By: Karanjit Kaur, Esq.
Opening a branch of an Indian company in the United States is a complicated task. The branch must fulfill some requirements to ensure the lawful presence in the United States.
First, the Indian company needs to confirm if it is required to obtain approval from the Reserve Bank of India (“RBI”). If the venture in the United States is a joint venture or a wholly owned subsidiary, the branch may not require prior approval from RBI. However, if the Indian company is remitting investment into a branch in the United States in the financial services sector, prior approval is required from both RBI and the regulatory authority in the United States.
Second, the company must decide which form of business entity to use. In the United States, businesses are usually conducted as corporations, partnerships, or limited liability companies. However, as a United States branch of an Indian company, the most beneficial options are corporations, limited liability partnerships or limited liability companies, because owners can be personally protected and avoid personal liability.
Next, it is important to conduct an availability search of the name of the new entity. This is done to ensure that no two businesses have the same name, so as to avoid confusion in the market. Also, some states do not register companies with similar names, without written consent from the first registrant. If the name is available, an “Articles/Certificate of Incorporation” in the case of a corporation, or an “Articles/Certificate of Formation” in case of a limited liability company is completed and filed with the Secretary of State in the state of incorporation.
Pursuant to the incorporation, the company must apply for a “Federal Employer Identification Number” and a “State Tax Identification.” The company is required to file annual tax returns and will be taxed on its share of the income on a net income basis. The United States also imposes a 15% “branch profits” tax on Indian corporations.
After receiving the tax identification numbers, certain states may require a statement containing all necessary information is filed with the Secretary of State. This statement of information will set forth the “Registered Agent” who shall be appointed by the company. The Registered Agent is a resident agent of the company within the state of incorporation for the purposes of service of process, if any legal action is taken against the business. If the branch is to operate or do business in multiple states, the business may be required to file a “Business Qualification” and register in multiple states based on the extent of its business in such other states. One reason this is necessary is to ensure that the company has standing to institute legal action within the state. This Business Qualification is also necessary to ensure proper tax filing and tax compliance at both the state and federal levels.
Prior to the first meeting, an “Bylaws or Operating Agreement” of the corporation/limited liability company must be drafted. During the first meeting, the “Bylaws or Operating Agreement” is voted upon and approved by shareholders/members. The agreement is then signed by the officers of the corporation or the members of the limited liability company. Also, share certificates or membership interests will be issued and a transfer ledger will be documented. If a local business name different from the name of the corporation is desired, the company must register the business name with the county clerk in the county in which the business will operate or the state, depending on the state’s requirements. In California, a “Fictitious Business Name Statement” is filed with the county clerk.
Minutes of the first meeting shall be drafted, signed, and stored to record business transacted in the initial stages. These minutes can later help to establish what the intent of the officers was at the time of incorporation. The minutes may also reflect the shares the officers intend to issue to members to provide for a comprehensive ledger and avoid dispute later.
The primary benefit of creating a limited liability company, corporation, or a limited liability partnership is to avoid any personal liability for the owner. However, to ensure that an individual is personally protected, the corporation must ensure that the corporate book and all files are updated regularly. This can be done by regularly updating the state registration, holding quarterly meetings, keeping record of meetings using minutes, separating bank accounts from personal accounts, using letterhead for all written communication, establishing a postal office box for all mail correspondence, and separating any other business and personal channels to avoid confusion.
This process can be long and tedious. Please contact an attorney who specializes in forming businesses to help you start your new business.