LRS vs ODI: how should an Indian founder hold shares in a foreign company?
LRS is the channel and ODI is the character: the Liberalised Remittance Scheme is how a resident individual sends up to USD 250,000 abroad per financial year, and when that money buys shares in an unlisted foreign company, including your own, the investment is overseas direct investment under Schedule III of the Overseas Investment Rules 2022, with a Form FC through your bank before the wire and an Annual Performance Report every 31 December after it. Yes, you can set up a foreign holding company while bootstrapping without RBI approval, under the automatic route, provided the company runs a bona fide business that is not financial services and, where you control it, owns no subsidiary, which is exactly why a foreign holdco that will own your Indian company is a flip, not an LRS wire.
If you want this run for you rather than explained, the FEMA, ODI and LRS compliance service does it end to end, and if a filing has already been missed, start with the ODI regularisation checklist. What the whole structure costs to keep each year, India side and US side, is set out below, from official fees and published third-party figures.
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.
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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 at 6 October 2026, re-read against G.S.R. 646(E) of 22 August 2022 and the RBI’s Overseas Investment Regulations 2022 on that date. 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. Which founder structures pass the two-layer test and the Schedule III control condition is worked through in round-tripping under FEMA. Each of these is a structuring question, and each is much cheaper to answer before the remittance than to unwind after it.
Can you set up a foreign holdco while bootstrapping, without RBI approval?
Yes, within the lane Schedule III draws. Paragraph 1(2)(i) of Schedule III to the Overseas Investment Rules 2022 (G.S.R. 646(E), 22 August 2022) lets a resident individual make ODI in an operating foreign entity that is not engaged in financial services activity and, where the individual has control, has no subsidiary or step-down subsidiary, within the LRS ceiling. Control under rule 2 means the right to appoint a majority of the directors or to control management or policy decisions, including through 10% or more of the voting rights, so a founder with a meaningful stake has control for this purpose. The investment goes under the automatic route, and no approval is sought from the Reserve Bank. Form FC goes to your authorised dealer bank, and the bank obtains the unique identification number from the Reserve Bank before the remittance or the acquisition, whichever is earlier, under regulation 9(2) of the Overseas Investment Regulations 2022. The number is a reporting identifier, not a permission.
Three readings of that paragraph settle most founder questions. A Delaware or UK company you form from India to hold the IP and bill customers, with no entity under it, fits. Whether that company should be an LLC or a C-corp, and why the LLC’s US pass-through saves an Indian resident nothing, is on US LLC vs C-corp for Indian founders. The same company owning an Indian subsidiary does not: the subsidiary condition fails on its face, and if the Indian company is the one you already run, rule 19(3) adds the two-layer round-tripping test. That structure is built as a flip, with the founders’ FEMA position cleaned first, not as a personal LRS wire.
The third reading answers “can I use LRS to buy shares in my own Delaware company?” plainly. LRS funds it, ODI governs it, and the Form FC comes before the money, not after. Where the UIN sits against the EIN and the US account opening, counter by counter, is on EIN without an SSN and a US bank account from India. Your CA is not wrong to hesitate; the lane is narrow and the bank, not the RBI, is where it gets tested. The FEMA, ODI and LRS compliance service exists for exactly this file.
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. Who signs each filing on a flip is on Delaware flip advisory. 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.
What a US or UK company run from India really costs each year
Opening the company is the cheap part. The formation fee a platform advertises buys the state filing; it does not buy the filings a year on the US side, the ones on the India side, or the penalties for missing either. Figures below are stated as at 6 October 2026 from the official sources named in Schedule B. The third-party ranges in Schedule C are published by other platforms and are not Infinilex fees. The Stripe Atlas and US company registration page links here for this total and carries none of its own. What each US filing involves, Form 5472, franchise tax and BOI among them, is set out in the annual US filings a foreign-founded Delaware company owes; this section only totals the cost.
