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What happens to technology assets such as IP and software code in S-Corp (with more than one owner/director) on dissolution?

San Jose, CA |
Attorney answers 7

Posted

Sounds like you have not dissolved the corp, properly. You should have distributed all the corporate assets at the time of the dissolution. Please provide more facts to indicate how the corporation was "dissolved," but still has assets?

Hope this helps!
Phillip M. Smith Jr.
Los Angeles Tax & Business Attorney
Licensed in the United States Tax Court
www.culvercitytaxandbusinesslaw.com
www.corporateattorney.com
Main: 323-292-4116 ❘ Cell: 562-505-1004

THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. The answer to question does not create an attorney-client relationship or otherwise require further consultation. Mr. Smith is licensed to practice law throughout the state of California with offices in Los Angeles County. He is authorized to handle IRS matters throughout the United States, and is also licensed to practice before the United States Tax Court. His phone number is 323-292-4116 or his email address is philsmithjr@worldclasslawyers.com.

Posted

Your question is very fact intensive. The code, for example, falls under copyright laws. Who owns this depends on who authored it, or who was an assignee of those rights. IP is a general terms, we would have to figure what IP exactly.

I strongly encourage you to discuss with a lawyer in private so a best course of action can be reached.

Most of us here, including myself, offer a free phone consult.

Best regards,
Frank
Natoli-Lapin, LLC
(see Disclaimer)

The law firm of Natoli-Lapin, LLC (Home of Lantern Legal Services) offers our flat-rate legal services in the areas of business law and intellectual property to entrepreneurs, small-to-medium size businesses, independent inventors and artists across the nation and abroad. 866-871-8655 Support@LanternLegal.com DISCLAIMER: this is not intended to be specific legal advice and should not be relied upon as such. No attorney-client relationship is formed on the basis of this posting.

Posted

The assets should be distributed as part of the dissolution, not after. You need to work it out rather than litigate the issue. Perhaps you both can share the asset or one can buy the other out of the asset.

The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.

Posted

You best be careful for the potential for phantom capital gain income (see extract form IRS audit Manual) if the value of the IP assets are greater than your basis in shares of corporation. This is one of the reasons why I hate s-corps as compared to LLC's (as would not be an issue).
http://www.irs.gov/irm/part4/irm_04-011-007.html
(1) Pursuant to IRC section 1371, except to the extent inconsistent with Subchapter S, all provisions of Subchapter C (dealing with C corporations) will apply to S corporations. Therefore, under IRC section 336(a), an S Corporation will recognize gain upon a distribution of appreciated assets in liquidation in the same manner as a C Corporation. As a "pass-through" entity, this gain is taxed on the shareholder’s return and it gives the shareholder a stock or debt basis step-up.

My answer is not intended to be giving legal advice and this topic can be a complex area where the advice of a licensed attorney in your State should be obtained. Please click "helpful" or "best answer" if my answer added any value or add a "comment" if you have more info for me to help you get a better answer.

Posted

As my colleagues have noted, winding up the corporation's business is part of the dissolution process.

The post at the link below provides an overview of the dissolution process. Quoting from that post:
- The board of directors is responsible for winding up and settling the corporation’s affairs, and the corporation continues to exist solely for that purpose (Corporations Code Section 1903).
- Once the corporation’s affairs have been wound up and settled, the board files a certificate so stating and arranges to file a final franchise tax return, if that has not already happened (Corporations Code Section 1905).

You should retain a lawyer to help you with whichever of these tasks were omitted.

This information does not constitute legal advice and does not establish an attorney-client relationship.

Posted

No one "claims" technology assets upon dissolution. The assets are divided and/or sold as part of the winding of the corporation. Creditors and shareholders have claims for pieces of these assets, including IP rights such as software-code. There needs to be an agreement among the shareholders and any creditors to govern the dissolution---and if an agreement cannot be reached, the matter needs to be resolved in a court. Until then, the IP rights continue to be owned by the corporation during the winding up and dissolution process. Even if the corporation was unsuccessful and unprofitable, it is necessary for the shareholders to negotiate a dissolution agreement---otherwise there will never be clear title in any of the assets, including IP rights, owned by the corporation.

Posted

As my colleagues pointed out, seek assistance from an attorney to dissolve your corporation properly.

This is not a legal advice or solicitation, and does not create an attorney-client relationship. Consult with an attorney. I work for Cardinal Risk Mangement and Cardinal Intellectual Property, IP service companies, but not law firms. I also am the president of Vepachedu Educational Foundation Inc., which is a non profit educational foundation. I also write cultural and scientific compliations for the foundation. I also teach at Northwestern university as a guest lecturer. I also provide some pro-bono guidance on immigration and other issues through Indian American Bar Association. I also have a contract with Cardinal Law Group, a law firm, for IP projects. All this information is on my profile at Avvo and also at Linkedin. Any views/opinions expressed in any context are my personal views in individual capacity only, and do not represent the views and opinions of any firm, client, or anyone else, and is not sponsored or endorsed by them in any way.

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