Introduction

One of the most overlooked decisions in cross-border structuring is who should own the overseas entity: the founder personally or the Indian company. This choice decides the tax treatment, FEMA route, compliance requirements, repatriation rules, and even long-term investor perception. Most founders rush into a Singapore or UAE incorporation without understanding whether the better route is LRS (individual ownership) or ODI (company ownership) — and end up creating avoidable compliance issues later.

As Indian startups increasingly use Singapore for holding IP, raising global capital, or owning foreign assets, the ownership route becomes more than a procedural question. It becomes a legal, tax, and governance strategy.

What Is the Core Difference Between LRS and ODI?

LRS is used when an individual invests in or owns a foreign company. ODI is used when an Indian company invests abroad. LRS is simpler but capped; ODI offers credibility and structure but requires more compliance and governance discipline.

LRS (Liberalised Remittance Scheme) allows individual Indian residents to remit up to USD 250,000 per financial year for investment abroad. ODI (Overseas Direct Investment) allows companies incorporated in India to invest in foreign entities without the personal cap, but with far stricter reporting, valuation, and annual performance requirements.

Both routes are legal. Both can be used to incorporate in Singapore, Dubai, or Delaware. But the implications differ dramatically.

Should You Incorporate in Your Personal Name (LRS)?

Individual ownership is common among early-stage founders. It is faster and has fewer pre-remittance procedures. You only need your PAN, a basic LRS declaration, and the supporting documents for the foreign incorporation. Bank due diligence is lighter, and you can complete the entire flow in a few days.

However, LRS also has limits. Only USD 250,000 can be sent per financial year. This becomes restrictive if the foreign company needs significant capital for IP development, marketing, or global expansion. LRS also creates perception issues during investment rounds. Investors often prefer a company-owned holding structure because it offers continuity, governance, and clear shareholding. Individual ownership requires later transfer to the holding company, which triggers valuation requirements, tax implications, and FEMA conditions.

LRS works best for solo founders, small projects, asset-holding vehicles, and early experiments — not for long-term holding structures or investor-facing entities.

Should You Incorporate via Your Indian Company (ODI)?

ODI is the professional route. It is the structure investors expect. When an Indian company invests abroad, the foreign entity becomes a subsidiary or JV, making governance and reporting transparent. There is no personal remittance cap, so capital can be infused as needed.

ODI requires valuation, board resolutions, share certificates, and annual performance reporting — but this compliance creates credibility. Singapore banks prefer ODI-owned entities for operational accounts. Investors also favour ODI structures because the cap table remains stable and the ownership is institutional, not personal.

For startups planning to raise international funding, hold global IP, or invest back into India, ODI is the safer, more scalable route.

Which Route Creates Better Tax and Governance Outcomes?

The tax outcome depends on who earns and who controls the foreign income. Under LRS, income of the foreign company is indirectly linked to the individual, raising questions about foreign asset disclosure, POEM (Place of Effective Management), and global income taxation.

Under ODI, income is associated with the Indian company, creating cleaner reporting. Transfer pricing between the Indian entity and the foreign subsidiary is easier to defend. The structure reduces ownership ambiguity and simplifies share issuance during funding rounds.

Governance also aligns better under ODI. You can maintain board minutes abroad, adopt investor-friendly agreements, and maintain tax residency documentation. LRS structures often remain informal until issues arise.

Which Route Is Better for Singapore?

For Singapore incorporations, ODI is generally preferred for any business that will raise international capital, license IP, or invest into India. LRS is suitable for early testing or lightweight asset-holding, but founders must later transfer shares to the Indian company — a step that requires valuation, tax planning, and fresh FEMA reporting.

Common Mistake: Mixing LRS Funding with ODI Ownership

One of the biggest mistakes founders make is funding the foreign company through LRS and later classifying it as an ODI investment. FEMA does not allow “mixing routes.” An entity must be compliant under one route from the start.

If LRS is used for capital infusion, then later transferring the shares to the Indian company requires careful valuation, compliance filings, and sometimes compounding. This is why choosing the correct route initially saves considerable time and legal cost.

How to Decide Correctly — Practical Framework for Founders

A simple strategic approach works:

• If the foreign entity is for global fundraising, ODI is the right choice.
• If it will own IP or invest back into India, choose ODI.
• If the capital requirement is minimal and the purpose is exploration or asset holding, LRS may work.
• If the founder wants a future-ready structure that investors respect, ODI is almost always better.

This is where Indian law firms specialising in cross-border structuring play a crucial role — the wrong route creates long-term compliance pain.

More From Our Singapore Series

For deeper clarity, founders can refer to your two connected articles:

Singapore Holding Company Strategy for Indian Startups
https://csatwork.in/singapore-holding-company-indian-startups/

How to Open a Singapore Company from India (2025 Legal + RBI Guide)
https://csatwork.in/open-company-in-singapore-from-india/

Summary Insight

Choosing between LRS and ODI is not a procedural choice — it determines the legality, credibility, and future scalability of your entire foreign structure. Most early mistakes happen because founders act fast, not legally. With the right route, the structure becomes clean, investor-friendly, and fully compliant with FEMA and RBI rules.

FAQs

1. Can an Indian founder use both LRS and ODI together to fund the same overseas company?

No. FEMA requires that a foreign entity be categorised under a single investment route from the very beginning. If the initial investment is made using LRS — meaning the individual remitted the funds personally — that foreign entity is treated as an LRS investment vehicle. Later trying to convert the same company into an ODI subsidiary by adding the Indian company as a shareholder triggers complications: fresh valuation is needed, a share transfer must be executed, FEMA filings must be updated, and in many cases the bank insists on compounding because the original remittance did not follow ODI procedures. Regulators do not allow “mixing of routes,” so choosing the correct route at inception prevents structural disputes, valuation challenges, and compliance penalties later.

