Should you move your IP into a holding company

Your trade marks, brand, patents and website are the parts of the business that survive a bad year. But if they sit inside the same company that signs the leases, employs the staff and owes the suppliers, they go down with it when that company is sued or fails. The question usually surfaces at a specific moment: a customer's claim arrives, a lender asks what it could take as security, or a buyer wants to acquire the business and asks who actually owns the brand. That is the moment to ask whether the intellectual property should move into an entity of its own.

The options in front of you

The working question is narrower than "should I protect my IP?". For most owners it is: keep the IP in the operating company, or transfer it into a separate holding company that owns the shares in the trading entity (the operating company), or hold it through a discretionary trust with a corporate trustee. One option owners sometimes assume is available is not really on the table: transferring the IP into your own name. Personal ownership does not ring-fence anything, because it simply moves the assets into reach of your personal creditors. And a trust is not a separate legal entity: the trustee holds the assets, so a discretionary trust only gives real separation if a company acts as trustee.

A second point worth understanding up front is that separation is not a single event. Every trade mark, patent and design registered later, and every new version of the brand, has to be assigned into the structure as well, or it will sit outside the protection.

Each type of IP also moves differently. Trade marks, patents and designs are registered rights: the assignment has to be in writing, and the change of ownership recorded on the register at IP Australia before the new owner is recognised. Copyright is different. It is not registered in Australia, and it moves only by a written assignment signed by the owner. A structure that protects one kind of IP can leave another exposed, which is why the portfolio review matters as much as the company structure.

How much protection you actually get

Separating the IP from the trading company works because a company is a separate legal person. The holding company owns the IP and does not trade; the operating company trades but does not own the IP. Creditors of the operating company can only reach what the operating company owns, so a judgment against it, or its liquidation, does not touch the marks and patents sitting in the holding company. The same logic protects the IP from claims by employees, customers, landlords and suppliers of the trading business.

The separation is not absolute, and it is worth knowing where it breaks down. Under s 588V of the Corporations Act 2001 (Cth), a holding company can be liable for its subsidiary's insolvent trading where the subsidiary incurred a debt while insolvent and the holding company, or one of its directors, knew, or should have known, there were reasonable grounds to suspect the insolvency. Defences under s 588X of the Act apply where the holding company had reasonable grounds to expect the subsidiary was solvent, or took all reasonable steps to prevent the debt being incurred. Courts will also look through a structure used to defraud creditors, and a liquidator will scrutinise IP transferred out of a company shortly before it failed. A structure built for asset protection still has to be maintained honestly and at arm's length.

Trade marks must keep being used, and licensed properly

A holding company that owns a trade mark but never trades creates a problem of its own: the registered owner is not using the mark. Under s 92 of the Trade Marks Act 1995 (Cth), anyone can apply to remove a mark that has not been used in Australia for a continuous period of three years. That is a genuine exposure once the operating company is the only entity putting the brand on goods or services.

The fix is the licence between the holding company and the operating company. If the operating company uses the mark under the control of the owner, s 7(3) of the Act treats that authorised use as use by the owner, so the registration can withstand a non-use application. The High Court confirmed the practical effect of this in E & J Gallo Winery v Lion Nathan Australia Pty Ltd [2010] HCA 15, holding that use by an authorised user under the owner's control counted as use by the registered owner. The licence needs to give the owner genuine quality control over the goods or services the mark is used on, because that control is what makes the use "authorised" under s 8 of the Act.

If a non-use application is made anyway, it is the registered owner who must establish use of the mark in the relevant period to defeat it, under s 100 of the Act. A licence file that records the royalty payments, the quality-control steps and the goods or services the mark is used on is the evidence that does that job.

Patents have their own version of the problem. Under s 120 of the Patents Act 1990 (Cth), only the patentee or an exclusive licensee can start infringement proceedings. If the holding company owns the patent and gives the operating company a plain non-exclusive licence, the operating company cannot sue an infringer or recover damages; the holding company would have to sue, and it is not the entity selling the product. The choice of licence therefore drives who can enforce:

• Non-exclusive licence: The operating company can use the IP, but has no standing to sue infringers, and the holding company holds enforcement.
• Exclusive licence: For patents, the exclusive licensee can start infringement proceedings in its own name under s 120; for trade marks, an exclusive licensee can bring an infringement action in defined circumstances under s 26.

