Nasir and Matt cap off the week talking about San Diego Comic-Con suing a comic con in Salt Lake City for trademark infringement. They then answer the question, "I want to bring on a new shareholder in my S Corp. The only problem is they are not a US citizen. How can I get around this issue?"
Full Podcast Transcript
NASIR: Welcome to Legally Sound Smart Business. This is Nasir Pasha and… this is…
MATT: This is Matt Staub.
NASIR: Matt, Matt Staub. Darn it. Welcome to our business legal podcast where we cover business in the news and also answer some of your business legal questions that you, the listener, can send in to firstname.lastname@example.org, and that’s an email address so just don’t mail that in to that address. You have to use your email system to do that.
MATT: You know, all week, you’ve been trying to introduce me, say my name at the same time I say it. It’s two different audio recordings so I guess, if you really wanted to, you could just have it be at the same time. I don’t know if it really matters. Even if you would have gotten the exact same recording, we could have changed it anyways.
NASIR: Well, I assume you haven’t been listening to the previous episodes because I’ve had Chris cut out your name pretty much every time, and your voice. So, it’s just been me this entire time for the last few weeks. I was wondering if you were going to mention anything but you didn’t say anything so I assumed you knew.
MATT: Just dead air time in times when I was actually speaking?
NASIR: Yeah, and it sounds like I’m talking to myself and I’m hearing voices which, sometimes, I do feel that.
MATT: Well, we’re going to go close to home with this story because we’re dealing with San Diego Comic-Con, specifically a lawsuit, of course, because that seems to be what we usually talk about. This is interesting because I obviously knew San Diego Comic-Con. It’s a huge event every year but I had seen some other Comic Cons that have popped up and I didn’t know if there was an affiliation with the San Diego Comic-Con or what the deal was and this kind of gives me an answer because San Diego Comic-Con is suing the Salt Lake City Comic Con. I guess this lawsuit was just filed – very fresh lawsuit, basically saying that they’re infringing upon their trademark with the Comic Cons. I guess the difference is the Salt Lake City Comic Con must have been awful. I take that back. It was either awful or it was so good and so lucrative that San Diego is trying to get money from it. It’s one of the two, probably.
NASIR: Yeah, and I don’t know, have you ever been to the Comic Con in San Diego?
MATT: I’ve never been. I’ve gone down to the area a few times but I’ve never actually been inside for any of the actual stuff.
NASIR: Yeah. I’ve always wanted to go and I’ve come close but then I feel weird. I feel like it’s not for me. I feel like I’m almost depriving other people that are more interested in those things than I am so I feel like, “Okay, I’ll just let other people go,” because there are very limited tickets and it gets sold out every time and you have to go in the wait list. They come out I think six-plus months in the year and so forth for the San Diego Convention. But, the Salt Lake Comic Con, it’s actually pretty popular apparently. It’s only been going on for a few years and so forth. In Utah’s defense, they talk about that’s why they’re being targeted – because of their recent popularity and so forth. But what’s interesting is what you said. You were assuming that there was some kind of affiliation and that’s kind of an issue. The organizations are suing this Salt Lake Comic Con because it confuses fans into thinking the two are affiliated and that’s pretty much the basis for an infringement – if there’s a likelihood of confusion. Here, obviously, I mean, you have Salt Lake Comic Con and San Diego Comic-Con. When people say the Comic Con, pretty much everyone I understand knows that that refers to San Diego Summer Comic Con and, if you mention that there’s a Comic Con somewhere else – Salt Lake City, even Denver – you assume that, okay, that must be the guys in San Diego that are also doing it in Denver and Salt Lake City. I think they have that aspect of confusion. But the question is, “Who holds the trademark?” And so, Matt and I did some research and it looks like the Salt Lake Comic Con – here, hold on, this is the graphic. The Salt Lake Comic Con, the actual text themselves, the standard character mark was filed on July 31, 2014 this year. Of course, Comic Con, just the text, was filed by – owned by, let’s see – the San Diego Comic Convention Corporation based out in La Mesa, California, right outside San Diego. Filed on September 15, 2005. Pretty while ago when it comes to, I think. I don’t know when the Comic Cons started but that’s a pretty good presumption of ownership there.
MATT: Yeah, it actually started in 1970.
NASIR: Oh, wow.
MATT: But I guess it probably didn’t gain popularity till the mid-2000’s. I’m looking at a list of all the… it’s not just in the US. They’re actually all across the world but there’s roughly fifteen or so in the US and most of them started in this century so there’s a couple. There’s a Chicago one that was actually pretty old and then I think the next oldest one looks like it was in actually Detroit – pretty interesting. But, yeah, I wonder if San Diego has gone after any of these other ones. I’m just curious on why they chose to go after the Salt Lake one.
NASIR: Yeah, that’s a good question because, if you do the – and I’m doing searches while we’re talking now, just for fun – there’s a bunch of other trademarks that have been filed. There are some for Anaheim, Los Angeles, and also note that Comic-Con – the one that San Diego has filed – is with the hyphen in the middle. I don’t know if that changes anything. Let me take that back. Anaheim Comic Con is registered by the San Diego Comic Convention so they actually are the ones that own that. Let me look at Denver here.
NASIR: Denver is owned by somebody else. I’ve never heard of a Denver Comic Con but apparently there’s something like that.
MATT: It started in 2012 so it’s pretty new.
NASIR: Pretty new, yeah.
