Where Should Your IP Live?

Legal, Tax, and Risk Insights for Innovation-Driven Businesses considering an ip holding company

Managing IP well isn’t just about protection—it’s about positioning. In this expanded resource, Stratford Group and Welch LLP explore what it means to use an IP holding company, when it’s worth considering, and how it can impact risk, tax strategy, and valuation.

If you're here, chances are you saw the full post online—thank you for your interest. We hope this longer-form version adds even more value.

At a Glance.

Why We Created This Resource

We had a lot to say on this topic—and for good reason. Whether you’re scaling your business, preparing for international expansion, or eyeing a future sale, how you manage and structure your IP matters.

Our recent blog offered a high-level look at IP holding companies. But the strategic, tax, and legal considerations run deep—so we created this extended version to explore the nuances and provide real guidance for decision-makers.

Executive Summary

Co-authored by Stratford Group and Welch LLP, this piece explores the strategic, financial, and tax implications of using a separate company to hold intellectual property. While this structure can enhance asset protection, support licensing, and improve tax efficiency, it also introduces legal and administrative complexity. This resource helps decision-makers weigh the benefits and risks to determine if it aligns with their growth and exit strategy.

About the Authors:

Natalie Giroux: Natalie is President of Stratford Intellectual Property, where she leads a team focused on aligning IP strategy with business growth. Recognized globally as a top IP strategist, she has helped over 100 companies protect and leverage their innovation assets.

Dilip Raj: Dilip is a Director at Welch Capital Partners, specializing in M&A advisory, valuation, and strategic finance. He supports clients through growth, fundraising, and complex transactions with a practical, finance-driven lens.

Zoran Vranjovic: Zoran is a Tax Partner at Welch LLP, advising business owners and high-net-worth individuals on corporate reorganizations, estate planning, and tax strategy. He brings deep expertise and national leadership in tax education and compliance.

What’s Inside

This download is designed to help founders, CEOs, CFOs, and legal advisors understand the business case for IP restructuring by presenting legal, tax, and financial considerations that can position IP for protection, growth, and long-term value.

• What is an IP Holding Company and Why You (Might) Need One - Strategic benefits of separating IP ownership
• The Impact of Structure on Valuation and M&A Transactions
• Navigating International Tax Considerations
• BONUS Decision Triggers Checklist

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What is an IP Holding Company and Why You (Might) Benefit From One.

Creating a separate IP holding company can help Canadian businesses protect key assets, streamline licensing, and reduce tax exposure—especially for those eyeing growth, international expansion, or a future sale. While the structure offers strategic and financial benefits, it also adds legal and compliance complexity. With proper planning, it can be a powerful tool to maximize value and manage risk.

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For businesses built on innovation, how intellectual property is structured can be just as important as what’s protected. An IP holding company is a separate legal entity created to own and manage IP assets—distinct from the day-to-day operations of the business itself.

This structure can offer strategic advantages, from safeguarding assets to streamlining licensing and unlocking tax efficiencies. But like any structural change, it comes with trade-offs. Understanding when—and why—it makes sense is the first step toward making an informed decision.

Your IP is Valuable - But is it Vulnerable?

Structuring IP ownership through a separate entity can protect valuable intangible assets from liabilities associated with the operating entity. For example, if the operating company becomes involved in a lawsuit or faces insolvency, the IP assets held by the separate entity are less likely to be affected.

This structure also allows the holding company to license IP to multiple subsidiaries, including back to the operating company, or to third parties, creating a centralized control and revenue stream, simplifying managing global IP licensing agreements, especially for multi-jurisdictional operations.

Depending on jurisdiction, the holding company can take advantage of tax treaties, lower tax rates, or other IP-friendly structures to minimize tax liabilities and overall tax burden on IP-derived revenues.

From a strategic perspective, housing IP separately makes it easier to sell or monetize those IP assets independently of the operating company, while facilitating joint ventures or partnerships by offering licensing arrangements rather than equity in the operating entity.

For larger operating companies, consolidating IP administration, enforcement, and protection of IP in one entity can lead to greater efficiency. It also helps ensure IP assets receive focused attention  without being lost in the demands of day-to-day business operations.

However…

Despite the aforementioned benefits, establishing a separate IP holding company isn’t without drawbacks. There are often potentially significant legal, administrative, and compliance costs, including the need for additional accounting and tax filings for the holding company. There is always a risk that tax authorities may scrutinize the structure to ensure it’s not purely for tax avoidance.

Licensing agreements between the holding company and operating entities need to be carefully structured. Poorly defined terms can result in disputes or limitations on how the operating company uses it’s own IP due to the terms set by the holding company.

Investors or potential acquirers unfamiliar with the structure may view it as overly complex or unnecessarily bureaucratic – so clarity and simplicity are key.

Jurisdiction matters too. Choosing the wrong location for the holding company can introduce unintended legal or tax complications. The holding company must ensure compliance with international IP and tax laws which can be challenging, especially in complex multi-national setups.

