Dear Alex:
I own a corporation, and am planning to expand the services that the business offers. The new service will have its own brand name, which I want to trademark. Should the corporation be the named owner of the trademark, or should it be me?
A trademark and the goodwill associated with it can become a valuable asset over time, valuable even when separated from the business itself. It is important to consider the future value of your trademark on a standalone basis when planning for the future of your business.
One common business strategy is for the principal business owner to own the trademark individually, and sell a license to use the mark back to the business. This strategy could give you more options in the event of future changes to the business, and may also protect the valuable trademark from the potential liabilities of the business itself.
If you were to sell your business someday, you might want to keep the trademark and continue generating revenue by licensing the trademark to other businesses, or back to the buyers of your business.
In this situation, the early decision as to whether you own the trademark individually or whether the business owns the trademark can become particularly important. In the case of corporations, when assets (like trademarks) are removed from the corporation, the Internal Revenue Service considers the removal of the asset to be a deemed sale.
This means if the value of the trademark increased from the time it was contributed to the corporation to the time that it was taken out of the corporation, the shareholders of the corporation would be required to recognize that increased value as taxable income, even if ownership of the trademark after it was removed from the corporation remained proportional to the shareholders’ ownership of the corporation when the trademark was within the corporation.
In the case of your business, if you owned the trademark in an individual capacity and then you sold the business, you would not suffer a taxable event from keeping ownership of the trademark after the sale.
Another advantage to keeping the ownership of the trademark outside of the business entity is for protection of the trademark against the business’s potential liabilities. In general, when a limited liability entity like an LLC or a corporation owns an asset such as a trademark, the asset is vulnerable to the liability of the entity’s activities; but assets owned outside of the entity, by other people or other entities, are not vulnerable to the liabilities of the entity in question. Therefore, keeping the assets outside of the business entity can offer protection from the business’s own liabilities.
There are other advantages to keeping ownership of the trademark outside of the business entity, such as: control of the trademark when franchising; protection of the trademark from other shareholders; or as a negotiation tool when selling the business.
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