Ordinarily, your intellectual property rights would be owned and registered in your business entity. The question then turns to whether separating your intellectual property from your business entity is the preferred approach?
The short answer, yes!
In conducting a business you will inevitably create and improve upon intellectual property which can include (without limitation):
- trade marks, patents, technology, source codes, methodologies, terms of trade, contractual arrangements, business strategies, formulae, processes and applications;
- discoveries, developments, concepts, designs, ideas, know-how, improvements, inventions, trade secrets, original works or other subject-matter;
- copyright in, and rights to documents, reports, formulas, code, models and software.
While there are a number of entities that can own intellectual property rights, separating your intellectual property from your business entity by establishing a separate company or trust to hold and commercialise your intellectual property will provide you with access to even more benefits.
What are the benefits of holding intellectual property in a separate company/trust?
If you establish a separate company or trust to hold and manage your intellectual property, you will obtain the following benefits:
Centralise Intellectual Property
You will create a central entity that:
- holds the intellectual property;
- registers and accrues intellectual property rights; and
- uses the intellectual property as security.
Protect Intellectual Property
You will protect your intellectual property from any risks that may exist in your trading entity.
You never know when your trading entity may get into financial difficulty, find itself in a legal dispute or become insolvent. If this occurs, your intellectual property will be protected as it will be held in a non-trading legal entity that is separate from your trading entity.
Efficiently Commercialise Intellectual Property
You will be able to:
- licence the intellectual property held by the company or trust to your trading entity, related entities or third parties;
- assign all or part of your intellectual property to your trading entity, related entities or third parties as required; and
- collect any licence fees or consideration from selling or assigning your intellectual property in a single entity that is separate from your trading entity.
Minimise Taxation
You will operate within a more efficient tax structure. This can be achieved by licensing the intellectual property from the separate company or trust to the trading entity. This allows the trading entity to reduce its taxable income by paying a licence fee to the separate company or trust which can then distribute that income to shareholders or beneficiaries that pay a lesser marginal tax rate.
What if I already hold intellectual property in my trading entity?
If you already hold intellectual property rights in your trading entity, you can still transfer all the intellectual property to a separate company or trust.
In order to affect the transfer, we would recommend that you:
- conduct an intellectual property audit to identify all relevant intellectual property owned and operated by your business; and
- assign all the intellectual property to your separate company or trust by way of an assignment of intellectual property deed.
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