Should a Holding Company Own My Trademark?
When most businesses register a trademark, the operating company, the one selling the products or services, typically owns the mark. For example, if ABC Company launches a new gadget called the PsySpinner, ABC Company would usually own the PsySpinner trademark and any resulting trademark registrations.
But in some cases, businesses create a separate holding company to own intellectual property (IP) assets, including trademarks. This structure can offer unique benefits, but it also comes with risks and complex legal requirements.
Here’s what you need to know before deciding whether a holding company should own your trademarks.
How do holding companies work?
A holding company is a separate legal entity—such as a corporation or LLC—created for the purpose of owning and managing assets. This sometimes includes trademarks, which, while they cannot be touched or held, are still valuable assets belonging to the company that created and developed them.
The holding company does not run the day-to-day business. Instead, it licenses the trademarks back to the operating company for use on products or services.
Example:
- ABC Company, a Florida corporation, forms ABC IP Holding Company, a Delaware corporation.
- ABC IP Holding Company owns all ABC Company’s trademarks.
- ABC Company licenses the trademarks from the holding company to continue selling products under those brands.
While this structure can offer advantages, it also creates additional responsibilities and potential complications.
Key benefits of using a holding company
Holding companies can provide several advantages when set up correctly:
Asset Protection
If the operating company faces bankruptcy, lawsuits, or other liabilities, its trademarks may be at risk. By placing trademarks in a separate holding company, the assets may be shielded from creditors or operational disputes.
Easy Brand Valuation
A holding company’s purpose is to license the trademarks back to the operating business. When this occurs, royalty income flows through the holding company. This can make it easier to value trademarks for investors or mergers, as it helps to establish the financial worth of the brand as a separate business asset.
Potential Tax Savings
In some states, income generated through the royalties in a licensing agreement is exempt. This means that your holding company could help reduce tax liability for the operating company, but you must consult a tax professional to determine whether this applies in your jurisdiction.
For other types of property or assets, a holding company may serve a different purpose, so always consult with a professional on what is best for your company.
Risks and drawbacks to consider
While holding companies offer advantages, they are not right for every business. Key risks include:
Maintenance Complexity
A holding company is a separate legal entity with its own filing, tax, and compliance requirements. Missing corporate filings or letting the holding company become inactive could jeopardize both the entity and its trademarks.
Ownership Confusion
When pitching investors, securing loans, or negotiating sales, unclear trademark ownership can create serious legal and financial complications. All parties must understand exactly which company owns the trademarks.
Licensing Pitfalls
If a holding company owns the trademarks, it must license them to the operating company through a formal trademark licensing agreement.
The license must include quality-control provisions giving the trademark owner the right to oversee how the brand is used. Without this, you risk “naked licensing”—a situation where lack of control can actually invalidate trademark rights.
Always work with an experienced trademark attorney to draft licensing agreements that comply with federal trademark law.
Final thoughts
A trademark holding company can help protect intellectual property, streamline licensing, and even offer tax or valuation advantages, but only if it’s set up and maintained correctly.
If you’re considering a holding company for your trademarks, consult with experienced trademark and business attorneys to avoid costly mistakes.
Ready to protect your brand? Contact Gerben IP today for a free consultation on trademark ownership and licensing strategies tailored to your business.
Eric Perrott, Esq.
Eric Perrott, Esq. is a trademark and copyright attorney committed to providing high-quality legal services for any sized budget. Eric’s ability to counsel clients through any stage of trademark and copyright development and protection allows him to provide his clients with personalized advice and unique analysis. Eric can be reached directly at: [email protected]. The contents of this blog are for informational purposes only and may not be relied on as legal advice.
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