| Filing | Who files, when | Official fee or exposure | Source |
|---|---|---|---|
| Delaware annual report and franchise tax | The company, by 1 March | USD 50 report fee plus franchise tax from USD 175 (authorised shares method) or USD 400 (assumed par value method); USD 200 penalty and 1.5% a month interest if late | Delaware Division of Corporations |
| Form 1120 with Form 5472 attached | The company, with its return; any US corporation 25% foreign-owned with reportable related-party transactions | No filing fee; USD 25,000 penalty per Form 5472 not filed, plus USD 25,000 for each further 30 days once 90 days have passed after IRS notice | IRS instructions for Form 5472, revised December 2024 |
| Beneficial ownership (BOI) report | Not required for a company formed in the US | None: FinCEN’s final rule of 11 August 2026, effective 14 August 2026, made the exemption permanent | FinCEN |
| UK company: confirmation statement and accounts | The company, annually to Companies House, plus a corporation tax return to HMRC | Confirmation statement GBP 50 digital or GBP 110 on paper; incorporation GBP 100 online | Companies House fees, updated 25 September 2026 |
| Form FC and the UIN | The founder, through the AD bank, on or before the investment | No RBI fee; the bank’s own charges vary | OI Regulations 2022, regulation 9 |
| Annual Performance Report | The founder, through the AD bank, by 31 December | Free on time; Rs 7,500 late submission fee inside three years of the due date; compounding beyond it | Regulation 10(4); A.P. (DIR Series) Circular 16 of 30 September 2022 |
| Tax collected at source on the LRS remittance | Collected by the bank when you remit | Not a fee but cash out: section 394(1) of the Income-tax Act 2025 carries forward the 1961 Act’s TCS on LRS remittances, generally described as nil up to Rs 10 lakh in a financial year and 20% above it for purposes other than education or medical treatment, credited against your tax when you file. Confirm the current row in the Act before you wire | Income-tax Act 2025, section 394 (verify the rate table) |
| Schedule FA in the founder’s own return | The founder, every year the shares are held | No fee; section 43 of the Black Money Act 2015 carries a penalty for a foreign asset left out of the return, generally described as Rs 10 lakh, subject to a de minimis proviso for assets other than immovable property that is reported as widened in 2024. Verify the current text and threshold before relying on either figure | Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015, section 43 (verify) |
| Indian LLP at zero revenue | The LLP: Form 11 by 30 May, Form 8 by 30 October, an income tax return regardless of revenue; DIR-3 KYC for the designated partners once every third financial year | MCA filing fees scale with contribution and are small; the additional fee for a late form runs per day (verify the current scale) | LLP Act 2008 s.35(1), LLP Rules 2009 rules 24(4) and 25(1); dates in the India compliance calendar |
| Indian private limited company at zero revenue | The company: statutory audit, AOC-4, MGT-7, DIR-3 KYC, whether or not it traded | Audit and filings are professional costs; MCA fees are small | India compliance calendar |
| Transfer pricing | The Indian entity, in any year it transacts with the foreign parent | Arm’s length pricing and the accountant’s report in Form 48 (formerly 3CEB) under the Income-tax Act 2025 | Intercompany agreements and transfer pricing |
| POEM and permanent establishment | The foreign company, if it is run from India | Section 6(10) of the Income-tax Act 2025 makes it Indian-resident where key management and commercial decisions are in substance made in India; CBDT Circular 8/2017 is published as keeping companies with turnover or gross receipts of Rs 50 crore or less in a financial year outside the POEM guidelines (verify the threshold against the CBDT circular itself, and confirm it continues to apply under the 2025 Act); a PE in India taxes the profit attributable to it here | POEM, residency and substance |
So the first-year arithmetic for a Delaware C corp with an Indian LLP and no revenue reads: Delaware USD 225 at the minimum (the USD 50 report fee plus USD 175 franchise tax), a registered agent and a US tax filing bought from the market, small MCA fees for Form 11 and Form 8, two income tax returns, one in each country, nothing to the RBI if Form FC and the APR are on time, and tax collected at source as cash out on LRS remittances above the threshold, credited back when you file. The cost that matters is not on that list: USD 25,000 for a Form 5472 nobody filed, the Black Money Act penalty for a Schedule FA nobody completed, and an APR default that stops the next wire. If the foreign company is in substance run from India, residence comes before any of this: section 6(10), the POEM test and permanent establishment are worked through in POEM, residency and substance.
| Platform, source, date read | Published price |
|---|---|
| Stripe Atlas, stripe.com/atlas, 6 October 2026 | USD 500 one-time incorporation, including Delaware state filing fees, the EIN and founder equity issuance; USD 100 a year for the registered agent after the first year |
| Firstbase, firstbase.io/pricing, 6 October 2026 | Formation USD 99 (listed from USD 399) plus state fees; Agent plan USD 299 a year per state, including the annual report and franchise tax filing; US tax package USD 899 a year for a foreign-owned single-member LLC (Form 5472) and USD 1,799 a year for a C corp or multi-member LLC |
| doola, doola.com/pricing, 6 October 2026 | Starter USD 297 a year plus state fees; Tax and Compliance USD 1,999 a year plus state fees; Business-in-a-Box USD 2,999 a year |
These are published platform prices for a single US entity, read on the date shown; they describe different bundles and Infinilex has not verified the work behind them. Adding one registered agent and one tax package from the lists above gives roughly USD 1,000 to 2,300 a year on the US side before Delaware’s own fees and before any Indian professional fees, which vary by firm and are not quoted here.
Who should run this themselves, and who should not
A solo operator with a US entity for payments, no Indian company, no investors and no employees can run the list above on a calendar: the Delaware date, the IRS date, the APR date, Schedule FA. Keep the acknowledgements in one folder and it stays cheap. The moment there is an Indian operating company, outside money, a second founder on the cap table or staff on either side, the filings interlock: Form 5472 reports the related-party transactions that Form 48 prices, the APR reads the accounts the foreign company produces, and the FLA return the Indian subsidiary files mirrors the parent’s holding. That is a function, not a filing, and it is what the fractional general counsel retainer exists to run across India, the UAE and the US. Before that point, the FEMA, ODI and LRS compliance service handles the founder’s own file as a fixed-scope piece.
