IP rights in the corporate structure: what startups and scale-ups often look at too late

Why IP rights deserve a permanent place in corporate structuring

In corporate structuring, a lot of attention is paid to shareholders, governance, financing and fiscal structure. However, the real value of a tech company often lies elsewhere: in the IP rights and quasi-IP rights that distinguish the company in the market. Think of software, brands, patents, models, databases, domain names, social media handles and trade secrets.

That is precisely why it is remarkable how often these assets come into view late. In practice, this is risky. Not only because IP rights are an important asset, but also because their legal treatment can vary significantly by law and country. For a startup that operates internationally or wants to scale up, this is not a detail but a structural focus.

The tricky part is that intangible assets don't behave properly like many tangible assets do. Where real estate is usually placed in the company of the country where it is located, IP rights within a group can actually be spread across multiple companies, registers and legal systems. This makes the question of who owns the rights, what law applies and how transfer or pledge works, directly relevant to the organization of the group.

For founders and management teams, this mainly means that a corporate structure without a thoughtful IP position on paper may seem logical, but may be vulnerable in practice.

What law applies to IP rights in an international group?

One of the first complications is applicable law. National IP law is based on the legislation of the country where that right exists. This legislation not only determines how the law originates and what powers the rightholder has, but also how that right should be treated under property law.

That sounds technical, but the practical consequences are huge. If a company has an international IP portfolio, that portfolio can therefore fall under several legal systems at the same time. This concerns questions such as: who legally qualifies as a rights holder, what powers does a licensee have, how does transfer work and what requirements must a security right meet?

The situation is different when it comes to regional, supranational rights. For property treatment, rights such as the EU trade mark, the EU design and the Community plant variety right are in principle linked to the Member State where the holder has his seat or is established. If such a link is missing within the EU, you will be connected to the country where the IP office in question is located. This means that in certain structures, Spanish or French law can suddenly become relevant, even if the group itself is not located there.

For startups and scale-ups, this is particularly important as soon as investors, financiers or international group companies come into the picture. A funding document under Dutch law then cannot of course be sufficient when it comes to IP rights that are subject to mandatory requirements from another legal system. The corporate structure and the IP structure must therefore be linked, even across borders.

Who is actually the rights holder?

Registered rights seem clear, but they are not always

In the case of registered IP rights, such as trademarks, registered designs and patents, it can generally be assumed that the holder in the register is also the copyright holder. That provides guidance. But here, too, there is a nuance that is relevant in transactions and restructuring: registration of a transfer is often not constitutive for the transfer itself, but is necessary for third party action.

In other words, a transfer may have already taken place legally without it being visible in the register. At the same time, the absence of a correct registration can cause problems for third parties. For a company that wants to manage its portfolio properly, or that wants to take action against infringement, this is not a formality.

Unregistered rights often require fact-finding

Unregistered rights, such as copyrights, unregistered design rights and related rights, usually lack a relevant register. Then the question of who owns the rights quickly becomes a matter of fact.

This is particularly recognisable for tech companies. Software is often a core asset, but legally the rights to it are not always where entrepreneurs think they are. Was the programmer an employee or did he work as a self-employed person? Who created the work exactly? Did the rights end up with the company from the start, or should there have been a valid transfer afterwards?

That difference is essential. When a programmer has worked as an employee, the rights can lie with the employer relatively quickly. When the same activities have been carried out by a self-employed person, a further deed is often necessary to obtain the rights with the company. The same question arises when it comes to logos, designs, content and other creative output.

For startups that build quickly with freelancers, external developers or temporary teams, this is a classic risk. Not because something has to go wrong right away, but because it's only during an investment round, due diligence or exit that documentation is missing or that the chain of transfer is not closing.

Foreign makers make it more complex

The complexity increases when employees or contractors work abroad, or when rights have been created abroad. Then foreign law can also play a role in the question of who is the copyright holder and whether the transfer has taken place correctly.

This also explains why a standard due diligence approach is not always sufficient. Where corporate law research is often organized by jurisdiction of the company under investigation, research into IP rights often requires a more centralized approach, with specialist knowledge of the legal systems that apply to the rights in question.

