Creating A Holding Company To Own Your Trademark
For a number of reasons, a business owner may create a “Holding Company” for the sole purpose of owning and managing a Trademark and other “intangible” property.
How Does a Holding Company Work?A Holding Company is a corporate entity that has the sole purpose of owning “intangible” items and managing only those intangible items, such as Trademarks. While a Trademark cannot be touched or physically held, it is still a valuable asset that belongs to the company that created and developed it.
The JFL Company is growing, so it creates the JFL IP Holding Company, a Miami Corporation with the sole purpose of owning JFL Company’s Trademark portfolio.
It is important to note that, although these two companies have identical owners, they are two separate companies under Florida Law.
Why Create a Holding Company to Own a Trademark?The question of why should someone start a Holding Company involves different answers. It all depends on the type. When it comes to Trademarks, a Holding Company may:
- Help value the market price for a Trademark.
- Protect Trademarks held in a company facing bankruptcy or insolvency.
- Save on taxes through exempt income generated from the royalties in a licensing agreement.
However, other types of assets or property, this may serve a different purpose. As a result, you must consult with an expert to determine what is best for your company.
Licensing Considerations When the Operating Company Does Not Own the TrademarkIf a Trademark is owned by anyone other than the operating company, then the Trademark must be licensed through a Trademark Licensing Agreement. This is more than a simple grant of the ability to use the Trademark for commerce. The owner of the Trademark must maintain control over the brand at all times, which means that the licensing agreement must include mechanisms that allow the Trademark owner to have control over the quality of the products and/or services being offered under the Trademark.
If you are licensing Trademark rights to another company or individual, it is crucial to consult with an experienced Trademark Attorney who can draft the licensing agreement to make sure you and your brand remain protected.
Disadvantages of Creating a Holding Company to Own a TrademarkAlthough Holding Companies come with several benefits, there are also some disadvantages you need to consider. Primarily, it is important for you to know that a Holding Company is not a one-size-fits-all entity. Further, not every company should set up to own its Trademarks.
There are many different potential issues that could come up from creating this to own a Trademark, some of which include:
- Maintenance –A Holding Company will be held to the same corporate standards as any other corporate entity. If you file taxes incorrectly, miss corporate filings, or fail to meet any other requirement for maintaining a corporate entity, that entity could be in danger of dissolving or becoming inactive.
- Specialized Knowledge – If everyone within the leadership of a company does not have a strong knowledge regarding which company owns a particular Trademark, it could lead to major issues.
- Naked Licensing – “Naked” licensing means that the owner of a Trademark failed to maintain proper control over the Trademark when licensing it to other companies, effectively losing the rights to the Trademark, due to a poorly-drafted licensing agreement.
Creating a Holding Company with the Help of an AttorneyWhile Trademark Law is a federal law, business and tax laws generally vary from state to state. Holding Companies are complex; when creating one, you should not only a hire a Trademark Attorney, but also a Business Attorney that can provide comprehensive information on how the law applies to your company and assist you throughout the process of establishing a Holding Company to own your Trademark.