Bob feels the family business holds him back and thinks that they are not earning the profits
Question:
Bob feels the family business “holds him back” and thinks that they are not earning the profits they have the potential for. He recently heard from a friend who is the managing partner of an investment partnership that they have bought the patent to an older pharmaceutical drug and have raised the price from $13.50 per pill to $750 per pill overnight. He is in talks to contribute his patent for a medical device and similarly increase the price and profit margin immediately (an idea the other shareholders of the family corporation voted against which is why he wanted a patent and to leave the company). Bob may or may not have an active role in the partnership. What are the ramifications to Bob and the partnership of contributing the patent to the partnership? The partnership has substantial assets but are fully depreciated. Bob made the managing partner aware that he obtained the patent instead of receiving cash from leaving the family corporation so he has a negative cash flow and cannot keep up the extravagant lifestyle he and Mary are used to. The managing partner said this was an easy fix as the partnership would make an immediate cash distribution to him once he contributed the patent to the partnership. Also, he has been made aware that the partnership may sell off the patent in a few years. How do these facts affect Bob?
Bob and Mary are looking to you to discuss their various options and the resultant affects they will have. Discuss both compliance and planning aspects.
Accounting concepts and applications
ISBN: 978-0538745482
11th Edition
Authors: Albrecht Stice, Stice Swain