I. Introduction
Company registration in USA for Indian residents can be completed in 2-3 days. You do not need to be a citizen or resident in USA to register a company in USA. Unlike India only 1 person can also register a company in USA. There is no minimum capital requirement to register a company. Delaware is a popular destination for business registration due to its investor-friendly laws, flexible business environment, and robust legal system. This guide will walk you through the benefits, the registration process, and the post-registration obligations of setting up a company in Delaware as an Indian national.
II. Understanding the Basics
In USA just like India you can register different types of business entities like
- Limited Liability Companies (LLCs)
- Corporations
- Limited Partnerships (LPs).
Each entity type has its own advantages and legal implications. However, it’s important to note that Indian nationals can only establish a C Corporation or an LLC in USA. If the aim is to raise funds, a C Corporation is the only viable option.
An essential requirement for registering a company in any state including Delaware is having a registered agent in the state. The registered agent is responsible for receiving legal documents and correspondence from the Delaware Division of Corporations on your behalf.
The registered agent fees for 1 year in included in our incorporation package and thereafter it is USD 150/year.
Overseas Direct Investment (ODI) Rules in India
Before you can invest in a foreign company, it’s crucial to understand the Overseas Direct Investment (ODI) rules laid out by the Reserve Bank of India (RBI). As per the Liberalised Remittance Scheme (LRS) of RBI, Indian residents can remit a certain amount each fiscal year for the purpose of investment and expenditure in a foreign country.
III. Difference between LLC and C-corp in Delaware and what should you choose
| Factors | LLC in USA | C Corporation in USA |
|---|---|---|
| Legal Structure | An LLC is a separate legal entity that provides limited liability to its owners. It’s a more flexible business structure with fewer formalities. | A C Corporation is a separate legal entity that provides limited liability to its shareholders. It’s subject to more regulations and has more formalities. |
| Ownership | Owned by members who hold membership interests. | Owned by shareholders who hold shares of stock. |
| Management | Members have the flexibility to manage the company directly or appoint managers. | Managed by a board of directors elected by shareholders. |
| Ability to Raise Funds | Can attract investment but may not be as attractive to institutional investors as a C Corporation. | Has the ability to issue various classes of stock, making it easier to raise capital from investors. |
| Stock Options | LLCs do not have stock, so they can’t issue stock options. They can issue membership interests, but it’s generally more complex. | Can easily issue stock options to employees, which is often an attractive benefit for startups. |
| Taxation | LLCs have pass-through taxation by default, meaning profits and losses are reported on the members’ individual tax returns. | C Corporations are subject to double taxation: the corporation pays corporate income tax on its profits, and shareholders pay taxes on dividends. |
| Regulatory Compliance | Less formal requirements. For example, no need to hold annual meetings or maintain minutes. | More formal requirements, such as holding annual meetings, maintaining minutes, and issuing annual reports. |
| Continuity | Unless the operating agreement states otherwise, an LLC may be dissolved when a member leaves or dies. | A C Corporation has perpetual existence. It continues even if a shareholder leaves or dies. |
IV. Cost to incorporate/register a company in Delaware USA
- Preparing & Filing the Articles of Organization
- Unlimited Name Searches
- FREE Registered Agent Service for a year!
- EIN Business Tax Number
- Corporation Bylaws
- Banking Resolution
- Assistance with Business Banking Account
V Time taken to register a company in USA by an Indian national
VI. What are the documents and details needed to incorporate a company in USA.
- Proposed name of company
- Incorporator name and address
- US Mailing address (or else will have buy a virtual office. Charges start from USD 35/month)
- Initial director and ownership details (full name, address, Passport and Aadhar card copy)
- India mailing address
VII. How to register a company in USA : The Registration Process
Selecting a Name for the Company: The first step is to choose a unique name for your company. Delaware Division of Corporations offers an online portal to check the availability of your desired company name.
Choosing the Type of Business Entity: As mentioned, Indian nationals can establish a C Corporation or an LLP in Delaware.
Appointing a Registered Agent: A registered agent is a must in Delaware. You can either appoint a professional registered agent service or a resident of Delaware.
Filing the Certificate of Incorporation or Formation: Next, you need to file the Certificate of Incorporation (for a corporation) or a Certificate of Formation (for an LLP) with the Delaware Secretary of State.
Creating an Operating Agreement or Bylaws: These documents set out the operating rules for your business. While not required to be filed with the state, they’re crucial for the smooth running of your business.
Getting an EIN from the IRS: An EIN is needed for tax administration purposes. You can apply for an EIN on the IRS website.
Minimum Capital Requirements: There is no prescribed minimum capital required to start a company in Delaware.