MATT: On the legal side, do you see San Diego having any sort of claim against Salt Like?
NASIR: Well, first, they already have a presumption that they own the trademark because they have a registered trademark. It’s already been published for opposition. Salt Lake’s Comic Con, obviously, just filed. It hasn’t even published for opposition yet and, obviously, the San Diego Comic-Con, those owners are enforcing their rights. Again, you have a point. Even though this Salt Lake City Convention has been going on for a while, it would have been better for San Diego to assert its enforceability of the trademark earlier than later, but I still think they have a case. I don’t think that’s necessarily barring them at this point.
MATT: Yeah. I mean, that’s the thing, too. You said Salt Lake filed on July 31st and, this lawsuit… I don’t know what the date was.
NASIR: San Diego filed on Thursday, August 7th – not long after that was filed, probably in reaction to. Very interesting. Yeah, I want to go next year or sometime in the future and dress up as Iron Man or something.
MATT: Yeah, it’s definitely worth at least going down to the area by the convention center and checking it out because it’s a weekend spectacle, definitely, and there’s a lot of people, too, that actually just go down to the area just to check it out, just to see what’s going on. There’s always tons of stores and restaurants have stuff up. It’s a pretty fun time – might be more fun than actually going.
NASIR: Yeah, and I know it’s a huge event for some of our clients in San Diego. I mean, a lot of business comes in. It’s sometimes the biggest time for the small businesses in the area.
MATT: Very true, yeah, it is true.
NASIR: It’s huge.
MATT: That’s why they were so concerned about possibly losing it to LA or somewhere.
NASIR: Yeah, and the problem is because – this is kind of local politics – the convention center as of right now isn’t big enough compared to some of the other convention centers and so that’s why the actual Comic Con has so much overflow to different meetings and seminars, et cetera – whatever they do, I don’t even know what they do. I’m thinking about some kind of board room with a bunch of people dressed in comic costumes but they have overflow in different buildings around the convention center too as well so it’s not just located there.
MATT: All right, well, go, San Diego! We’ll see what happens.
MATT: Question of the day.
“I want to bring on a new shareholder in my S Corp. The only problem is they are not a US citizen. How can I get around this issue?”
This is obviously someone that listened to one of our shows last week where we talked about the restrictions that an S Corp has, one of which is you can’t have a non-citizen as one of your shareholders. So, congrats to them for listening! Or thank you. I don’t know why I congratulated them.
MATT: Should be congratulating us.
NASIR: Congratulations to all our listeners – not just the questioner because I don’t want to be biased against this person or in favor of this person.
MATT: So, let’s see, I guess there’s a couple of things they could do – or at least that’s what I’ve thought of. Option #1…
NASIR: Don’t give them anything. Just kick them out of your company. Option #1.
MATT: Yeah, Option #1 – tell them “no!”
Option #2 would be change the type of entity that you are.
NASIR: Yeah, you can do a conversion from an S Corp.
MATT: To basically anything else. Just the S Corp is the one that has the restriction on how non-citizens can’t be shareholders. I don’t know if you had any other options.
NASIR: Yeah, there’s another option. It may or may not work for this person but, if let’s say your S Corp is your operating entity at this point, what you do is you create a separate entity which will become the operating entity and this foreign investor or foreign shareholder – sorry – will own a percentage of this new entity – whether it’s an LLC or C Corp, it doesn’t matter – and then the S Corp owns the actual other interest of the C Corp LLC. So, if you just look at let’s say that you have an S Corp that one shareholder owns 100 percent and you wanted to give this foreign person 10 percent, instead, create a new entity, have the S Corp own 90 percent of that new entity, and the foreign owner own 10 percent of that entity.
The only downside with that is if you’re already operating as a business under that particular S Corp then transferring that may be more of a hassle than to just convert to a C Corp.
I think that’s the only other option I can think of. The foreign investor or shareholder also can’t start its own C Corp or own LLC and then buy into the S Corp. Unfortunately, only natural citizens and some trust and estates can actually own an S Corp.
MATT: I’ve got another one – he or she can become a US citizen.
NASIR: Oh, yeah, there you go! That’s probably the easiest way to do it.
MATT: By far, the easiest method.
NASIR: I still like Option #1. I think the best way is to not deal with any foreign persons at all. That is partly true though because, when you have a foreign person in your entity – whether it’s an LLC or a C Corp – there are additional reporting requirements and withholding requirements that are put on the entity themselves and that can mean extra costs when it comes to the accounting and so forth. And so, oftentimes, what we do is we have the foreign person set up their own entity in the States so that they can set up all that reporting requirements on their own and then have that entity own whatever shares or membership interest in the LLC or C Corp just to make it easier on the actual operating company.
MATT: Yeah, that’s the answer.
NASIR: All right, very good. All right, thanks for joining us this week and join us again on Monday where we start to talk about _______ – and then I’ll just leave a blank there and somehow we’ll fill it in later.
MATT: Yeah, you can probably just guess. It’s one of five things – Uber, pizza, Yelp…
NASIR: Yeah, just probably Uber, Yelp, pizza, and Yelp.
MATT: Worst case scenario, you and I will watch an episode of The Office and we’ll issue-spot the legal issues.
NASIR: Ah, that’s great. I wish, really wish there were new episodes to Legal Spot because I’ve already analysed every one of them.
MATT: All right, keep it sound and keep it smart.
NASIR: Thanks for joining us. Bye.