Intellectual Property Holding Company
When created and exploited properly, a company's intellectual property (IP) is very often its most important asset. You, therefore, can't afford to lose any of your company's IP.
A holding company can be used to exploit IP while keeping it separate from operational liabilities. In other words, by holding your company's IP in a separate company, you can exploit it properly, while protecting it from litigants and creditors who might want to take it.
What is an IP Holding Company?
A holding company is a business entity, often a corporation or LLC, that exists for the sole purpose of owning and controlling assets, such as real estate, investment, and other business entities.
An IP holding company is one that is specifically designed to own IP assets – i.e. trademarks, copyrights, patents, trade secrets, etc. – to protect and/or exploit said IP in a given manner, or to manage, sell, and/or license it to third parties.
How an IP Holding Company Works?
To understand how an IP holding company can protect your company's IP assets, let's say that you have a trademark that you use in relation to your business – “Big City Widgets, LLC” – and have also developed copyrighted materials to market your products and services. So, you form a separate IP holding company – called “BC Intellectual Holdings, LLC” – to manage your trademarks and copyrights.
You can then use BC Intellectual Holdings, LLC to license your trademark and copyrights back to Big City Widgets, LLC, or to any third party, who will then pay licensing fees and/or royalties to BC Intellectual Holdings, LLC.
In the event that a lawsuit is filed against Big City Widgets, LLC, the IP held in BC Intellectual Holdings, LLC, will be protected. This is because by holding the IP in a separate entity of its own, it will not be subject to Big City Widgets, LLC’s creditors.
Benefits of an IP Holding Company
There are a number of benefits to consider when deciding whether forming an IP Holding Company is right for you. Most notably, an IP Holding Company will enable you to do the following:
- Mitigate risk - You can use an IP Holding company if you want to mitigate risk by separating your business's IP assets from its operational liabilities.
- Franchise more easily - An IP holding company is ideal if you want to license your IP through your holding company to third parties who want to open a franchise of your business.
- Retain IP assets after selling - If you decided to sell your business, you may be able to retain ownership of the IP assets and license them to whoever buys the business or to others, or you can continue to exploit them yourself.
- Save on taxes - If structured properly, dividends from an operating company can be passed up to your IP holding company without triggering any further taxes (tax-free dividends). Furthermore, if your IP holding company files a consolidated tax return, the losses incurred by one operating company can offset the profit of another, resulting in a lower overall tax bill.
Starting an IP Holding Company
An IP Holding Company can be formed by selecting an existing business entity or forming an entirely new business entity into which you can assign all of your business's IP, and then license it back to your operating company so that it can use it to run the business.
The new company (the IP holding company) will not engage in any business or assume any liability, other than leasing or licensing the IP it holds back to the original operating company.
This holding company/operating company structure is also very useful if you have multiple businesses that share assets. For example, if you have a valuable patent or trade secret that multiple operating companies use to create products or services, you can have that patent be owned by your holding company and then license to your various operating companies.
Who IP Holding Companies Are Best For?
An IP Holding Company is best for business owners who:
- Want and/or need a separate business entity to protect, manage, and exploit their company's IP;
- Have the resources or funds to form and maintain multiple business entities; and
- Have IP assets to protect.
If you meet these criteria, forming a holding company to manage, exploit, and protect your IP is a step you should definitely look into taking. This is especially true, given the relatively low cost required to form a business entity in Wyoming.
Contact an Experienced Wyoming Business Law Attorney
Intellectual property is important to your business and, as a business owner, you owe a duty to yourself and the other stakeholders of your company to effectively manage and protect your business's valuable intellectual property.
If you are thinking about forming a holding for your company’s IP, don't hesitate to call our law firm for more information, or for help with setting up an IP holding company in Wyoming.
Frequently Asked Questions
IP stands for intellectual property, so an IP holding company is an LLC or Corporation designed for the purpose of holding intellectual property for privacy, asset protection and tax minimization.
An IP holding company is established the same as every other holding company. You choose a state, such as Wyoming, file your Articles, choose a registered agent and draft an operating agreement.
A holding company helps separate assets and liabilities, while minimizing taxes, enhancing privacy and providing investment flexibility.
IP stands for intellectual property, so the owners are those who hold the IP's title - generally an LLC, Corporation or Trust should be used for more protection versus holding the property in an individuals name.