Get Recognition for Intellectual Property Investments

It is often difficult for companies to get recognition for investment in intellectual property (IP) assets on their balance sheets, even though these assets often make up more than 80% of the company valuation. Although certain types of IP assets can be capitalized at cost, the accounting rules don’t make this easy – typically, the most valuable intangible assets, such as the company brand cannot be capitalized on the balance sheet. 

These assets are therefore often invisible to, or ignored by, the C-suite and corporate investors and lenders. However, by creating a different corporate structure, these critical and often overlooked IP assets can all be valued, sold and used as security for borrowings in the same way as traditional balance sheet assets.

A new corporate structure can be adopted that separates the IP assets from the risks associated with the trading business by establishing an IP holding company (IPCo). This is similar to a sale and leaseback arrangement, whereby the use of the IP assets is licensed back to the trading business. This results in the value of these IP assets being reflected on the balance sheet of the IPCo, and as a debtor on the balance sheet of the trading business (until the IPCo pays for the assets it purchased) and, as an added benefit, ring-fences the IP to mitigate risks associated with the trading business. 

This new corporate structure creates an IPCo with recorded valuable IP assets, and new unencumbered revenue streams in the form of royalty/license fees paid by the other group companies for use of the IP rights. This visible revenue stream, leveraging intellectual property value, can help the IPCo secure new finance. 

To learn more about how you can accomplish this, contact us today. You can also check out all of our helpful information and guides such as Intellectual Property valuation, Intellectual Property Advisory and client results!

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