The classification does not care which channel funded the purchase, and it does not stay still: an OPI stake that later crosses 10%, or picks up control rights, changes character, and the obligations change with it.
What you bought decides what you owe
| What you hold | Character | What follows |
|---|---|---|
| Shares of an unlisted foreign company, any percentage | ODI | Form FC at investment; APR every 31 December, exempt below 10% without control and with no other financial commitment; disinvestment reporting |
| 10% or more of a listed foreign company | ODI | Same as above |
| Under 10% of a listed foreign company, no control | OPI | Within LRS for individuals; no APR-style annual cycle for the individual |
| Shares under a foreign employer’s ESOP or employee benefits scheme | Own lane | Permitted with its own conditions and reporting, largely run through the employer’s side |
| Shares received by gift or inheritance | Own lane | Permitted with conditions depending on the giver and the asset; character rules still apply on later changes |
The classification rules carry definitions and provisos beyond this table, and the framework is stated here as of 1 August 2026. The table is a planning aid, not a substitute for reading the Overseas Investment Rules 2022 against your facts.
The conditions that catch founders
Three conditions in the individual’s lane do most of the catching. First, the foreign entity must be engaged in bona fide business activity, and an individual’s ODI cannot go into a foreign entity engaged in financial services activity: a founder angel-investing into a foreign fintech that lends, insures or manages money needs this checked before the wire, not after. Second, where the individual has control of the foreign entity, the entity must not have a subsidiary or step-down subsidiary. Third, round-tripping is no longer a flat prohibition but a structural test: a financial commitment in a foreign entity that has invested or invests back into India must not create a structure with more than two layers of subsidiaries. Each of these is a structuring question, and each is much cheaper to answer before the remittance than to unwind after it.
The filings, and the clock on fixing them
The paperwork is light if it is done on time. Form FC goes through your authorised dealer bank at the time of the financial commitment, and the bank obtains a unique identification number for the foreign entity. The Annual Performance Report follows every year by 31 December for each foreign entity in which you hold ODI, built from the entity’s financials, with a narrow exemption where the holding stays below 10% without control and there is no other financial commitment in the entity. Disinvestment gets reported when you exit. None of this is the bank’s obligation: the bank is the channel, and the default sits on the investor’s name.
Missed filings have a priced exit, with a deadline. Under the RBI’s late submission fee framework for the 2022 regime, a delayed APR carries a fee of Rs 7,500, and delayed investment reporting such as Form FC carries Rs 7,500 plus 0.025% of the amount involved per year of delay. The facility is available up to three years from the due date of the filing. Beyond three years, the route is compounding: an application to the RBI, discretionary, slower, and priced against the seriousness and duration of the default. Inside the window, regularisation is mechanical and cheap; outside it, it is a process. Which side of the window each miss sits on is the first thing we establish, and the step-by-step remediation sequence is in our ODI regularisation checklist.
Where this actually bites
Almost nobody discovers an ODI default from a notice. They discover it from friction. The AD bank refuses the next outward remittance because the APR trail is incomplete. A flip stalls because the founders’ own FEMA position has to be clean before the share swap papers move, which is why this piece pairs with the Delaware flip. A fundraise or exit stalls because the buyer’s counsel asks for the Form FC acknowledgements and the UIN, and the data room has neither. And angel positions are the quiet ones: a USD 5,000 cheque into a friend’s Delaware startup is unlisted foreign equity, which makes it ODI, which means a Form FC and a UIN that almost no angel has heard of, plus an APR every December if the stake is 10% or more, carries control, or sits alongside any other financial commitment to the entity.
The August 2026 backdrop
The framework is moving, on the other side of the border. On 21 July 2026 the RBI released draft Foreign Exchange Management (Foreign Investment) Rules 2026 for comment, open until 31 August 2026, consolidating the inbound investment framework. The outbound Overseas Investment Rules 2022 remain in force unchanged, and today’s filings are today’s law: the direction of travel is simplification, but a draft on the inbound side regularises nothing on the outbound side. If anything, a cleaner rulebook makes old defaults easier for a diligence team to spot.
