Intellectual property IP holding company

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Intellectual property IP holding company

Our client provided business processes, debt recovery and enforcement services.  Our client had also developed an advanced case management solution for private and government organisations.  Our client considered their solution had tremendous commercial potential. They requested our advice to best exploit this solution.

We created a separate intellectual property holding company, termed the IP Company, which:

  • Managed the case management solution’s IP, under a software licence agreement;
  • Received license fees,  under a long term licensing agreement, from our client’s core business, termed the Original Company.

IP holding company: benefits

The licence agreement shielded the IP Company, because the:

  • IP Company would not face the Orginal Company’s creditors;
  • Original Company could use the software under the licence agreement; .

Business focus

This structure enabled the IP Company to exploit the solution. The IP Company could:

  • Focus on licensing the solution to third parties. Clearly, IP Company targetted organisations who did not compete with Original Company, e.g. who operated in other jurisdictions.
  • Be retained by Original Company’s owners, if they sold Original Company. For instance, the owners might license the solution to Original Company’s new owners, plus other third parties.
  • Create a varied investment profile for the group. Each shareholder could take different stakes in Original Company and IP Company, reflecting their investment preferences.

Tax advantages

The creation of the IP holding company improved the group’s overall tax position. To fully benefit from, e.g. patent box, R&D tax credits, and EIS schemes, IP Company and Original Company were, in this case, best separate.

The key was a properly drafted licence agreement. In these cases, HMRC first scrutinise the licence agreement.

Results

IP Company and Original Company’s controlling shareholder sold the group for over £24 million. Part of the valuation was the software, which facilitated business transformation. It enabled the group to target a much wider market.