2. If I incorporate personally under LRS, can I later transfer the foreign company to my Indian company?

Yes, but the process is not automatic. A transfer of foreign shares from an individual to an Indian company is treated as a fresh ODI transaction and is subject to valuation, pricing guidelines, tax implications, and RBI reporting. The transfer cannot happen at an arbitrary price; it must be supported by a valuation from a registered valuer or merchant banker. If the foreign company has already grown in value, the transfer price may trigger capital gains tax in India. Additionally, banks often ask for backdated documentation, share certificates, and a clear audit trail of earlier LRS remittances, which many founders fail to maintain. With the right advisory, it can be done cleanly, but advance planning reduces complexity.

3. Is ODI always better than LRS for Singapore incorporations?

It depends on the purpose and stage. ODI is the superior route when the Singapore company will hold IP, raise global investments, or invest back into India. Investors prefer ODI because ownership is at the company level, the cap table is stable, and governance is more predictable. Singapore banks also trust ODI-owned entities because they demonstrate institutional backing rather than individual-level ownership. However, LRS can be appropriate for early experiments, asset-holding structures, small projects, or situations where funding needs are limited and the founder wants personal ownership. ODI is ideal for long-term, scalable, multi-year global structures, whereas LRS suits small, exploratory setups.

4. What is the annual compliance difference between LRS-owned and ODI-owned foreign companies?

Under LRS, individuals must report foreign assets in the Foreign Assets (FA) schedule of their Income Tax Return each year. There is no annual FEMA filing unless additional investments are made. Under ODI, however, the Indian company must file an Annual Performance Report (APR) with its Authorised Dealer Bank every year, disclosing financials, activities, and status of the foreign subsidiary. Banks may request audited financials from the foreign jurisdiction and supporting documents. Investors appreciate ODI structures because APR reporting forces predictable governance discipline. LRS structures often lack annual documentation, which becomes an issue during tax scrutiny or investor due diligence.

5. Does LRS ownership increase the risk of POEM (Place of Effective Management)?

Yes, individual ownership can create POEM-related questions if control, key decisions, and management of the foreign company are exercised from India. Under POEM rules, if a foreign company is “effectively managed” from India, Indian tax authorities may classify it as an Indian tax resident — resulting in global income being taxed in India. ODI structures, on the other hand, generally maintain a more formal governance trail because the Indian company acts as the shareholder, and the foreign company is treated as a properly documented subsidiary with foreign board meetings, local compliance, and clearer managerial substance. Strong documentation reduces POEM exposure.

6. Can foreign investors fund a foreign company that is personally owned under LRS?

They can, but they often hesitate. Investors prefer holding structures where the shareholder is an Indian company because it ensures long-term stability, prevents disputes among co-founders, and makes share transfers more predictable. When a Singapore or Dubai company is owned personally, investors worry about succession, personal tax issues, matrimonial disputes, and compliance gaps. Many funds insist that the entity must be an ODI subsidiary before they invest. Converting later is still possible, but as explained earlier, it requires valuation, documentation, and sometimes compounding. Structuring correctly from Day One avoids these delays.

7. What are the tax consequences if I use LRS to acquire the foreign shares?

When an individual uses LRS to own a foreign company, any dividends or capital gains generated by that company ultimately flow to the individual. These incomes must be declared in the Indian tax return. If the founder sells foreign shares or receives distributions, they must comply with India’s global income taxation rules. Under ODI, dividend income flows to the Indian company and is taxed at corporate rates, and capital repatriation must follow FEMA rules. LRS structures are more convenient initially, but long-term tax planning is more predictable under ODI because governance and income flows are institutional rather than personal.

8. Which route is safer during a due diligence or funding round?

ODI is almost always safer. Investors look for clear documentation: board resolutions, ODI filings, valuation reports, share certificates, and APR submissions. ODI structures provide these as standard requirements. LRS structures often lack valuation trails, documentation of capital flow, and evidence of governance, creating hesitation for investors. Most issues arise when founders combine a personal LRS structure with business operations meant for a holding company. If a company will eventually raise external capital or issue ESOPs, ODI is the professionally accepted route.

9. Can founders use LRS to send additional capital every year as the business grows?

Yes, but the USD 250,000 annual cap applies per individual. If the foreign company needs significant capital infusion — for example, to build IP, hire global teams, or execute international marketing — LRS becomes restrictive. Many founders reach the cap quickly. ODI allows far larger infusion, subject to net worth criteria and compliance conditions. For businesses with long-term growth plans or capital-intensive models, ODI provides flexibility that LRS cannot match.

10. What happens if LRS funding was done incorrectly, and now the founder wants to convert it into an ODI structure?

This is a common scenario. The foreign shares must be valued, a formal transfer must be executed, taxes on transfer (if any) must be computed, and the Indian company must file ODI forms with supporting documents. Banks often examine whether the earlier LRS filings were proper. If fintech platforms were used, or if the purpose code was wrong, a FEMA compounding process may be required to regularise the structure. Once the transfer is completed and reported, the foreign entity becomes a legitimate ODI subsidiary. The process is manageable, but expert handling is essential to avoid additional violations.

About the Author

Prashant Kumar is a Company Secretary, Published Author, and Partner at Eclectic Legal, specialising in cross-border structuring, FEMA compliance, and overseas business setup. He advises startups, founders, and family businesses on building globally credible structures in Singapore, Dubai, and other jurisdictions.
Reach him at prashant@eclecticlegal.com or +91-9821008011.