For growth companies that use international talent, this is an important signal. The legal origin of IP rights does not automatically follow the corporate structure. Sometimes it follows the creator, the place of creation or the applicable law to the IP right in question.

Transfer of IP rights: much more than a signature

A valid transfer requires more than one registry change

Most IP rights are subject to total or partial transfer or other transfer under Dutch law. But a transfer is only legally sustainable if the transfer requirements are met. In any case, this requires a valid title, a delivery act and the transferor's authority to dispose.

In practice, the focus is often on the act or on the adjustment in the register. However, it is precisely the title that is where things regularly go wrong. Especially within groups, IP rights are sometimes “transferred” from one company to another, without it being properly defined on the basis of which the transfer takes place. Then it can look like everything has been arranged, while the legal basis for the transaction is missing.

That risk is not theoretical. If the alienating company later goes bankrupt, there may be an interest in investigating whether the rights have actually been legally transferred. For a curator, this may be a reason to take the view that the rights still belong to the transferor.

This is an important lesson for startups and scale-ups within a group: an internal rearrangement of IP rights is not an administrative formality. The transfer must also be legally correct within a group context.

The delivery itself requires precision

Under Dutch law, in principle, delivery requires an appropriate act in which the rights are specified in sufficient concrete terms and where the transferor declares that he transfers those rights to the transferee. In practice, this often happens via a purchase agreement with a separate deed of transfer or separate statements of transfer.

That customization makes sense. Different IP offices have different requirements for registration, language and formalities. That is why, in practice, several documents are often drawn up that are tailored to the requirements of specific registers. This also prevents sensitive commercial agreements, such as the purchase price, from becoming public because the entire agreement has to be registered.

For unregistered rights and quasi-IP rights, the emphasis is even more on a clear description. Because there is no register that provides guidance later, it is important that it is clear exactly which rights are being transferred. Sufficient determination is crucial there.

Quasi-IP rights are often underestimated

Not all valuable intangible assets are classic IP rights. Domain names, social media handles and trade secrets play at least as important a role for many startups. However, in restructuring or transactions, they are still often treated as if they naturally move with the rest of the company.

That is risky. In practice, domain names are not just about an agreement, but also about actual control. The transferee must actually get access, for example by providing a transfer token that allows the domain name to be transferred to another provider or account.

This is often even more difficult with social media handles, because the portability and the actual switch partly depend on the conditions of the platform. Anyone who only contractually states that an account will be transferred is therefore not there yet.

Once again, trade secrets have their own dynamic. Due to their factual nature, transfer is not simply a paper exercise. The transferee must be placed in possession of the carriers on which those secrets rest, while the transferor must contractually commit to secrecy and non-use. Here, too, factual control is at least as important as legal wording.

This is an important point of attention for tech companies, because it is precisely these quasi-IP rights that are often directly linked to marketing, product development, customer reach and competitive advantage.

Why the registry doesn't say enough

A register provides comfort, but not always complete security. In IP practice, it happens that rights in a register are renamed, while it is not certain that the underlying transfer was legally valid. That difference can go unnoticed for a long time.

Moreover, registration often has significance primarily towards third parties. Anyone who wants to maintain, pledge or involve a portfolio in a transaction has an interest in having the registers reflect the legal reality as closely as possible. Otherwise, problems can arise, for example when a company wants to take action against infringement and is confronted with a defense about its position as a rights holder.

This not only applies to transfers, but also to name changes and other transitions. For a growth company that regularly restructures, sets up entities or centralizes brand names, this is a practical topic that is simple but later becomes unnecessarily expensive.

In addition, taxes are often due for entries in registers. With large portfolios, especially with patents or foreign registrations, these costs can be considerable. A restructuring with many IP rights therefore also requires a realistic cost assessment.

Where does the IE belong in the group?

The logic of a holding company or separate IP company

Because IP rights and quasi-IP rights can represent great value, it is not obvious to simply keep them in risky operating companies. Operating companies simply run business risk, liability risk and bankruptcy risk.

