Introduction:

It is no doubt that the ever changing business environment inspired by globalization has created more

challenges for any market player, requiring the unceasingly improvement in the art of entrepreneurship

for the optimal outputs. In such context, the effective design of business as well as firm the solid

understanding on every aspect of business is seen as the key to success. On the purpose of providing a

comprehensive insight into the strategic decision from perspective of entrepreneur, this writing will take

account into the specific case of the Interact System Inc. It would get started by reviewing the relevant

legal status for business to evaluate whether S corporation would be appropriate to the business

mentioned in the case. The intellectual property will also be studied in the later section of the report,

with particular interest set on the portfolio of intellectual property available in the case of Interact

System Inc as well as how should the firm protect its legal copyright. Last but not least, it will go over a

few points to be considered in employment contract for the new CEO.

 1) The advantages for business as a corporation:
According to DePamphilis (2010), each legal status implies different advantages and disadvantages

which eventually require careful decision making before registration so that the business can

maximize benefits in its given conditions. As for corporation, it is argued by Lorette (n.d.) that the

business registered under corporation status might see a vast number of advantages in liability, tax

treatment and cost management. First of all, the primary advantage of the corporate form is the

limited liability to a predetermined extent. Provided that the corporation is a stand-alone entity, the

owners of the corporation would not be personally liable for the debt of the business. Likewise, the

personal assets can be protected from lawsuits when debt collection takes place. For example, in case

the business subjects to unsolvable debt that leads to consequence of bankruptcy, the owner of the

firm might therefore limit the amount of payment to debt within the equity of share at the firm only.

Further and more importantly, the tax liabilities are also clearly separated under the design of

corporation. Following this, the business owners are merely responsible for paying salary,

commission or dividends at the rate of personal tax. Meanwhile, the profit made by the firm subject

to corporate tax. The everlasting business life is also considered as an important benefit for firm to

register as corporation, since the business might live on regardless what happens to the owners. Last

but probably not least, the ownership is also far easier to transfer, enabling the corporation to attract

investors from public, including common shareholders and venture investors.

2. The other organizational structures relevant to Interact System Inc.

The corporation can be divided into 2 major subgroups, namely regular corporation (or C

Corporation) and Sub-Chapter Corporation (or briefly S Corporation). Comparing between these 2

formats, it is important to note that both 2 legal statuses bear resemblances in liability protection,

separate entities, structure and formalities ( DePamphilis, 2010). However, C Corporation differs
dramatically from the counterpart when it comes to taxation and ownership. In specific, the C

Corporation features separately taxable entities which might eventually induce a double taxation,

with corporate income being paid first in corporate level before the individual level is made on the

dividend. By contrast, the S Corporation sports a pass-through tax entities, implying that any profit or

loss of the business is subsequently reported on the owners and subjects to personal tax rate. As far as

ownership is concerned, the C Corporation in its nature subjects to no restriction in ownership, which

is however available in the case of the S Corporation. Accordingly, the number of owners in S

Corporation is limited at no greater than 100 shareholders ( DePamphilis, 2010).

Apart from Corporation, Limited Liability Company (LLC) is also a valid alternative to be put under

considerations. In its very nature, the Limited Liability Company resembles the features of C

Corporation in some aspects; yet the ongoing formalities, transfer of ownership and management

made LLC different from corporation. According to Cooke (2001), Corporation faces more extensive

internal formalities but the transfer of ownership is free.

3. Qualification of Interact System Inc for S Corporation status with the

IRS:
When it comes to consider whether the firm is qualified for S Corporation status in complication with

IRS, it is important to evaluate upon some core criteria that a typical S Corporation must meet under

regulation of the IRS. According to IRS (n.d.), the array of criteria entails that the firm must be not

only a domestic firm but also have only allowable shareholders who are not partnership, corporations

of non-resident alien shareholders. Additionally, the crucial requirement is that the number of

shareholders is limited at below the bar of 100. Cooke (2001) also complements that the a few entities

are not subject for being eligible corporation such as financial institution or insurance firm. Reflect

all these requirements on the conditions of the Interact System Inc., the firm is probably eligible for
being a S Corporation. First of all, the limitation of shareholder number appears to be no constraint to

Interact System Inc at all, given that this start-up does not need much equity at the beginning.

