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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?

Business 4 views 7 answers
How long one has to claim ownership or settlement of assets after S-Corp dissolution?

Attorney Answers

7
John Corrigan ·
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.
0 upvotes
Phillip Smith ·
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
0 upvotes
Frank Natoli ·
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)
0 upvotes
Michael Doland ·
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.
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Dana Shultz ·
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.
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Maurice Ross ·
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.
0 upvotes

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