how do you get a patent – http://jutounet.com/camerc5wat/post-what-you-should-147296.html. You have toiled many years small company isn’t always bring inventhelp success towards your invention and on that day now seems in order to become approaching quickly. Suddenly, you realize that during all period while you were staying up late at night and working weekends toward marketing or licensing your invention, you failed to supply any thought to some basic business fundamentals: Should you form a corporation to manage your newly acquired business? A limited partnership perhaps or simply a sole-proprietorship? What are the tax repercussions of selecting one of choices over the remaining? What potential legal liability may you encounter? These tend to asked questions, and those who possess the correct answers might find out that some careful thought and planning now can prove quite valuable in the future.
To begin with, we need to take a cursory in some fundamental business structures. The renowned is the corporation. To many, the term “corporation” connotes a complex legal and financial structure, but this is absolutely not so. A corporation, once formed, is treated as although it were a distinct person. It has the ability buy, sell and lease property, to enter into contracts, to sue or be sued in a courtroom and to conduct almost any other legitimate business. Ways owning a corporation, as perhaps you may well know, are that its liabilities (i.e. debts) are not charged against the corporations, shareholders. Various other words, if you’ve got formed a small corporation and you and a friend will be only shareholders, neither of you always be held liable for debts entered into by the corporation (i.e. debts that either of your or any employees of the corporation entered into as agents of the corporation, and on its behalf).
The benefits of this occurence are of course quite obvious. By including and selling your manufactured invention through corporation, you are protected from any debts that the corporation incurs (rent, utilities, etc.). More importantly, you are insulated from any legal judgments which can be levied against the organization. For example, if you will be inventor of product X, and experience formed corporation ABC to manufacture market X, you are personally immune from liability in the big event that someone is harmed by X and wins merchandise liability judgment against corporation ABC (the seller and manufacturer of X). From a broad sense, these represent the concepts of corporate law relating to private liability. You must be aware, however that there exist a few scenarios in which you are sued personally, it’s also important to therefore always consult an attorney.
In the event that your corporation is sued upon a delinquent debt or product liability claim, any assets owned by this company are subject along with court judgment. Accordingly, while your personal assets are insulated from corporate liabilities, any assets which your corporation owns are completely vulnerable. If you have bought real estate, computers, automobiles, office furnishings and the like through the corporation, these are outright corporate assets furthermore can be attached, liened, or seized to satisfy a judgment rendered with corporation. And because these assets might be affected by a judgment, so too may your patent if it is owned by this business. Remember, patent rights are almost equivalent to tangible property. A patent may be bought, sold, inherited and then lost to satisfy a court award.
What can you do, then, to avoid this problem? The answer is simple. If you’re looking at to go the business route to conduct business, do not sell or assign your patent to some corporation. Hold your patent personally, and license it towards corporation. Make sure you do not entangle your personal finances with the corporate finances. Always remember to write a corporate check to yourself personally as royalty/licensing compensation. This way, your personal assets (the patent) and the corporate assets are distinct.
So you might wonder, with all these positive attributes, won’t someone choose never to conduct business the corporation? It sounds too good to be real!. Well, it is. Doing business through a corporation has substantial tax drawbacks. In corporate finance circles, the thing is known as “double taxation”. If your corporation earns a $50,000 profit selling your invention, this profit is first taxed to this business (at an exceptionally high corporate tax rate which can approach 50%). Any moneys remaining after this first layer of taxation (let us assume $25,000 for the example) will then be taxed to you personally as a shareholder dividend. If the additional $25,000 is taxed to you personally at, for example, a combined rate of 35% after federal, state and native taxes, all that’s left as a post-tax profit is $16,250 from a $50,000 profit.
As you can see, this is really a hefty tax burden because the earnings are being taxed twice: once at the organization tax level and once again at a person level. Since the business is treated the individual entity for liability purposes, it’s also treated as such for tax purposes, and taxed in accordance with it. This is the trade-off for minimizing your liability. (note: there is the best way to shield yourself from personal liability though avoid double taxation – it works as a “subchapter S corporation” and is usually quite sufficient for inventors who are operating small to mid size opportunities. I highly recommend that you consult an accountant and discuss this option if you have further questions). Once you do choose to incorporate, you should have the ability to locate an attorney to perform the method for under $1000. In addition it’s often be accomplished within 10 to 20 days if so needed.
And now in order to one of essentially the most common of business entities – the only real proprietorship. A sole proprietorship requires nothing more then just operating your business below your own name. In order to function underneath a company name as well as distinct from your given name, nearby township or city may often will need register the name you choose to use, but individuals a simple course. So, for example, if you would to market your invention under a company name such as ABC Company, just register the name and proceed to conduct business. It is vital completely different over example above, a person would need to use through the more complex and expensive process of forming a corporation to conduct business as ABC Incorporated.
In addition to its ease of start-up, a sole proprietorship has the a look at not being put through double taxation. All profits earned by the sole proprietorship business are taxed to your owner personally. Of course, there can be a negative side to your sole proprietorship in your you are personally liable for all debts and liabilities incurred by the actual. This is the trade-off for not being subjected to double taxation.
A partnership may be another viable option for many inventors. A partnership is appreciable link of two or more persons or entities engaging in business together. Like a sole proprietorship, profits earned by the partnership are taxed personally to the owners (partners) and double taxation is fended off. Also, similar to a sole proprietorship, the owners of partnership are personally liable for partnership debts and liabilities. However, in a partnership, each partner is personally liable for the debts, contracts and liabilities of the other partners. So, if your partner injures someone in his capacity as a partner in the business, you can be held personally liable for the financial repercussions flowing from his activity. Similarly, if your partner enters into a contract or incurs debt your partnership name, great your approval or knowledge, you could be held personally accountable.
Limited partnerships evolved in response on the liability problems inherent in regular partnerships. In the limited partnership, certain partners are “general partners” and control the day to day operations with the business. These partners, as in a regular partnership, may be held personally liable for partnership debts. “Limited partners” are those partners who usually will not participate in the day to day functioning of the business, but are shielded from liability in that their liability may never exceed the volume of their initial capital investment. If a fixed partner does are going to complete the day to day functioning belonging to the business, he or she will then be deemed a “general partner” and will be subject to full liability for partnership debts.
It should be understood that these types of general business law principles and are living in no way intended to be a replace thorough research to your part, or for retaining an attorney, accountant or business adviser. The principles I have outlined above are very general in range. There are many exceptions and limitations which space constraints do not permit me to travel to into further. Nevertheless, this article should provide you with enough background so that you will have a rough idea as to which option might be best for you at the appropriate time.