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As a legal entity, the S corporation has changed significantly since it was first created by Congress in 1958. Not least of the changes happened to its name: it once was

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

known by its legalese name, “Subchapter S corporation,” but became the more upbeat S corporation after the Subchapter S Revision Act of 1982 was passed.

The S corporat

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

Examples of combination products may in

on is favored by investors because it affords them the best of both worlds: S corporations offer many of the benefits normally attributed to partnership taxation in addi

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

tion to the limited liability benefits normally enjoyed by limited liability corporations (LLC). It is foreseen that changes in the law will further fine-tune the S corp

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

ration, thereby maintaining its status as a preferred vehicle for conducting business.

Although an S corporation resembles an LLC in operation and concept, you can quit

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

Combination pro

easily distinguish between the two. The S corporation is a federal tax hybrid entity, whereas the LLC is a state tax hybrid entity. The S corporation is created by an a

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

ct of the US Congress, whereas the limited liability company is created by legislation in the state. An LLC composed of two or more members work strictly on partnership

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

axation, whereas partnership tax law does not totally apply to the S corporation. This means that an S corporation cannot allocate income in exactly the same way that a

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

artnership does. Any distributions on appreciated property are also considered taxable in an S corporation.

You may then wonder why taxpayers would be induced to form a

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

n S corporation rather than organize a limited liability company, in view of the similarity of the tax principles. Under current tax laws, the unique partnership tax att

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

ibutes are only given to an LLC if there are two or more taxpayers. For S corporations however, they only need one taxpayer to operate. Also, the S corporation offers un

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

Following aspects would a

que planning possibilities such as the creation of capital gains, which are not available in the limited liability company at all.

The ordinary income of an S corporati

dd to the challenges in developing combination products:

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

on is not taxed at corporation level, much like that of an LLC. The income is passed through to the shareholders in a similar fashion to that of a partnership. The same

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

rocess applies to its foreign income and loss, its tax-exempt interest, its charitable contributions and its passive income. Because of this one level of taxation, many

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

ndividuals prefer the S corporation structure.

One big advantage of the S corporation is that it offers its shareholders protection against corporate debts and creditor

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

s, not only nationally but also world wide. The only statutory requirement for world wide creditor protection is that the S corporation should be a domestic corporation,

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

Professional from academic institutions, pharmaceutical industries, health care indust

meaning that it must observe those formalities required of regular corporations, including but not limited to, annual meetings of shareholders.

The LLC, on the other ha

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

d, is a relatively new concept in the US. Although it has counterparts in other areas of the world, such as the Satre in France, the GmbH in Germany, and the limitada in

.

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

South America, there is insufficient body of law at present detailing the protection of the owners. It is therefore advisable that should you foresee international oper

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

Companies that provide selfless information through particip

tions for your business, to opt for an S corporation as a safer business vehicle instead, or at the very least until there is adequate jurisprudence established for LLCs

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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