IP Holding Company Structure
We’ve put together the essentials to make it easy for you to make the right decisions.
A startup, just like any other business, needs to think about its company structure from day one — whether you’re looking to build an empire or simply want to hit the ground running, setting up correctly on day one is essential. We’ve put together the essentials to make it easy for you to make the right decisions.
What is a holding company?
A holding company generally describes a company that holds intellectual property and assets and controls its subsidiary companies. A holding company is often non-operational.
When there is a holding company, the day-to-day business is undertaken by an operational company that is a wholly owned subsidiary of the holding company. This means that the only shareholder of the operational company is the holding company.
The following visually demonstrates how a holding company operates:
Advantages:
There are multiple advantages to having a holding company with this structure:
Protection from liability: Intellectual Property and assets held in a holding company will generally be protected from liability arising from clients, customers, or creditors.
Easy to set up an ESOP: This structure allows employees in the operational company to participate in a share incentive scheme in the holding company (where the real value of the company is held).
Easy to sell: It is easy to sell the entire company group, or its subsidiaries separately. For example, you may sell only the operational arm of the business, or may wish to sell intellectual property held by the holding company only.
Future proof: You may use this structure to set up different operating arms of the same business (for example, in different countries, or different industries), with little administrative effort.
Disadvantages:
Additional costs: compared with having a stand-alone operational company, there will be fees for maintaining multiple companies, as well as fees to set up and maintain licensing arrangements between the holding company and the operational company. The annual ASIC fees payable for each company are approximately $263. The cost of licensing arrangements will differ based on your specific requirements.
Patents: In order to enforce a patent, you must be an owner or an exclusive licensee of the patent. This fact may cause difficulties if the patent is used by multiple operational companies.
Things to think about:
Timing — is this the right time to set up a holding company? Too early means that you may pay fees unnecessarily, whereas setting up too late may have some unintended consequences (for example, you may be required to pay tax for transferring the ownership of the intellectual property to another company).
Licensing Arrangements: Do each of the subsidiaries have the right to use the intellectual property held by the holding company?
Tax: What are the tax implications for your business in using the holding company structure?
If you are thinking about setting up a holding company and would like more information on how it may impact your business, you can reach out to us via hello@weareluna.co. We would be more than happy to set up a meeting with one of our lawyers or tax accountants to help answer your questions.
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