Useful Advices - Business

It may be a good decision for small business owners to choose to be treated as an S corporation

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

for Federal tax purposes. This allows income to flow through the corporation without being ta

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

ed until it is claimed as income by the shareholders. This avoids double taxation of corporate

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

ncome. This may be the right decision for your new company, but you should discuss this thoroug

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

ly with your accountant before you decide. The following are the limitations on S corporations

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

that you should consider:

1. No more than 100 shareholders.

2. Only one class of stock.

3. L

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

imits on deductibility of debt.

4. If S-Corp has a home office, the tax deduction is only a 2%

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

miscellaneous itemized deduction on Schedule C, because it is treated for tax purposes as an em

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

loyee business expense. In a partnership or LLC, a home office is a 100% deductible on Schedul

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

E.

5. The S-Corp cannot reduce wages to avoid employment taxes, because it would directly con

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

lict with its responsibility for its employee’s retirement benefits. Retirement plan contributi

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

ons are based on a percentage of wages, not total S-Corp income.

6. All distributions by an S

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

Corp must be made pro rata based upon stock ownership. An LLC can make disproportionate to mem

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

ers distributions as set forth in the operating agreement.

7. An S-Corp is required to file an

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

extra tax return and more payroll forms, and this costs the company more money. Conversely, th

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

LLC can file its deductions on the Schedule C and designate itself as a “disregarded entity.”(

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

Note: a “disregarded entity” is an IRS term for a company that is not an S or a C corporation.

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

8. If an S-Corp has high value assets and it goes out of business, the S-Corp’s assets are sol

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

at FMV to the shareholders, thereby causing shareholders to incur large capital gains. When a

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

LLC closes, the assets are distributed to its members at basis, usually the cost of the assets

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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Useful Advices - Limitations on S Corporations

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