Documentation Required: Basic information required includes the name of the company, the purpose of the company, the name and address of the registered agent, and details about the number and value of shares (for a corporation).
Timeline: The process usually takes 1-3 weeks, depending on various factors such as the type of entity and processing times of the Delaware Division of Corporations.
VIII. Post Registration Steps – What are monthly and annual filings for Delaware Companies.
Once you’ve registered your business, it’s crucial to understand your tax obligations both at the federal (U.S.) level and at the state (Delaware) level.
Federal Tax Obligations:
Income Tax: C Corporations are subject to the U.S. federal income tax on their worldwide income. The corporation must file a tax return each year using IRS Form 1120, U.S. Corporation Income Tax Return. The current federal corporate tax rate is 21% as of my last update in September 2021, but always check the IRS website for the most recent information.
Withholding Tax: Payments made by the corporation to foreign shareholders (in the form of dividends, for example) may be subject to U.S. withholding tax. The withholding tax rate may be reduced if there is a tax treaty between the U.S. and the foreign shareholder’s country. The withholding tax is typically reported on IRS Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons.
Related party transactions disclosure:
Form 5472 is a U.S. Internal Revenue Service (IRS) form titled “Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business”.
Companies that are either foreign-owned U.S. corporations or foreign corporations engaged in a U.S. trade or business are required to file this form. Specifically, the form must be filed under the following conditions:
- A U.S. corporation that is 25% foreign-owned.
- A foreign corporation engaged in a trade or business within the U.S.
The form is used to provide information when a “reportable transaction” occurs during the tax year with a foreign or domestic related party. A reportable transaction includes any type of transaction for which monetary consideration (including U.S. and foreign currency) was the sole consideration paid or received during the transaction.
Form 5472 requires the disclosure of information about the foreign ownership and any related party transactions, and helps the IRS assess whether the company has accurately reported all income and deductions associated with these transactions.
Non-compliance or late filing of Form 5472 can result in significant penalties. The IRS assesses a penalty of $25,000 for each tax year for which Form 5472 is not timely filed. The penalty can increase if the failure continues after the IRS sends a notice.
Delaware State Tax Obligations:
Franchise Tax: Delaware requires all corporations incorporated in the state to pay an annual franchise tax. The amount varies depending on the type and size of the corporation. The minimum tax is $175, and the maximum is $200,000 (as of my last update in September 2021). Corporations can calculate their franchise tax using either the “Authorized Shares Method” or the “Assumed Par Value Capital Method”. Franchise taxes are reported and paid through the Delaware Division of Corporations’ website.
Corporate Income Tax: Delaware imposes a flat corporate income tax rate of 8.7% on all income derived from sources within the state. Corporations must file Delaware Form 1100, Corporation Income Tax Return, each year.
Regular Compliance:
Beyond taxes, there are other regular compliance requirements. For example, Delaware corporations are required to file an Annual Report with the Delaware Secretary of State. The Annual Report is due by March 1st of each year and can be filed online through the Delaware Division of Corporations’ website.
IX. Conclusion
Registering a company in Delaware as an Indian national is a significant step, but it could open doors to numerous opportunities. It’s a process that requires due diligence and perhaps the assistance of legal and financial advisors. This guide provides a comprehensive overview of the process, but it’s by no means exhaustive. Always consult with a professional to understand all legal and financial implications.
X. References and Helpful Resources
For more information, you can visit the Delaware Division of Corporations, the IRS website, and the RBI website. Always stay updated with the latest rules and regulations.
Remember, while the process might seem complicated, with the right guidance and resources, it’s entirely feasible. Good luck with your business venture in Delaware!
FAQs to register a company is USA, Delaware
Any individual, including Indian nationals, or entity can register a company in Delaware, regardless of where they are located
Indian nationals can form a C Corporation or a Limited Liability Partnership (LLP) in Delaware. If they aim to raise funds from investors, forming a C Corporation is typically the preferred option.
No, a U.S. citizen is not required to form a company in Delaware. Indian nationals can own 100% of a Delaware company.
Federal tax obligations include income tax and withholding tax. State obligations typically involve franchise tax and corporate income tax. The exact obligations may vary based on the company’s structure and operations.
Delaware does not require a specific minimum capital to form a company.
ODI (Overseas Direct Investment) rules, governed by the Reserve Bank of India, provide the regulatory framework for Indian residents who wish to invest in a company overseas. Before making the investment, Indian residents must comply with the stipulations laid out in the ODI rules.
Beyond tax obligations, Delaware corporations are required to file an Annual Report with the Delaware Secretary of State, typically due by March 1st of each year.