NRI or Foreign National Setting Up a Company in India: Should You Hold Shares Personally or Through Your Foreign Company?

The incorporation paperwork looks almost identical either way. What actually diverges — tax treatment, exit flexibility, and how the next funding round gets structured — only shows up two or three years later, when it's expensive to change.

This question comes up in nearly every first conversation with an NRI founder or a foreign national planning an India entity: "Should I hold the shares in my own name, or should my existing company abroad hold them?" It sounds like a formality. It isn't. The answer changes how profits get taxed, how easily the business can raise a funding round later, what happens on an exit, and even what happens to the shareholding if something happens to the individual.

There is no universally correct answer here — the right structure depends on what the Indian entity is actually for. But there is a clear, practical way to reason through it, and that's what this article walks through.

The Two Structures, in Plain Terms

Individual shareholding: The NRI or foreign national subscribes to shares of the Indian company directly, in their own personal name, as an individual investor under India's FDI policy.

Corporate shareholding: An existing foreign company — one that the individual owns or controls, incorporated in the US, UK, Singapore, UAE, or elsewhere — subscribes to shares of the Indian company. The Indian entity becomes a subsidiary of the foreign company, not a direct extension of the individual.

Both routes are permitted under India's foreign investment framework for most sectors on the automatic route, both involve the same SPICe+ incorporation mechanics, and both require the same FC-GPR filing with the RBI once shares are allotted. The mechanical incorporation process does not meaningfully differ. What differs is everything downstream of incorporation.

Where the Two Structures Genuinely Diverge

1. Tax treatment of dividends and profits

When an individual holds shares directly, dividends paid by the Indian company are taxed in the hands of that individual, generally subject to withholding tax in India, with the rate often reduced under an applicable Double Taxation Avoidance Agreement (DTAA) between India and the individual's country of residence — assuming a Tax Residency Certificate and Form 10F are in place to claim treaty benefit.

When a foreign company holds the shares, dividends flow to the foreign corporate entity, and the applicable withholding rate and treaty benefit depend on that company's country of incorporation and its own DTAA position with India — which may or may not be more favourable than the individual's personal treaty position. This matters most for founders whose personal country of tax residence has a less favourable DTAA with India than a jurisdiction where they could reasonably incorporate a holding company — Singapore and certain other jurisdictions are frequently used for this reason, though treaty-shopping considerations and India's General Anti-Avoidance Rule (GAAR) mean this needs to be assessed on genuine commercial substance, not purely for rate arbitrage.

2. What happens on a future funding round

This is often the deciding factor for founders building something they intend to scale and eventually raise institutional capital for.

If an individual holds the Indian company's shares directly, and the business later needs to raise from investors who want a more conventional holding structure — common with venture capital and private equity investors who prefer investing into a company structured for eventual consolidation, IP holding, or multi-jurisdiction operations — the founder typically has to restructure: incorporate a holding company, do a share swap, and move the Indian subsidiary underneath it. This is not simply paperwork. A share swap can trigger valuation requirements, FEMA pricing guideline compliance, and potential tax consequences on the exchange itself, in addition to the professional cost and time of doing it properly.

If the shares are already held through a foreign holding company from the start, this restructuring exercise doesn't need to happen later. The Indian entity is already positioned as a subsidiary within a structure investors recognise, and a funding round can be structured at the holding company level without touching the Indian subsidiary's own cap table each time.

3. Liability and personal exposure

Shares held individually are a personal asset, sitting alongside the individual's other personal assets and personal liabilities in their country of residence. Shares held through a foreign company sit inside that company's balance sheet, one layer removed from the individual's personal estate.

For founders with any meaningful personal liability exposure — a professional practice, other business interests, or simply a preference for keeping business and personal assets separated — the corporate holding structure provides a cleaner separation, even before considering tax.

4. Succession and continuity

If shares are held individually and something happens to the individual — incapacity, death, or simply a desire to bring in a co-owner from within an existing business — the shares become part of the individual's personal estate, subject to succession law in their country of residence, potentially triggering probate or inheritance procedures before the shareholding can transfer, alongside whatever Indian-side compliance is needed to record the change of ownership.

