What are RBI's Overseas Direct Investment (ODI) regulations for US incorporation?

RBI's Overseas Direct Investment regulations govern how Indian residents can invest in and hold shares of a foreign company. Under these rules, a FEMA resident individual can make a direct overseas investment, up to $250,000 per year under the Liberalised Remittance Scheme, without needing prior RBI approval for most structures. The part that catches most startup founders is a separate restriction: a resident individual cannot acquire control level stock in a foreign entity if that entity will later set up a subsidiary or step down subsidiary of its own, anywhere in the world.

This restriction is what makes direct shareholding impractical for most Indian founded startups, since the typical structure is a US C-Corp that goes on to have an Indian subsidiary. In this situation, founders generally hold their US shares through an Indian LLP instead of directly. The LLP carries out the ODI into the US entity, holds the shares on the founder's behalf, and files the required ODI reporting with the founder's Authorised Dealer bank.

This route is specific to FEMA resident founders in this common structure. A founder who has genuinely relocated outside India, and is therefore a FEMA non resident, may be able to hold shares in the US entity directly. Whether the LLP route applies to you depends on your residency status and the structure you're building, so it's worth confirming your specific situation rather than assuming one rule applies to every case.