3rd July, 2015
Any good business relies on a network of trusted professional advisors. This is increasingly important in a business landscape driven by technology and fast moving innovation. In this environment, one professional advisor stands out in importance above all others: the accountant.
A trusted accountant stands on the professional front line. Often they are the adviser with whom a business owner has the most contact and the closest relationship. Unlike a lawyer, who may only be engaged when a problem arises, an accountant is a constant companion throughout the life of a business. For this reason, in addition to providing crucial financial advice, they are also gatekeepers to a trusted network of other professionals.
Accountants play a crucial role in protecting and enhancing the value of intellectual property (IP) such as trademarks, patents, registered designs and copyrights. Here are four reasons why.
The value and vulnerability of IP can be closely tied to the underlying structure of a business. Many small businesses commence their life as a shelf company owned by their accountant, which becomes the trading entity for the business. By default, the trading entity also becomes the owner of any IP developed by that business.
This ‘default’ arrangement can be problematic. Ideally, in many cases IP assets should be segregated from the assets of the trading entity, usually by forming a separate holding company. This can help to protect the IP from claims against the trading entity.
Accountants are ideally placed to intervene early and ensure their start-up clients are adopting an IP-friendly structure that balances the need to protect IP and maximise its value.
Tax minimisation is a subject close to the heart of every successful business owner.
Tax can impact different forms of IP in different ways and at different stages of a business life. IP can be used to generate revenue in its own right, for instance by licensing IP in return for royalties. In this case, minimisation of income tax (including by maximisation of deductions) is a key issue.
Where IP simply sits in the background (contributing to the goodwill of the business), tax may only become a live issue when it is time to sell the business (or the IP assets). Transfer of IP assets can lead to capital gains and stamp duty liability. A good accountant will recognise these issues and advise their client on setting up a tax effective structures or transitioning a business to a tax effective structure prior to disposal of IP assets.
If IP is subject to a limited term of protection (such as patents, registered designs and copyright), it can also be treated as a depreciating asset.
Many forms of IP (patents, trade marks and designs) can be registered. Often, registration offers the only effective form of protection for IP. Importantly, some IP like patents and designs can only be protected before they enter the dreaded ‘public domain’. Accountants, through discussions with their clients, are uniquely positioned to identify where a business has IP that is potentially registrable.
Close professional relationships between IP advisors and accountants are crucial in ensuring valuable IP does not fall through the cracks into the public domain. The irretrievable loss of IP can mean the loss of potentially lucrative revenue streams.
Many businesses that generate revenue from innovation are building to sell. Having a solid exit strategy touches on all of the IP issues mentioned above.
However, a successful exit from a business also requires engagement of a number of professional advisors, including lawyers, patent attorneys, valuers and business brokers. An accountant with an existing and trusted professional network is therefore uniquely placed to assist with the successful transfer of IP assets and maximisation of profit.
The best professionals seek to add value to their clients beyond their specific field of expertise. A good accountant recognises the value of IP and when other professionals can assist with ensuring its protection.