At Kenny Spring, I spend a lot of my time working with business clients that hold valuable intellectual property. For start-ups, in particular, intellectual property is often the number one most significant asset. But this can also apply to big companies. Imagine where Apple would be without its software patents, its registered iPhone design, and its distinctive half-bitten apple trademark.
For businesses that own valuable intellectual property, we often recommend setting up not one but two companies. This is called a "dual company structure", which is made up of a Trading Company and a Holding Company.
But why would someone want to set up and manage two companies?
The answer to this comes from understanding the differences between a Trading Company and a Holding Company.
Under a dual company structure, a Trading Company is exactly what it sounds like – it is the company that does all of the trading and undertakes all operational and business activities, including entering into contracts with suppliers and employees, and dealing with customers. A Trading Company essentially takes care of all of the risky activities and holds all of the liabilities of the business.
The Holding Company (as the name suggests) is the company that holds all of the valuable intellectual property. It may licence the intellectual property to the Trading Company to use in the business, but the ownership of the intellectual property always stays with the Holding Company. While it owns all of the shares in the Trading Company, the Holding Company itself avoids all risky activities and lets the Trading Company take all of the trading risk.
This arrangement means that there is a separation between the trading risk of the Trading Company and the valuable intellectual property held by the Holding Company. If the Trading Company faced a big lawsuit or became insolvent, the intellectual property would be well-protected, as it is held by the risk-free Holding Company.
However, as with anything in the law, there are exceptions, so it is important to always seek expert legal advice. If you are a business owner that has significant intellectual property but does not have a dual company structure with a Trading Company and a Holding Company, please feel free to contact our Commercial Law team on 1800 650 656 to discuss your options. We're here to help!
Aaron Strickland | Solicitor