1. Introduction
Indian founders increasingly look to the U.S. for expansion, fundraising, and customer access.
Choosing the right U.S. entity structure is critical, as it impacts taxation, compliance, fundraising,
and reporting obligations in both the U.S. and India.
2. U.S. Entity Types
A. LLC (Limited Liability Company)
Pros: Flexible ownership, pass-through taxation, simple compliance.
Cons: Not preferred by VCs, multi-member foreign-owned LLCs have tax complexity.
U.S. Taxation: Default pass-through; can elect C-Corp status (21% federal + state).
Indian Connection: Report as foreign income, DTAA relief available.
B. C-Corporation
Pros: Preferred by investors, stock option plans, limited liability.
Cons: Double taxation (21% corporate tax + dividend tax), higher compliance.
U.S. Taxation: Federal 21% + state; dividends taxed again at shareholder level.
Indian Connection: Dividends taxable in India, DTAA relief applies.
C. S-Corporation
Not available for Indian founders (only U.S. citizens/residents can be shareholders).
D. Branch Office of Indian Company
Pros: Direct control from India, consolidated accounts easier.
Cons: Subject to U.S. branch tax, higher compliance, unattractive for investors.
U.S. Taxation: U.S. branch tax (21% + 30% branch profits tax unless treaty applies).
Indian Connection: Dual filing; DTAA credit available.
E. Wholly-Owned Subsidiary
Pros: Keeps IP/ownership in India, easier consolidation.
Cons: Transfer pricing compliance, investors prefer Delaware parent.
U.S. Taxation: U.S. entity taxed independently; inter-company pricing rules apply.
Indian Connection: Consolidated in India; FEMA compliance needed.
3. Tax Comparison Snapshot
Entity type | Federal tax rate | State tax | Dividend/ Profit tax | India filing impact |
|---|---|---|---|---|
LLC (Default) | Pass-through | Depends | Taxed in India directly | FA reporting, DTAA |
LLC (as C-Corp) | 21% | Yes | Dividends taxed again | DTAA relief |
C-Corp | 21% | Yes | Dividends taxed again | DTAA relief |
Branch | 21% + 30% | Yes | N/A | DTAA credit, dual filing |
Subsidiary (Corp) | 21% | Yes | Dividends taxed in India | Transfer pricing applies |
4. Strategic Choices for Indian Founders
Individual-Controlled Entity
Simpler early stage setup, taxation flexibility.
May complicate fundraising if non-U.S. ownership.
Indian Subsidiary
Easier consolidation, IP in India.
More compliance (FEMA, transfer pricing), less attractive for U.S. VCs.
5. Recommendations (Merze’s View)
• Bootstrapped Indian founders: Start with LLC (or C-Corp if investor-ready).
• VC-backed startups: Delaware C-Corp is preferred.
• Indian corporates expanding: Subsidiary structure works best.
6. How Merze Can Help
Merze provides end-to-end support for incorporation, registered agent services, cross-border
tax advisory, and ongoing compliance. We simplify India–U.S. integration so founders can focus
on building their businesses.
