IP holding company
Gannons helped formed a separate holding company for a client’s unique IP solution, which enabled them to exploit their IP.
Our client provided business processes, debt recovery and enforcement services. They had also developed an advanced case management solution for private and government organisations – their unique IP – which they considered to have tremendous commercial potential. They requested our advice on how best to exploit this solution.
We created a separate intellectual property holding company for our client. This company managed the case management solution IP, under a software licence agreement. It then received license fees, under a long-term licensing agreement, from our client’s core business.
IP holding company: benefits
The licence agreement shielded the IP holding company, because it would not face our client’s original company’s creditors. Additionally, our client’s original company could use the software under the licence agreement.
This structure enabled the IP holding company to focus solely on exploiting the solution to maximal effect.
Therefore, the IP company focused on licensed the solution to third parties. The company only licensed the IP to organisations who did not compete with our client.
The owners of the original company could also retain the IP company in the event that they decided to sell their original venture. They could then decide to, for instance, license the solution to the new owners, and continue licensing it to other third parties.
Creating a new company also created a varied investment profile for the group. Each shareholder could take different stakes in the original company and the IP holding company, depending on their investment preferences.
The creation of the IP holding company improved the group’s overall tax position. They could fully benefit from tax benefits, such as patent box, R&D tax credits, and EIS schemes. In order to maximise the benefits gained, the IP company and our client’s original company were, in this case, best separated.
The key to the arrangement was a properly drafted licence agreement. In these cases, HMRC first scrutinise the licence agreement.
The controlling shareholder of both companies recently 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, and thereby was inherently valuable.