How this connects to the rest of your structure
The founder’s personal FEMA position is one layer of a structure that usually spans three jurisdictions. Where the holding company should sit is its own decision, compared in Delaware vs UAE vs India. Money coming into the Indian entity runs the inbound rails, covered in FDI: automatic route vs approval route and the FEMA and FC-GPR compliance checklist. And if the plan is a US parent, the sequencing lives in the Delaware flip. This corridor, India, the UAE and the US, is the structuring work we do every day.
What we check before you remit, or regularise
- Character: whether each foreign holding, existing or planned, is ODI or OPI, and whether any position has changed character since it was made.
- Conditions: the financial-services bar, the control and subsidiary conditions, and the two-layer test for anything that touches India on the way back.
- The filing trail: Form FC acknowledgements, the UIN, APRs year by year, and disinvestment reporting, reconstructed against bank records.
- The window: which misses can still be regularised on a late submission fee, and which need a compounding strategy.
- The structure ahead: whether the flip, the fundraise or the exit you are planning will read this file, and what it needs to say by then.
Frequently asked questions
What is the difference between LRS and ODI?
LRS is the channel; ODI is the character of the investment. The Liberalised Remittance Scheme is how a resident individual sends money abroad, up to USD 250,000 per financial year. What that money buys decides the rest: equity in an unlisted foreign entity, or 10% or more of a listed one, or a stake with control, is overseas direct investment. Less than 10% of a listed foreign entity without control is overseas portfolio investment. ODI brings filings that can continue every year; OPI does not carry the same ongoing reporting for individuals.
Can a resident individual legally own shares in a foreign startup?
Yes, within conditions. Under Schedule III of the Overseas Investment Rules 2022, a resident individual may make overseas direct investment in an operating foreign entity within the LRS limit, provided the foreign entity is not engaged in financial services activity and, where the individual has control, has no subsidiary or step-down subsidiary. Shares acquired by gift, by inheritance or under an employer's ESOP have their own lanes with their own conditions.
What filings does ODI require from an individual?
Form FC at the time of the investment, filed through your authorised dealer bank, which obtains a unique identification number for the foreign entity. Then an Annual Performance Report by 31 December every year for each foreign entity in which you hold ODI, not required where you hold less than 10% without control and have no other financial commitment in that entity, and reporting when you disinvest. The filings are the founder's obligation, not the bank's: the bank is the channel, but the default sits on your name.
What happens if you missed an ODI filing?
Delayed filings can be regularised under the late submission fee route: Rs 7,500 for a delayed Annual Performance Report, and Rs 7,500 plus a small percentage of the amount per year of delay for delayed investment reporting such as Form FC. The facility is available up to three years from the due date of the filing; older defaults go to compounding before the RBI. In practice the bank will hold further outward remittances until the record is regularised, which is how most founders discover the gap.
Does the Delaware flip involve ODI?
Yes. In a flip, the founders end up holding shares of a foreign parent, which is an overseas investment by each of them, with route, pricing and reporting consequences under the 2022 framework. That is why flip diligence starts with the founders' FEMA position, not the company's, and why a missed APR from an old angel investment can surface in the middle of a raise. The sequencing is covered in our Delaware flip guide.
Holding foreign shares, or about to?
Send us what you hold and how it was funded, and we will map the character of each position, the filings due, and the cheapest clean-up sequence if anything was missed.
This article is general information for founders, not legal or tax advice for your specific facts. The FEMA framework, the Overseas Investment Rules 2022 and the RBI’s fee and compounding practice change, and positions here are stated as of 1 August 2026; confirm every point against the current rules, regulations and master directions before relying on it. Whether a holding is ODI, and what regularisation costs, depends on facts and documents. Have your position reviewed before you remit, and before anyone else reads the file.