If the shares are held through a foreign company, the Indian shareholding itself doesn't change on the individual's death — only the ownership of the foreign holding company changes, governed by that company's own shareholder and succession arrangements, which are usually far simpler to structure in advance (through the company's own shareholder agreement) than personal estate planning across jurisdictions.

5. Ongoing compliance and cost

This is the one factor that pulls in the opposite direction. A foreign holding company is not free — it has its own annual filing obligations, its own accounting and audit requirements in its home jurisdiction, and its own registered agent or company secretarial costs. For a founder setting up a single small Indian entity with no near-term plans to raise external capital, layering in a foreign holding company adds an ongoing cost and compliance burden that may not be justified.

Individual shareholding, by contrast, has no separate entity to maintain. The compliance sits entirely at the Indian company level, which the founder is managing anyway.

A Practical Way to Decide

Rather than treating this as an abstract structuring question, it helps to work through it against what the Indian entity is actually being built for.

Individual shareholding tends to make sense when:

• The Indian company is a services delivery arm, a small manufacturing unit, or a support office for an existing business that the individual runs personally.

• There's no near-term plan to raise institutional funding into the Indian entity or a broader group structure.

• The individual's personal DTAA position with India is already reasonably favourable.

• Simplicity and lower ongoing compliance costs matter more than structural flexibility.
  
  

Corporate shareholding through a foreign entity tends to make sense when:

• The India entity is one part of a multi-country group, or is expected to become one.

• The founder has a reasonable expectation of raising external capital — venture, private equity, or strategic investment — within the next few years.

• There are other business interests or personal liability considerations that make separating personal and business assets a priority.

• The founder already has, or is willing to set up, a holding company in a jurisdiction with a workable DTAA position and genuine commercial substance.
  

A Common Middle-Ground Scenario

A frequent real-world pattern: an NRI founder incorporates the Indian company with individual shareholding initially — because it's faster, involves one fewer entity to manage, and the immediate priority is simply getting the India operation running. Then, twelve to eighteen months later, once the business has traction and a funding conversation becomes realistic, the founder sets up a holding company and executes a share swap to move the Indian entity underneath it.

This works, but it is worth going in with eyes open: the share swap stage involves its own valuation exercise under FEMA pricing guidelines, RBI reporting for the transfer, and generally the involvement of a merchant banker or chartered accountant for the fair value determination. Founders who can reasonably anticipate the funding conversation within a short horizon are often better served by structuring through a holding company from day one, simply to avoid doing this work twice.

Documentation Differences Worth Knowing Upfront

Beyond the strategic considerations, the two routes do differ slightly in what needs to be prepared for incorporation itself. Individual shareholding requires the individual's passport copy, overseas address proof, and — depending on the individual's country of residence — notarisation and apostille or consular legalisation of these documents for use in India.

Corporate shareholding requires the foreign company's certificate of incorporation, a board resolution authorising the investment into the Indian entity, and the same authentication requirements (apostille or legalisation, depending on whether the home country is a Hague Convention member) applied to the corporate documents rather than personal ones. A resident director is still required for the Indian company either way, regardless of which route the shareholding takes.

Final Thoughts

Neither structure is inherently better — the right one depends on whether this Indian entity is a standalone operation or the first piece of something larger. What matters most is making this decision deliberately, with the tax treaty position, funding trajectory, and personal liability considerations weighed together, rather than defaulting to whichever route seems administratively simpler at the moment of incorporation. The paperwork cost of choosing individual shareholding and later restructuring into a holding company is real but manageable — the more expensive mistake is not thinking about it at all until an investor's term sheet forces the question.

How Accorp Partners Helps

Accorp Partners advises NRI and foreign national founders on structuring India entry the right way from the outset — evaluating individual versus corporate shareholding against your specific tax residency, DTAA position, and funding trajectory, and handling the full incorporation process either way, including resident director arrangement, FDI and FEMA compliance, FC-GPR filing, and, where a holding company structure is the right call, coordinating the incorporation and share-swap mechanics end to end.

Explore our India Incorporation Services to structure your India entry correctly from day one.
https://accorppartners.com/services/incorporation/india-incorporation