When setting up a business, the first question you should always ask yourself is what business structure you’d like to pursue.

A business structure will define everything you do in your business — how you engage others, how liable you are for debts, whether you can issue shares, how intellectual property is protected and how you finance the business.

Often, when considering the best structure for your business, you’d be told to register a company. Recently, however, more and more businesses are exploring new ways to structure their business. This is where the dual company structure comes into play.

Put simply, operating a dual company structure involves registering two companies: a holding company and an operating company.

Often, this structure is set up to protect the company’s most important assets, such as cash and intellectual property (IP). These assets can stay safe in the holding company, while the operating company undertakes day-to-day business activities.

But, to make sure that the operating company has the rights to use the assets of the holding company, there needs to be a legal document between the two entities to formalise this arrangement.

This is what we call an Intercompany IP Licence

What Is An Intercompany IP Licence?

An Intercompany IP Licence is a legal document that allows the operating company to use the assets (such as the IP) of the holding company.

Why is this important?

Since the holding company would “hold” all the important assets such as cash and intellectual property, it’s still a separate entity to the operating or trading company.

So, to make sure that the operating entity is legally and properly using those assets, you want to set it out properly in writing.

How Does An Intercompany IP Licence Work?

The easiest way to explain how an Intercompany IP Licence works is by running through an example.

Let’s say you run a business that has created several mobile applications.

To make sure that all the developed IP of your apps is safe and sound, you might set up a dual company structure so that all of the IP is kept securely within your holding company. This means that, if the operating company were to go insolvent, your IP stays safe in the head company.

But, to make sure that the operating company is legally allowed to use your IP (from your logo to your brand name and the copyright in your software code), you need a licence agreement between the two companies.

Under this licence agreement, the holding company allows (or “licenses out”) that IP to the operating or trading company. That way, the holding company still owns that IP but the operating company can use the IP for its necessary day-to-day business operations.

However, intercompany licences aren’t always used for IP purposes. They can be used for other assets, too!

For example, a car rental business would have all their different motor vehicles as assets.

In this line of business, these vehicles are really valuable assets to the company. Naturally, you’d want to protect these assets and make sure that they’re sitting safe in a separate holding company. This way, if anything were to happen to the trading company, the assets could be protected as they’re held by a separate entity.

However, because the assets are owned under a separate entity, you’d want to ensure that your trading company still has the right to use those assets.

This is where an Intercompany Licence comes in: you can “license” these assets from the holding company to the operating company, and give your operating company the right to use the holding company’s assets for business purposes.

All you need to do is make sure this is all set out in an Intercompany Licence Agreement.

Why Do I Need An Intercompany IP Licence?

An Intercompany IP Licence is a legal document that you should have in place whenever you operate under a dual company structure.

Put simply, it allows the operating company to use any of the holding company’s assets for business purposes.

So, why is it important? 

The main reasoning behind this structure is to protect your assets. This is especially the case with tech startups, corporate businesses or companies that deal with high-value assets.

Protecting your assets can keep your shareholders happy, keep your business safe and put your mind at ease (especially when you have large and really valuable assets).

Need Help With An Intercompany IP Licence?

If you need help with an Intercompany IP Licence, we’re here to help!

Don’t hesitate to reach out to our friendly team for a quick chat on your options. We can walk you through how the dual company structure works, and what you need to formalise this set up.

You can drop a line at team@sprintlaw.com.au or give us a call on 1800 730 617.

About Sprintlaw

Sprintlaw is a new type of law firm that operates completely online and on a fixed-fee basis. We’re on a mission to make quality legal services faster, simpler and more affordable for small business owners and entrepreneurs.

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