When Is a Separate IP Holding Company the Right Move?

This kind of structure tends to makes the most sense when the company:

• has significant IP assets that are critical to operations and need protection
• operates in multiple jurisdictions and can benefit from favorable tax or IP regimes.
• plans to license IP to multiple parties or needs the flexibility to divest IP separately from other business operations.

Ultimately, this approach is most effective when carefully planned with input from legal, tax, and business advisors to balance the benefits against the costs and risks.

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The Impact of Structure on Valuation and M&A Transactions:

To further explore the strategic implications of an IP holding company structure, we turned to Dilip Raj, Director at Welch Capital Partners. Drawing on his experience in valuation, investment banking, and M&A advisory, Dilip offers insights into how IP ownership models can shape deal structure, influence business valuation, and impact transaction readiness—critical considerations for any organization planning for growth, investment, or exit.

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IP is one of the most valuable assets a company can own, influencing market position, competitive advantage, and financial worth. When it comes to mergers, acquisitions, or raising capital, how your intellectual property (IP) is structured—and where it’s held—can significantly affect your valuation and deal terms. However, unlike physical assets, valuing IP is complex, as its worth is based on future economic benefits rather than tangible metrics.

Depending on the nature of the IP, common valuation methods include:

• The income approach - estimating value based on projected earnings;
• The market approach - comparing similar transactions;
• The cost approach - assessing the expense of developing or replacing the asset.

Each method has its place. Your chosen method will depend on factors like industry, commercial potential, and legal protections, making accurate valuation essential for licensing, investment, and M&A transactions.

IP Ownership: OpCo vs. HoldCo

Where the IP sits—within an OpCo (Operating Company) or in a separate HoldCo (Holding Company) —can materially influence valuation and transaction strategy.

If the IP is housed within the OpCo, it directly contributes to revenue and profitability, making it easier to quantify based on earnings. However, holding IP in a HoldCo shields it from operational risks, allows for tax-efficient licensing structures, and impacts how transactions are structured. Buyers acquiring only the OpCo may need to negotiate a long-term IP licensing agreement or purchase the HoldCo separately, adding complexity to the deal.

Deal Dynamics and Transaction Complexity

In M&A, IP can significantly impact deal value, but the actual price paid often differs from its theoretical valuation due to external factors. Valuation is an estimate based on financial models, while price reflects what a buyer is willing to pay, influenced by market demand, strategic importance, and negotiation dynamics. Companies may pay a premium if IP is critical for expansion or competitive positioning, while uncertainties can lower its price. Additionally, from an M&A perspective, structuring IP ownership in a HoldCo while licensing it to an OpCo can significantly impact deal structuring, valuation, and negotiations. This setup is often used to protect valuable IP assets from operational risks, but it introduces additional complexities when an acquisition occurs.

If a buyer is only acquiring the OpCo, they must secure continued access to the IP through a long-term licensing agreement with the HoldCo. The terms of this agreement—such as licensing fees, exclusivity, renewal conditions, and transferability—can directly impact the profitability and future cash flow of the OpCo post-transaction. Higher licensing costs could reduce the OpCo’s earnings, affecting its valuation and attractiveness to potential buyers. Buyers may negotiate to reduce or cap licensing fees or seek an option to acquire the IP later.

Alternatively, if the buyer wants full control over the IP, they may need to acquire the HoldCo or negotiate a separate IP transfer agreement. This can increase transaction complexity, requiring due diligence on IP ownership rights, existing licensing agreements, tax implications, and legal considerations across jurisdictions if the IP is held in an offshore entity. Additionally, if the HoldCo owns multiple IP assets or licenses them to multiple subsidiaries, the buyer must determine whether they are acquiring all the assets or only those relevant to the target OpCo.

Financing Impacts

The IP structure also affects financing. If the HoldCo generates consistent licensing revenue from multiple OpCos, it may present a more stable income stream, making it attractive for lenders. On the other hand, if the OpCo’s valuation is highly dependent on access to the HoldCo’s IP, banks or investors may require assurances that those licensing agreements are long-term and transferable in the event of a change of ownership.

Bottom Line:

IP valuation in M&A is about more than numbers.  It’s a complex but critical process that requires understanding where the IP resides, how it contributes to earnings, and what risks or restrictions the structure introduces. While IP can significantly influence the value of a business, its true worth is often shaped by strategic considerations, market dynamics, and how it is structured within the company.

Whether held in an OpCo or a HoldCo, IP ownership and licensing arrangements can introduce key challenges that impact deal negotiations, future cash flows, and the overall transaction structure. By strategically managing IP, companies can maximize its value while ensuring smooth transitions in M&A transactions.

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Navigating International Tax Considerations

While valuation and transaction strategy shape how IP is positioned in a deal, tax considerations often determine how efficiently that value is realized. To explore the tax implications of IP holding structures—especially in the context of intercompany licensing, jurisdictional planning, and cross-border transactions—we turn to Zoran Vranjovic, Tax Partner at Welch LLP.

