The life of an entrepreneur is tough. Amongst all the challenges in developing an idea, building a team, creating a product, selling the dream, raising capital and learning about IP – founders often don’t turn their mind to the best structure for their business. This often arises because they aren’t given early advice or money is tight and they don’t have the benefit of establishing the appropriate structure.
A company is a great structure to run a business, it enjoys the benefit of the company tax rate, limited liability and a vehicle for the future business sale. However, there is a risk when businesses ‘put all their eggs in one basket’.
When Intellectual Property (IP) is owned by the same Company that operates the business, the IP is exposed to risk. If the trading business incurs a liability – such as a debt it can’t pay or a lawsuit that it loses – then the Company is at risk of failure. If this risk Company also owns the Intellectual Property, then that Intellectual Property may be lost. If the Operating Company has debts that can’t be paid and ends up in Administration or Liquidation, then the IP may be lost. All of the hard work and effort of the founders may be lost.