Case Study

IP holding company

Gannons helped formed a separate holding company for a client’s unique IP and technology 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 software solution for private and government organisations – their unique IP – which they considered to have tremendous commercial potential.  They asked for our help  on how best to exploit software and, at the same time, protect it from business risks in other parts of the business.

Putting IP into a separate holding company – what are the benefits?

The benefits of holding IP such as IP rights in software, trademarks, patents, copyrights, trade secrets and other proprietary know-how in a separate company specifically for this purpose are as follows:

  • Ringfencing – keeping IP rights in a separate legal entity means that they can be ring fenced from the business risks such as litigation, financial difficulties or the insolvency of operating companies in the group. If the company becomes insolvent, the insolvency practitioner cannot sell off the IP to maximise returns to creditors, any buyer would still need to pay to licence the relevant rights from the IP Holding Company;
  • Consistency –  if all the IP rights are held in one company, this avoids the risk that different rights will be held in different companies across the group on an informal basis and without any licensing fees or royalty fees being properly recognised as an income stream. If all the rights are held by an IP Hold Co under formal licences to group companies, it can be made clear that any improvements or new developments belong to the IP Hold Co and can be registered and exploited by it;
  • Retaining IP in the event of sale – another advantage of this structure is that the owners of the parent business can retain the IP assets by keeping ownership on sale of the rest of the business;
  • Different shareholdings – the original shareholders could take different stakes in the original company and the IP holding Co, depending on their investment preferences or contributions to the business including creation of the IP.
  • All the IP assets will be properly recorded as on IP portfolio and tasks relating to recording and managing filings and renewals and licensing can be dealt with more efficiently by staff with the relevant expertise rather than being this task being spread across different personnel in different parts of the group;
  • IP assets will be recognised as separate assets on the holding company balance sheet and the licensing revenue stream will be clear to investors or lenders;
  • The holding company might also be based in another jurisdiction if there were tax advantages associated with this depending on the relevant circumstances.

Case study – solution employed

We recommended that our client hold its intellectual property in a separate company which we helped our client set up for this purpose. The aim was for all IP and technology based assets of the group to be held by this company which would then licence then out to the client’s core business in another company and receive licence fees.

At the same time, the IP would be separated from any business risks affecting the trading company and could be exploited separately.

Assignment of IP to the new company

Once our client had put the new structure in place by assigning all IP rights to the IP Holding Company, it could focus solely on exploiting the rights in the Case Management Solution to maximal effect which included licensing not only within the client’s group but to third parties, who did not compete with our client.

Tax advantages of separate IP holding company

For our client the creation of the IP Hold co improved the group’s overall tax position. They could fully benefit from tax benefits, such as patent box, R&D tax credits In order to maximise the benefits gained, the IP Hold Co and our client’s original company were, in this case, best separated.  However, care must be taken in such a situation to make sure that any EIS Relief is not jeopardised.

Results

The controlling shareholder of both companies  went on to sell the technology group for over £24 million. Part of this valuation was attributable to the IP portfolio which was built around ownership of rights in the case management system, which facilitated business transformation. It enabled the group to target a much wider market, and thereby was inherently valuable.

 

 

 

 

 

John Deane

John solves commercial problems for SMEs and their investors. It is said that he is unbelievably practical and seasoned in finding the right solution without too much fuss. He has an established reputation in the technology, art and media industries.

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