AI-Generated Photo
Written by Tim Carapiet-Petit, Lisette Oosterveen and Bart Dreef
Imagine: you have a brilliant idea, you start a company, and it runs smoothly, but you realize you haven't yet thought about the next step. How do you structure your business to minimize risks and protect valuable assets? This is where setting up a smart holding structure comes into play.
A holding structure generally consists of at least two layers:
- The Holding (HoldCo or parent company)
This is the company that carries out little or no operational activities itself, but manages the assets and usually holds the intellectual property. The shareholders of the HoldCo are the founder(s), often through a personal holding company. In [insert link: this] blog, we explain the advantages of a personal holding company for founders. Later on, investors often join at this level, although they may also participate at the OpCo level if they do not wish or are not permitted to be involved in all activities of the group.
- The Operating Company (OpCo)
This is where the actual work happens: serving customers, selling products, managing staff, etc. This is the entity where revenue is generated, but where risks also arise.
Through such a holding structure, the ownership of assets (such as real estate, intellectual property, or shares in OpCo) is held by the holding and thus separated from the operational risks in the OpCo. In the event of an OpCo bankruptcy, the assets in the holding remain protected and do not form part of the OpCo's bankrupt estate.
Another significant advantage of this structure is the flexibility it provides for future investments, sales, or restructurings. Different OpCos can operate different businesses, allowing risks to be spread and enabling separate businesses to be sold separately with ease. Investments can be attracted at various levels, which is sometimes less effective when all business activities are consolidated within a single company.
Furthermore, setting up such a structure offers various tax benefits (due to the participation exemption), for example, ensuring that all proceeds from the sale of that subsidiary are received tax-free by the HoldCo, before being distributed to shareholders—or reinvested in new OpCos!
Because the intellectual property rights (such as software, brands, designs, know-how, etc.) are housed in the HoldCo and the OpCo needs these rights to carry out its activities, a bridge must be created between the two entities to make this possible. This bridge is the license agreement.
A license agreement is a legal document that specifies that the operating company receives certain rights to use something owned by the holding and how the OpCo may use these rights. These rights can include:
- The right to use a brand name
- Access to software or technology
- Use of copyrighted material
At the same time, you want all new intellectual property rights to be transferred to the HoldCo. Through royalties (compensation for the use of intellectual property rights), revenue can be distributed within the group in a fiscally advantageous manner.
Establishing a holding structure with a separate HoldCo and OpCo can be beneficial from the outset, but it can also be implemented at a later stage—though this does involve certain complexities, including tax considerations.
A license agreement is not a luxury but an essential part of a well-structured startup. It provides legal certainty, protects valuable assets, and makes your business more attractive to investors at a later stage. At Wintertaling, we are happy to help set up such (or other suitable) structures for your startup.