The 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. The comment window closed on 31 August 2026. As at 6 October 2026 we have not seen final rules notified; check the RBI’s notifications before assuming anything has changed, and remember that even a notified inbound rulebook would leave the outbound Overseas Investment Rules 2022, and every APR due under them, exactly where they are.
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.
Can I set up a foreign holding company while bootstrapping, without RBI approval?
Yes, if it fits the lane Schedule III of the Overseas Investment Rules 2022 draws. A resident individual may make overseas direct investment under the automatic route, within the LRS limit of USD 250,000 per financial year, in an operating foreign entity that is not engaged in financial services activity and, where the individual has control, has no subsidiary or step-down subsidiary (Schedule III, paragraph 1(2)(i), G.S.R. 646(E) of 22 August 2022). No approval is sought from the Reserve Bank. Form FC goes to your authorised dealer bank, and the bank obtains the unique identification number from the Reserve Bank before the remittance or the acquisition, whichever is earlier. The number is a reporting identifier, not a permission. The structure that fails is the obvious one. A foreign holdco you control that then owns your Indian company breaks the subsidiary condition and meets the two-layer round-tripping test in rule 19(3). That is a flip, and it is sequenced differently.
Can I use LRS to buy shares in my own Delaware company?
Yes. LRS is the channel for a resident individual's remittance, and subscribing to the shares of an unlisted foreign company, including one you are forming, is overseas direct investment by definition. The sequence is Form FC with your authorised dealer bank, the bank obtaining the unique identification number from the Reserve Bank before the wire, the remittance, evidence of the investment back to the bank within six months, and an Annual Performance Report every 31 December while you hold the shares, unless you hold under 10% without control and have no other financial commitment in the company. The USD 250,000 LRS ceiling is per individual per financial year and is also the ceiling on the individual's financial commitment. A Delaware company that will own your Indian company is a different structure, covered in the Delaware flip guide.
What does a US company run from India really cost each year?
More than the formation fee, less than most founders fear, and the exposure is larger than the fees. Official recurring items as at 6 October 2026: in Delaware, the USD 50 annual report fee plus franchise tax from a USD 175 minimum (USD 400 under the assumed par value method), due 1 March, with a USD 200 penalty and 1.5% monthly interest if late; Form 1120 with Form 5472 attached every year, where the penalty for a Form 5472 not filed is USD 25,000; and no BOI report for a US-formed company since FinCEN's final rule of 11 August 2026. In India, Form FC and the UIN carry no RBI fee, the Annual Performance Report is free when filed by 31 December and Rs 7,500 when filed late inside three years, and an Indian LLP files Form 11 by 30 May and Form 8 by 30 October whether or not it traded. Registered agent and tax preparation are bought from the market: the platform prices quoted on this page, published by Stripe Atlas, Firstbase and doola and read on 6 October 2026, run from USD 100 to 299 a year for a registered agent and USD 899 to 1,999 a year for a US tax package. Those are their figures, not Infinilex figures. Indian professional fees vary by firm and are not quoted here.
Does running a foreign company from India create permanent establishment or transfer pricing risk?
Both, and they are separate questions. Under section 6(10) of the Income-tax Act 2025, in force from 1 April 2026, a foreign company whose key management and commercial decisions are in substance made in India is resident in India and taxed here on worldwide income. A founder working from India can also give the foreign company a permanent establishment here under the India-US treaty. Once your Indian entity bills or works for the foreign parent, the price must be arm's length, with the accountant's report in Form 48 (formerly 3CEB). The fix is substance and paper: board decisions actually taken outside India, a cost-plus services agreement, and the filings on both sides. The residence test, its turnover carve-out and the PE analysis are worked through on our POEM, residency and substance page.
My CA has not handled ODI for a startup holdco. Who do I ask?
Someone who runs this corridor every week, because the ODI lane for individuals is narrow and the bank, not the RBI, is where it gets tested. Infinilex runs the work end to end as a consultancy: we classify each foreign holding as ODI or OPI against Schedule III, prepare Form FC and the UIN application with your authorised dealer bank before the remittance, build the evidence file, file the Annual Performance Report each December, and sort any missed filing into the late submission fee window or a compounding application. Infinilex's in-house chartered accountant and company secretary certify the filings where a statute names that professional. Infinilex counsel qualified in India, the UAE and the US sign opinions for those jurisdictions; for the EU and any other jurisdiction Infinilex scopes and coordinates the local counsel who sign. Email is answered within one working day.
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.
Thirty minutes with Prashant Sharma, the founder, who does the work himself. You leave with next steps either way. Email is read by the founder and answered within one working day.
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 6 October 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.