With that in mind, it makes sense to place IP rights in a holding company, a separate IP company or another company with limited operational risks, thereby distancing those rights from the risks of daily business operations.

This is attractive for startups and scale-ups for several reasons. Not only from the point of view of risk management, but also from the point of view of management. A centralized IP portfolio makes it easier to administer rights, make new requests, coordinate enforcement, and organize transfers in restructuring or transactions.

This usually includes a licensing structure where the holding company grants licenses to group companies. In such a setup, it is often arranged that the license can be canceled and in any case ends in the event of financial mischief on the part of the licensee. Sublicensing can also be part of the structure.

For companies with multiple products, markets, or country companies, this can be a workable way to legally separate usage and ownership without blocking the operational business.

Fiscal and practical limits

Choosing the company that holds the IP is not just legal. Practical and fiscal considerations also play a role. A favourable tax environment can be attractive, but placing IP rights in a specific jurisdiction is not always feasible. Management often really has to take place from that jurisdiction, and in practice, that requires people, organization and presence.

As a result, the ideal structure is not automatically the most theoretically efficient structure. For scale-ups that want to structure internationally, this is an important reality checkpoint. A paper IP company without a real management function is not necessarily the right solution.

In joint ventures, an extra layer is added. If equality between partners is important, it is less obvious to transfer relevant IP rights to one of the partners. Then a separate joint venture company for those rights may be more obvious.

How do you actually create the desired structure?

With a new group, it is relatively easy to apply for new registered IP rights immediately in the name of the holding company or IP company. This is more difficult for new unregistered rights. Employees who create software or other works are often not employed by that holding company, but by an operating subsidiary.

In that case, the rights must be transferred periodically to the holding company or IP company. This again requires a valid title. This can take shape, for example, through a purchase relationship or through a research and development agreement where the holder pays for work in exchange for transferring the established rights.

With existing rights, the exercise is often more difficult. Then registered and unregistered IP rights, as well as quasi-IP rights, must still be transferred from daughters to the desired holder. In addition, a symbolic price is not always the wisest choice from a legal point of view. When bankruptcy follows later, discussion can arise about harming creditors. That is why the fair value of the rights to be transferred is relevant.

This raises questions of appreciation. The value of IP rights is far from always easy to determine. Various methods can come into play and specialist valuation is often necessary. Especially when it comes to cross-border transfers between affiliated companies, the payment must also be made at arm's length. In practice, this can be a serious barrier to restructuring.

For founders and CFOs, this is perhaps the key message: centralizing IP within the group is legally possible, but rarely free, simple or purely internal. It concerns valuation, taxation, documentation, licenses, existing contracts and often foreign formalities.

What startups and scale-ups should take away from this in concrete terms

For young growth companies, it is tempting to seriously structure IP only as soon as an investor asks for it. Still, that's late. If you put things in order earlier, you often prevent bigger problems later.

The most important lesson is that IP rights cannot be separated from corporate structuring. The question of which law applies, who is the right holder, whether the transfer has taken place validly and where the rights are ideally held within the group belongs to the same strategic discussion as governance and financing.

In addition, it is wise to be extra focused on unregistered rights and quasi-IP rights. This is where the visibility of a register is often lacking, while the commercial value can be enormous. For tech companies, software, know-how, accounts and digital assets are often at least as important as a trademark registration or patent.

Finally, a tidy IP structure is not only valuable defensively. It also helps with growth. A well-designed portfolio makes due diligence clearer, supports enforcement, reduces discussion within the group and creates more peace of mind for investors, financiers and buyers.

Conclusion

IP rights deserve a full place in every corporate structure, especially among startups and scale-ups that derive their value primarily from technology, brand and know-how. If you wait too long to put those rights in order legally and practically, you run the risk that growth will later be curbed by uncertainty about ownership, transfer or structure.

At Startup-Recht, we see that a lot of profit can be made here. Not by making everything unnecessarily complex, but by understanding early on where the rights lie, which rules apply to them and which structure suits the phase and ambition of the company. This is not a paper luxury, but a foundation for scalable growth.

‍