A holding company is designed specifically to hold assets, such as stocks, bonds, mutual funds, real estate, patents, and more. A holding company does not have any business operations of its own, but rather its single function is to hold investments.
An intellectual property holding company, in particular, is designed for the special purpose of holding a company’s intellectual property assets. The intellectual property holding company does not use this intellectual property itself, but can license the rights of the IP to its subsidiary companies or other third parties.
A holding company can separate its assets from operational liabilities. Since intellectual property is often very valuable and carries little risk, putting it in its own company and licensing or leasing it to clients or a company of your own can help protect the investment.
There are a number of other reasons why you would want to form an IP holding company. Some of these reasons include:
Asset Protection. Establishing an IP holding company can help to shield your intellectual property from competitors and others wishing to exploit it. When the IP is held in a non-trading entity, such as a holding company, it becomes more difficult for third parties to bring a legal claim against the original owner of the IP. If one of your businesses found itself in financial trouble or became subject to a legal matter, creditors might sell the IP assets for a better return. However, the IP holding company can protect against any of these legal ramifications.
Central Management. The IP holding company gives your business the ability to centralize the management for all of your intellectual property assets. By doing this, you can ensure a more focused attention on your IP assets, conduct regular audits, and encourage appropriate use among your subsidiaries.
Tax Benefits. The IP holding company can allow you to generate revenue in low tax jurisdictions or those jurisdictions that don’t impose royalty tax on IP licensing.
Market Value Recognition. Through creation of an IP holding company your business can gain recognition for the market value of its intellectual property. Often times, businesses do not accurately reflect IP assets on their balance sheet. However, through your holding company you can create a sale and leaseback arrangement for your IP that attaches a value to your intellectual property, which is then reflected on your balance sheet. Creating transparency like this around your IP assets can help to attract new investors and encourage additional funding.
Intellectual Property refers to any work that is the product of creativity. This includes inventions, artistic works, images, names, brands, and more. The types of intellectual property form two different categories: industrial property and copyright.
Industrial property refers to IP like inventions, trademarks, and designs. Whereas copyright refers to the more literary and artistic work that makes up film, music, and artwork. Every business owns some form of intellectual property whether they deliberately protect it or not. Typically, it is the large corporations that profit off of their logos and brand names that put the most effort into protecting their IP assets. However, any business, regardless of its size, can benefit from putting in safeguards that protect its intellectual property.
Protecting your business’ IP offers several competitive advantages: legally, commercially, and financially. Excluding third parties from exploiting your technology, brand, or other IP can be a useful tool when it comes to negotiating partnerships or expanding into new markets. Additionally, the exclusivity of your IP can be a great way for you to attract new customers. It is also a way to encourage further innovation in your business and reward creative solutions.
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