Therefore, the firm may still sustain with a limited number of equity holders. Additionally, Interact

System Inc is also a domestic firm which does not fall outside the definition of eligible firm. On this

ground, therefore, Interact System Inc. is possibly qualified for being an S Corporation

4. Intellectual Property involved in Interact System Inc.:

According to the extract, Interact System Inc has developed a Central Reservation System and

Property management system which allow customers who are hotel chains to address problem related

to application integration problem. These software tools can be considered as the Intellectual

property as they are qualified for the terms included in the definition of the World Intellectual

Property Organization (WIPO in short). According to WIPO, Intellectual Property refers to the

creations of mind, with inclusion to designs, symbols, image, name or literary. Based on this, the

software tools are certainly the invention of the Interact System which needs to be put under the legal

ownership of the firm.

5. Methods for protecting Intellectual Property owned by the Interact

System Inc.
Given that the software tools are treated as the Intellectual Property under the ownership of the

Interact System Inc, it is important for the firm to seek for effective protection from being violated of

the product ownership. According to Galler (1995), the major methods to be referred to when it comes

to intellectual property are patent, trade secrets, trademark and copyrights. As for such an intangible

products, Interact System Inc. may seek for applying business method patent on the product. Under

which, the firm might be able to protect the core codes which shape up the intellectual assets.
Besides, copyright appears to be the most common methods applied for majority of software

products for prevention of illegal redistribution, Interact System might also consider to register for

Trademark. Simply, the imprint of Trademark on the product package could help the firm protect its

product effectively. However, the procedure to apply for either Trademark or Patent might require

the disclosure on product design; hence it is not always favorable. Instead, Interact System Inc. might

treat its intellectual property as a Trade Secret, though the formal protection under this approach is

far less effective. Certainly, these are open for the firm to refer during the decision making process

and the choice might depend on the actual condition

6. Considerations for using employment contract for the newly hired

CEO:
As per the case of the Interact System, it is reported that the firm had Eric Westskow to join the

board since 2007 in the role of CEO and president. This moment was 3 years after Greg Thomas

found the firm. In this context, one issue arisen is as whether the new CEO would need to be engaged

in an employment contract. In response to this issue, it is important to see that the legal protection of

the intellectual property is mostly about protection against the illegal use of products from outsiders,

while there remain gap for internal protection of the asset from misleading usage. The employment

contract, therefore, is intended to close the gap by setting liability for employees toward the

protection of the intellectual property. For a newly hired CEO, this liability is even more important as

the CEO is supposed to be the one who gain the most comprehensive knowledge on every aspect of

the intellectual property. Without the contracted term defining the liability of CEO, it might be risky

for the intellectual property to be disclosed once the CEO resign or leave the position in firm.

Therefore, the establishment of liability under employee contract might supply firm a solid legal

ground for preventing the risk as well as to proclaim its right in the lawsuits.
7. Conclusion:
By way of conclusion, Interact System Inc. is qualified for being an S Corporation so it might be

advantage for the firm to register under this status and subsequently enjoy the underlying benefits of

this model, especially in taxation, lifetime and range of liability. Besides, the operation of Interact

System Inc. involves software tools as the intellectual property which remains at peril unless there is

necessary protective methods applied. The patents, copyrights and trademarks are all valid to be used in

the attempt of securing the best safeguard for the assets of firm. Trade secret might be a worthy

alternative but it is not highly recommended for the lack of former protection. Last but not least, the

employment contract is necessary for the firm to include as an extra protection of intellectual property.

This can be applied for any employees contributing to the value chain of products, and especially the

CEO must be engaged in this contractual liability

Reference list:
 Cooke, R. (2001). How to Start Your Own 'S' Corporation. New York: Wiley Publishing

 DePamphilis M. (2010). Mergers, Acquisitions, and Other Restructuring Activities: An Integrated

Approach to Process, Tools, Cases, and Solutions. London: Elsevier

 Galler, B. (1995). Software and Intellectual Property Protection: Copyright and Patent Issues for

Computer and Legal Professionals. London: Greenwood Publishing Group

 IRS (n.d.). ‘S Corporation’. Available from: https://www.irs.gov/businesses/small-businesses-self-

employed/s-corporations [Accessed Aug 11th 2017]

 Lorette, K. (n.d.). ‘Advantages and Disadvantages of the Corporate Form of Business’. Available

from: http://smallbusiness.chron.com/advantages-disadvantages-corporate-form-business-

4389.html [Accessed Aug 12th 2017]

 WIPO (2017). ‘About IP’. Available from: http://www.wipo.int/about-ip/en/ [Accessed Aug 12th

2017]