Advantages of incorporating in the US over India

Last Updated at: November 04, 2019
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Incorporating a company can be a difficult decision often with far-reaching consequences from the perceptive of costs, compliances, and taxation. Since it’s an irreversible decision, it is important to consider possible alternatives of choice of incorporation.

In this post, we contrast the process and elements of incorporation in India with the advantages of doing so, in the United States.

  1. Getting early access to investors

In pursuance of what is known as the American Dream, the startup and investor culture is stronger in the United States. It may be easier for you to access investment from the very beginning and give a boost to your startup idea.

  1. Ideal for IP Oriented ventures

The United States has a rather robust and protective intellectual property regime. So for inventors, people with patent-oriented technologies and companies that are centered around reaping benefits of intellectual property rights should ideally consider the United States as the place of incorporation. The branding, customer focus, and valuation of companies in the US are shadowed to a large extent by obtaining Intellectual Property and hence, may put you in a highly favourable position.

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  1. Global Reach

Companies incorporated in the US have significant advantages of recognition in other jurisdictions. An Indian company may face difficulties in obtaining credit or enforcing contracts as the Non-Indian party may not be familiar with laws like the Indian Contract Act or the Companies Act 2013. However, when it comes to the United States or generally the Delaware Laws, there is greater familiarity and trust, which may play crucial roles in determining partnerships.

  1. The omnipresence of dollar

Any US company will invariably reap the advantage of the fact that the dollar is the most traded foreign exchange. The securities floated by a United States Company are likely to attract those looking to park their dollars. But an Indian company cannot enjoy the same privilege for the reason that the Indian Rupee does not record the same convertibility and presence.

  1. Fewer restrictions and administrative costs

In the State of Delaware, there is greater flexibility, as there is no rule on following a particular place of business thereby reducing your burden of maintaining a place of management. The costs of annual compliance are also fixed, giving greater room for managing expenses due to standard practices and more clarity on legal expenses.

  1. Taxation advantages

Although the India – US treaty aims to ensure that the net overall impact of taxes is the same if a company chooses to do business in the US as that company doing business as a private company in India, Delaware amongst other states has several distinct advantages such as not taxing a company that does not operate or transact in the state.

  1. Flexibility in structuring

The US laws allow for several types of corporate business structures such as the C type or the S type corporations, in addition to partnerships. In an S type corporation, the entity is not taxed but rather the individual owner’s income is taxable and hence profits can be passed on to shareholders who pay the tax thereon. In a C type corporation, the taxes are kept separate as the identity of shareholders is divorced from the company. C Corporations also do not have restrictions on ownership, however, an S Corporation is restricted to 100 shareholders. Thus, the flexibility and taxation alternatives offered to a US company are more diverse.

  1. Reduced prohibited sectors and less exposure to risks in exit cases

There are fewer restrictions in the USA on who may be able to invest in your company. However, there are prohibited and regulated sectors in India, where no industry operating may be able to obtain foreign investment or may be mandated to go through rigorous FDI norms or permissions from the Reserve Bank of India and other regulatory agencies. The United States also has more liberal laws on repatriation of currency in case of winding up of the company, as compared to India, where a host of laws such as the Insolvency and Bankruptcy Code, Companies Act, Taxation laws and SEBI regulations may draw the company into a legal battle.

 

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Advantages of incorporating in the US over India

1218

Incorporating a company can be a difficult decision often with far-reaching consequences from the perceptive of costs, compliances, and taxation. Since it’s an irreversible decision, it is important to consider possible alternatives of choice of incorporation.

In this post, we contrast the process and elements of incorporation in India with the advantages of doing so, in the United States.

  1. Getting early access to investors

In pursuance of what is known as the American Dream, the startup and investor culture is stronger in the United States. It may be easier for you to access investment from the very beginning and give a boost to your startup idea.

  1. Ideal for IP Oriented ventures

The United States has a rather robust and protective intellectual property regime. So for inventors, people with patent-oriented technologies and companies that are centered around reaping benefits of intellectual property rights should ideally consider the United States as the place of incorporation. The branding, customer focus, and valuation of companies in the US are shadowed to a large extent by obtaining Intellectual Property and hence, may put you in a highly favourable position.

Register Your Startup

  1. Global Reach

Companies incorporated in the US have significant advantages of recognition in other jurisdictions. An Indian company may face difficulties in obtaining credit or enforcing contracts as the Non-Indian party may not be familiar with laws like the Indian Contract Act or the Companies Act 2013. However, when it comes to the United States or generally the Delaware Laws, there is greater familiarity and trust, which may play crucial roles in determining partnerships.

  1. The omnipresence of dollar

Any US company will invariably reap the advantage of the fact that the dollar is the most traded foreign exchange. The securities floated by a United States Company are likely to attract those looking to park their dollars. But an Indian company cannot enjoy the same privilege for the reason that the Indian Rupee does not record the same convertibility and presence.

  1. Fewer restrictions and administrative costs

In the State of Delaware, there is greater flexibility, as there is no rule on following a particular place of business thereby reducing your burden of maintaining a place of management. The costs of annual compliance are also fixed, giving greater room for managing expenses due to standard practices and more clarity on legal expenses.

  1. Taxation advantages

Although the India – US treaty aims to ensure that the net overall impact of taxes is the same if a company chooses to do business in the US as that company doing business as a private company in India, Delaware amongst other states has several distinct advantages such as not taxing a company that does not operate or transact in the state.

  1. Flexibility in structuring

The US laws allow for several types of corporate business structures such as the C type or the S type corporations, in addition to partnerships. In an S type corporation, the entity is not taxed but rather the individual owner’s income is taxable and hence profits can be passed on to shareholders who pay the tax thereon. In a C type corporation, the taxes are kept separate as the identity of shareholders is divorced from the company. C Corporations also do not have restrictions on ownership, however, an S Corporation is restricted to 100 shareholders. Thus, the flexibility and taxation alternatives offered to a US company are more diverse.

  1. Reduced prohibited sectors and less exposure to risks in exit cases

There are fewer restrictions in the USA on who may be able to invest in your company. However, there are prohibited and regulated sectors in India, where no industry operating may be able to obtain foreign investment or may be mandated to go through rigorous FDI norms or permissions from the Reserve Bank of India and other regulatory agencies. The United States also has more liberal laws on repatriation of currency in case of winding up of the company, as compared to India, where a host of laws such as the Insolvency and Bankruptcy Code, Companies Act, Taxation laws and SEBI regulations may draw the company into a legal battle.

 

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Avani Mishra is a graduate in law from the National Law Institute University, Bhopal. She qualified the Company Secretary course with an All India Rank 1 and is a recipient of the President’s Gold Medal for her academic distinctions. She also holds a B.Com degree with a specialization in Corporate Affairs and Administration.