Asset Protection Strategies for Intellectual Property

Today we want to talk about how to protect the most important part of your business. Intellectual property is completely invisible but it is probably your most valuable asset. In the past IP protection was among the first things businesses would undertake before they start-up. In the Business Legal Lifecycle we understand that’s no longer practical. Instead we have placed it as Phase 5 of any start-up plan. Why do we structure the Business Legal Lifecycle that way? We do this because it’s part of the cost-benefit analysis of a start-up business. It used to take $20,000.00 $50,000.00 to start a business. Nowadays all it takes is a laptop. The traditional legal advice is that you should start up the asset protection and trademark at the beginning. Very few businesses have that kind of capital.

By the time you reach Phase 5 your business will have already completed your start-up. Intellectual property protection should come after that because it helps you to scale the business. By the time you have a business asset that’s worth protecting you could lose everything if you don’t have your IP defended.

The best way to do that is to create a separate legal entity to house all your IP. A separate legal entity will protect your IP if you are ever sued or go bankrupt or are involved in a lawsuit. IP is the intangible part of your business. You can’t see or touch it like a piece of equipment. But it is potentially far more valuable. In fact it might be the most important asset you have. You always need to be ready to sell the business and IP protection is a big part of that. Trademarks, patents, and other ideas all make up your invisible assets that represent the real value of what you’ve built in your business.

We have helped a number of clients to protect their IP. One good example was a company that provides professional services for employers. They had built up a large portfolio of intellectual assets. We structured their business so that the IP was protected in a separate legal entity that would be protected in case of a lawsuit or bankruptcy. By doing that it allowed the firm to license that IP to other companies.

Avoiding the taxman is another good reason to protect your IP early. Normally your IP isn’t worth a lot at the start of the business. When you do make the transfer to a separate entity the IP will be taxed just like any other capital gain. That’s why you should make that transfer as early as possible so you don’t have to pay as much tax.

There isn’t really any other way to protect your IP going forward. You have to ask yourself what you are you really protecting. Then you need to figure out who really owns that IP. Then you need to sit down with your accountant to really understand what it is you’re creating.