More than an Academic Consideration

There are any number of tricky equations to be settled when a university researcher sets up shop as an independent contractor

By Karen E. Klein

Q: As a university faculty member and researcher, I would like to start a business that operates within the university as a fee-for-service resource. How do core profit centers spin off as independent businesses to service industry as well as academia? Should I incorporate and move the business office outside the university, and then contract the work back to the university labs? If I use university facilities and equipment, must I pay rent?

---- D.S., Cincinnati

A: This question is a hot topic at many colleges and universities, particularly in the biotechnology and computer sciences departments. Most importantly, you'll need to be very sensitive about conflict-of-interest issues and play by the rules set up by the institution that employs you. Your university should have extensive policies in place that cover outside business interests and how they may or may not conflict with faculty members' time and primary focus. Check your university policy manual or talk to your department chair for specifics.

Generally, the amount of time you can devote to outside business activities is restricted if you are a full-time staff member, says Kathleen Allen, managing director of the University of Southern California's Technology Commercialization Alliance. At USC, she says, faculty members who work as consultants are not allowed to do more than one day of consulting a week during the academic year.


  While universities typically cannot stop staffers from holding equity stakes in businesses, including their own, academic institutions usually do not allow staffers to serve as officers of a corporation, Allen says. "Being a CEO, or CFO, or president of a company is a full-time responsibility, and you obviously can't be full-time at two places," she explains.

If you intend to start a business based on work that you did at the university, and then sell back your services or products to the institution, you may have a serious conflict of interest. Make sure you show your business plan to an attorney familiar with this situation, and let your department heads know what you are planning.

If you start a business on campus, you will normally have to reimburse the university for overhead such as facilities and equipment, which can be very expensive, Allen says. If you intend to serve industry with your business, you will probably have to locate off-campus and hire managers to run the company, since you will not be likely to be allowed to take an operating role in the business.

Have a question about running your business? Ask our small-business experts. Send us an e-mail at, or write to Smart Answers, BW Online, 6th Floor, 2 Penn Plaza, New York, NY 10121. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally.

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE