Intellectual Property Separation

What is the most valuable asset to your business?

A friend of mine once said, “If you’re so selfish or egotistical to think that your tech/business won’t exist without, then I am not too excited about your personal contribution to the planet.” While this quote can cause most people to chuckle, there are some hard truths in there. Why do people cling to their ideas rather than share them? Why do some business owners believe that their idea can’t exist without them? What is going to happen to your idea/product/company when and/or if you decide to step away?

The impact that you make needs to be protected for when you are no longer at the helm of your idea.

A well thought out entity structure can assist you with mitigating risk and separating valuable assets for a future exit strategy. This is very much part of the succession planning process.  You can record and report your intellectual property development in a separate entity structure to protect your individual ownership rights. You are basically the developer or composer and should collect either a license fee or royalty from your creation.   This can also hold true for any intangible assets such as patents, software code, copyrights, or trademarks, etc.

If you start from the beginning: you would form an operating entity for your business operations. This is simple and easy - right? At this stage, without professional guidance, you are ready to go – gather customers and make money!  In the State of Texas, that would typically be a limited liability company known as an LLC.  The LLC can either be disregarded (a proprietorship), a C-Corporation, an S-Corporation, or a partnership.  The entity structure selected will be based on your future intentions and exit strategy.  This would require a completely separate Blog!

Again, so you set up your operating entity and begin pursuing customers, then you start developing intellectual property through research and development. You are working diligently and really don’t recognize that a valuable asset is being created.  This can lead to either software code or another type of patentable intangible asset.

If you determine that the intangible asset can be separately valued, you may consider setting up a separate entity structure to build the asset.  By doing so, you will fence off this asset into a separate entity to protect it from potential litigation and capture value that should be specifically owned by you individually.  Further, you will also have value in a separate entity that can either be licensed or sold separately. 

Separation of value is something that should always be considered during the development stage of your business enterprise.    With a good proactive CPA who understands business, you should be notified promptly of this opportunity.

Xiomara Reyes