The tax treatment of the move and the ongoing licence

Moving IP into a separate entity is a disposal, and the ATO treats it as happening at market value. A business that built its brand in-house can face a capital gains tax bill on the transfer even though no cash changes hands. State duties can also apply when assets move between related entities, and some states impose duty on IP transfers. The ongoing structure then runs on licence fees: the operating company pays the holding company a royalty for using the IP, which shifts profit from the trading entity to the owner. Done deliberately, that can even out income across the group or move profit to an entity taxed at a lower rate. But the ATO's transfer pricing rules require the royalty to be what unrelated parties would agree, and related-party loans and distributions carry their own rules. The tax outcome depends entirely on your group's numbers, so this factor needs an accountant and a tax adviser before you commit.

What it does to financing, sales and investment

Ownership in a holding company makes the IP easier to commercialise: it can be licensed to third parties, sold separately, or offered to a lender as security, and a bank or investor can see a clean record of who owns what. There is a trade-off. Strip the brand and patents out of the operating company and the operating company's own value falls, because buyers of a business usually want the IP that goes with it. If you later sell the operating company, the sale has to involve the holding company as well, and a buyer will want the licence on terms it can rely on. Some lenders also prefer the IP to sit inside the company that repays the loan, so a structure that suits one financier can put off another. Design the structure around how you actually plan to raise money or exit, not the other way around.

The ongoing cost of running a second entity

A second company costs money before it protects anything: ASIC registration and annual review fees, separate accounts and tax returns, a bank account, and the record-keeping that keeps the separation real, including separate minutes, separate decisions and arm's-length documents. If a trust is used, the corporate trustee needs the same ongoing compliance. For a young business whose brand is unregistered and unproven, the fees can exceed the value being protected. The structure earns its keep once the IP is registered, used and worth real money.

Getting the structure right with an Artificer Legal lawyer

None of this has to be resolved alone. An Artificer Legal lawyer can start by stress-testing the reason for the move: what claims or events are actually coming, and whether a holding company is the right answer or a trust would serve better. They can model the downside before anything is signed, including the s 588V exposure, the three-year non-use window on trade marks, and the patent enforcement position. Then the work becomes drafting the pieces the chosen path needs:

• The IP assignment deed: transfers each asset from the operating company to the holding company, identifies the assets in a schedule, and records the consideration and warranties. The transfer also has to be recorded on the registers at IP Australia for trade marks, patents and designs.
• The licence agreement: grants the operating company the right to use the IP, sets the royalty, and for trade marks builds in the owner's control over quality and over the goods or services the mark is used on.
• The trust and corporate trustee documents: if the trust route is chosen, the trust deed, the trustee company and the arrangements for distributions.
• The consents: if a lender already holds security over the IP, or a contract gives a third party rights to the brand, the move needs their involvement first.

A lawyer also checks the portfolio itself, because IP that is unregistered, jointly owned, or still held in a former entity's name cannot simply be moved. The paperwork is what makes the separation real; without it, the IP is still exposed in practice.

Timing matters as much as drafting. A transfer made when a claim is already looming is the one a liquidator or creditor will attack, while a structure put in place years earlier and maintained since is much harder to disturb. The best time to separate the IP is before there is a reason to.

The decision is only complete once the licence is signed

This is the part that most often gets missed: transferring the IP is only half the job. A holding company that owns the brand while the operating company keeps using it without a licence has created a non-use problem for its trade marks, a standing problem for its patents, and an exposure for the operating company, which is using assets it has no right to use. The separation that a court, a regulator or a buyer will recognise is the assignment plus the licence, signed together and maintained as the business grows.

The decision itself turns on the factors above: how real the protection is once the exceptions in the Corporations Act 2001 (Cth) are allowed for, whether the tax and financing outcomes suit your plans to raise money or sell, and whether the ongoing cost of a second entity is justified by IP that is actually registered and valuable. For most businesses that have built a brand or a patent portfolio worth protecting, the dual company structure with a licence from the holding company to the operating company is the cleaner answer, while the trust route adds flexibility in distributions at the cost of more moving parts. An Artificer Legal lawyer can map your portfolio, test the structure against the claims you actually face, and draft the assignment and licence so the protection holds when it is tested.