Somewhere between the term sheet and the closing call, the lawyers say the words “we’ll flip to Delaware.” A US parent is formed, founder shares are swapped, the Indian company becomes its subsidiary, and everyone moves on to the fundraise. What rarely gets discussed is that you, still a resident of India, now hold equity in a foreign company. That brings a yearly RBI filing with it.
Under the Overseas Investment Rules, 2022, a person resident in India who acquires unlisted equity in a foreign entity is treated as making overseas direct investment (ODI). So a founder’s allotment of US parent shares counts as an investment, even if the shares came through a swap or were issued at par. Once it counts as ODI, the Annual Performance Report (APR) follows every year for as long as you hold the shares.
Whether you actually have to file depends on three tests.
Test one is FEMA residency. FEMA has its own definition, different from the income tax test. A founder who has genuinely relocated to the US is generally outside the framework, while a founder still living and working in India is inside it.
Test two is stake and control. A resident holding less than 10% of the foreign entity, with no control and no other financial commitment, is not required to file. But control is defined broadly. A co-founder with 8% and a board seat, veto rights or a voting agreement may still be treated as having control. Loans to the US company or personal guarantees also remove the exemption.
Test three is who files when several co-founders are residents. The investor with the highest stake files, or the investors designate one person and give the AD bank an undertaking.
When you have control, the APR must be based on audited financial statements of the US company. Delaware has no statutory audit requirement for most private companies, but RBI’s requirement is separate, and the audit must come from a licensed professional in the host country, which means a US CPA firm.
The APR is due by 31 December each year. A late filing can be regularised with a flat late submission fee of Rs 7,500 per return if you opt for it within three years of the due date. Beyond that, compounding is slower and costlier.
Read the complete guide, including a quick self-check before 31 December:
https://accorppartners.com/blogs/apr/delaware-flip-founders-do-you-owe-apr-on-your-us-parent-shares
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