Potential conflict Licensing a product?

[LdiJ]

An LLC might not be able to hold an ownership interest in an S Corps and, although an S Corps could potentially own an LLC, there are tax issues to consider.

Whether or not an LLC can own an interest in an S-corp is irrelevant here since he owns his S-corp shares as an individual. There is nothing prohibiting an individual from owning shares in an S-corp and owning a separate LLC, even if that LLC has a licensing agreement with the S-corp.

What you might want to do instead of starting your own LLC is to address with the S Corps board of directors what you see as the potential for the product. The company already may have plans in mind for the product.

It sounds like they are already past that. The OP is the second largest shareholder in the company. Do you actually think that he is out of the loop?

I recommend you seek a personal review by a business law professional in your area to discuss what you can and can't do as shareholder in the S Corps.

Good luck.

Just as an FYI, owning shares in an S-corp does not restrict an individual as far as their other investments are concerned. Yes, S-corps are restricted as to who can own shares, but that has nothing to do with what other investments an individual might have. Those restrictions (as applies to individuals) are related to citizenship.

 

[quincy]

B127 would do well to speak to a business law attorney in his area.

 

[LdiJ]

B127 would do well to speak to a business law attorney in his area.

You really do need a consult with a local specialist on S-corps which might be a CPA or tax attorney rather than a business attorney.

 

[B127]

You can read about S Corps in Ohio.

B127 has not said he spoke with anyone at the company about the product or his proposed plan for it.

I've been actively involved with the S corp for many years now. No board of directors has been formerly put into place. It's pretty much run by the owner/president and him alone. With the limited time he has , he has choosen to take the company down a different path. We own a dozen different patents across several industries. One product in particular I see a world of opportunity in. . Due to some difference of opinion I have respectively taken a step back from the active investor role I've had in the company for many years now. I would like to pursue marketing this said product and have a team in place ready to move but they are not invested in the company and our thought was to create a new company so that everyone's efforts are rewarded. I don't want to go thru the trouble of setting up a new company and lining everything up to license the product if there legal conflicts I'm unaware of... I'm obviously not a legal guy so that's why I came here to seek input to make a better informed decision before we move forward. I'm certain the owner of the S corp will be on board but wanted to due my own research before I have that conversation because I know the legality question will be the first one that comes up.

 

[quincy]

I've been actively involved with the S corp for many years now. No board of directors has been formerly put into place. It's pretty much run by the owner/president and him alone. With the limited time he has , he has choosen to take the company down a different path. We own a dozen different patents across several industries. One product in particular I see a world of opportunity in. . Due to some difference of opinion I have respectively taken a step back from the active investor role I've had in the company for many years now. I would like to pursue marketing this said product and have a team in place ready to move but they are not invested in the company and our thought was to create a new company so that everyone's efforts are rewarded. I don't want to go thru the trouble of setting up a new company and lining everything up to license the product if there legal conflicts I'm unaware of... I'm obviously not a legal guy so that's why I came here to seek input to make a better informed decision before we move forward. I'm certain the owner of the S corp will be on board but wanted to due my own research before I have that conversation because I know the legality question will be the first one that comes up.

You are smart to check out the legalities before moving ahead.

There can be both tax and liability issues that arise so you will need to go over all specifics with an attorney in your area. There is more involved than previously implied.

Good luck.

 

[B127]

You are smart to check out the legalities before moving ahead.

There can be both tax and liability issues that arise so you will need to go over all specifics with an attorney in your area. There is more involved than previously implied.

Good luck.

I appreciate your input very much. Thankyou

 

[quincy]

I appreciate your input very much. Thankyou

You're welcome, B127. I appreciate the thanks.