The FEMA look-through obligation requires an Indian company receiving foreign investment to identify the ultimate beneficial owner of that investment — tracing through multiple layers of holding companies, funds, and trusts to the natural persons or government entities that ultimately control the capital. The RBI requires disclosure of beneficial owners above 10% ownership thresholds, and the analysis must be performed at every level of the ownership chain, not just the immediate investor.
Under the Foreign Exchange Management Act and its associated regulations, foreign direct investment into Indian entities generally requires the Indian entity to report information about the ultimate beneficial owners of the foreign investing company. For a simple US holding company owned entirely by two individual Indian-American founders, this is straightforward. The disclosure is a list of the shareholders, and the Indian regulatory filing captures that list. The complication arises when the US parent has raised institutional capital — from venture funds, angel syndicates, or other entities — whose own ownership composition may include foreign persons, foreign institutions, or persons from countries with restricted investment status under Indian law. In Gurpreet S. Bal's experience, this is where the look-through analysis shifts from administrative to substantively important.
When a US parent company backed by venture investors holds the Indian subsidiary, the look-through analysis must trace through the VC funds investing in the US parent to their limited partners, and through those LPs to their ultimate owners. Sovereign wealth funds, fund-of-funds, and foreign pension funds that are LPs in US venture funds can trigger disclosure obligations or investment caps — connections that the Indian subsidiary may not even know exist at the time of investment.
The look-through requirement in practice is typically limited to the first level of ownership above the direct investor — meaning the US parent's shareholders. It is not usually an obligation to disclose the LP base of every venture fund that holds shares in the US parent. However, Gurpreet S. Bal identifies the real complication: when venture investors in the US parent hold special rights under voting agreements, information rights agreements, or investor rights agreements, those contractual arrangements can affect the analysis of whether a covered investor has "control" over the entity for FEMA purposes. Control under FEMA is not purely an economic ownership question. It can be established through board appointment rights, consent rights over major decisions, or information access rights that are inconsistent with a purely passive investment. Gurpreet S. Bal has seen this issue arise in structures where the founders assumed their VC's rights were standard and non-controlling — and discovered otherwise when Indian regulatory counsel reviewed the investor rights agreement.
Founders typically discover FEMA look-through problems during a regulatory review, due diligence for a new financing, or when an Indian subsidiary needs to receive capital from the US parent. By that point, the investment has already occurred and retroactive compliance may require regulatory filings, potential penalties, and restructuring the investment — all of which create delay and cost. Pre-investment diligence is far less expensive.
The pattern Gurpreet S. Bal observes consistently is that founders in US-India structures focus heavily on the initial setup — the flip transaction, the capitalization of the Indian entity, the transfer pricing arrangements — and give relatively little attention to the ongoing compliance obligations the structure creates. The look-through disclosure issue surfaces when the Indian subsidiary prepares annual filings, when an Indian acquirer or investor conducts diligence on the Indian entity, or when the company prepares for a fundraise that involves Indian institutional capital. At that point, the structure may be several years old and the US parent's cap table may have evolved considerably. Gurpreet S. Bal recommends building the look-through analysis into the initial structure design — understanding from day one what the FEMA reporting obligations will look like as the US parent's ownership composition changes over time.
Founders can reduce look-through complexity by using US LLCs or holding structures that clearly trace beneficial ownership, by selecting venture funds that have clean LP structures without sovereign wealth or opaque foreign entities above disclosure thresholds, and by establishing the India flip structure before significant funding is raised to minimize the layers that must be analyzed. Some founders also use Indian FDI automatic route investments with clear disclosures at the outset to establish a clean compliance record.
There are several structural approaches that Gurpreet S. Bal has seen used to manage look-through exposure. An intermediate holding company in a jurisdiction with established treaty relationships with India — Singapore being the most commonly used — can limit the look-through obligation to the intermediate entity rather than the full US cap table. However, Gurpreet S. Bal notes that this approach requires genuine substance in the intermediate jurisdiction and has become more scrutinized following revisions to India's treaty framework. A cleaner solution, where feasible, is ensuring that the US parent's investor rights agreements are designed from the outset to avoid conferring structural control on any single investor — which is good governance practice independent of the FEMA implications. The cross-border structure is an area where Indian regulatory counsel and US corporate counsel need to work together from the term sheet stage, not as a post-closing cleanup exercise.
Gurpreet S. Bal is a corporate partner with 16 years advising on private equity, merger transactions, and public offerings for companies and investors at three of the world's top law firms. He has represented clients in hundreds of transactions with aggregate deal value exceeding $60 billion across AI, semiconductors, fintech, and emerging technology. For more information and to get in touch, visit gurpreetbal.com.