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Where a corporation carries on business in both Canada and a foreign jurisdiction, it may be subject to taxation in that foreign jurisdiction based on the domestic laws of that country, while also being subject to Canadian taxation on that same income.  While double-taxation is typically avoided - foreign tax paid would generally be eligible for a foreign tax credit in Canada - there would be added complexity involved in tracking and accounting the corporation’s activity specific to that foreign jurisdiction.

In many cases, tax filings and reporting might be simplified by having a separate corporation (“ForeignCo”) to carry on activities in that jurisdiction. Each corporation in the group would then operate solely  within their respective jurisdiction.

In the event that ForeignCo requires the use of IP held in Canada, royalty or other payments would be made from ForeignCo to the Canadian owner of the IP (“IPCo”).  By holding this IP in a separate IPCo, use of the underlying IP can be provided to various entities in the group, without the need for IPCo to actually carry on activity in those foreign jurisdictions and subject itself to foreign tax filings and related complexities.

Managing Transfer Pricing and Documentation Requirements

It is important that transactions between related Canadian corporations and foreign entities are at arm’s length rates and that these prices can be reasonably supported in the circumstances.  Ultimately, each country will have its own concerns as to whether an appropriate amount of income is being taxed in that jurisdiction, making transfer pricing a key area of scrutiny.

Canadian taxpayers are required to maintain “contemporaneous documentation” in support of these transactions. Failure to do so may lead to significant penalties being assessed.  In addition to support for the transaction prices, the parties should also have agreements in place setting out the terms and conditions of the arrangement.

Transactions between the Canadian corporations (IPCo) and non-arm’s length foreign corporations (ForeignCo) are generally subject to information reporting requirements in Canada.  In particular, forms T1134 (Information Return Relating to Controlled and Non-Controlled Foreign Affiliates) and T106 (Information Return of Non-Arm’s Length Transactions with Non-Residents) report information about foreign entities within the group and transactions with these entities and are used by the Canada Revenue Agency to identify transfer pricing issues.

Accessing the Capital Gains Deduction

Finally, holding IP in a separate corporation can provide tax savings on the sale of the business.  Individual residents in Canada are entitled to a capital gains deduction that may effectively allow them to realize up to $1.25 million of capital gains in their lifetime on a tax-free basis, where shares of a “qualified small business corporation” (“QSBC”) are sold.  The tax savings to an individual who is able to use this capital gains deduction may be as high as $335,000.

In order for shares to qualify as QSBC shares, the following tests must be met:

• the corporation must be a Canadian-controlled private corporation;
• at the time of sale, at least 90% of its assets must be used principally (i.e., more than 50%) in an active business carried on primarily (i.e., more than 50%) in Canada;
• throughout the 24-month period preceding the sale, the shares were owned by the vendor or someone related to the vendor; and
• throughout that same 24-month period, more than half of the assets were used principally in an active business carried on primarily (i.e., more than 50%) in Canada.

The shares of a Canadian corporation that carries on significant business outside of Canada may not meet these tests.  However, by holding IP in a Canadian IPCo and having other corporations (ForeignCo) carry on the foreign activity, a vendor may realize tax-free capital gains from the sale of IPCo shares, even if the IP is licensed to those other corporations.  While a gain on the sale of the ForeignCo shares would not be eligible for the capital gains deduction, this type of structure may at least provide access to this deduction for the IPCo shares.

Bonus: Is It Time to Consider a Separate IP Holding Company?

Deciding whether to restructure IP into a separate holding company isn’t always straightforward—but there are clear moments when it becomes worth serious consideration. If you're evaluating the best way to structure your IP, consider these strategic triggers.

Decision Triggers Checklist

A separate IP holding company may be the right move if:

• Your IP is a core business asset that needs insulation from operational risk
• You’re planning to expand internationally or operate across multiple jurisdictions
• Licensing your IP to third parties or across corporate entities is part of your strategy
• You're preparing for a capital raise, acquisition, or exit
• You want to optimize tax efficiency across your group of companies
• You’re exploring joint ventures or alternative monetization options for your IP
• You’d benefit from separating IP value from OpCo earnings for valuation or planning purposes

If two or more of these scenarios apply, it may be time to explore a structured IP strategy in more detail.

Final Thoughts from Stratford

Your IP is valuable—but without the right structure, it may also be vulnerable. As we've explored throughout this article, housing intellectual property in a separate holding company can provide greater protection, operational flexibility, and strategic advantages. But it also introduces complexities that must be carefully managed across valuation, deal structuring, and tax compliance.

The takeaway? It's not just about owning IP—it’s about positioning it to support your business’s long-term success. That means aligning your structure with your strategy, and planning proactively with the right legal, financial, and tax advisors at the table.

Thank you to our contributing partners at Welch LLP—Dilip Raj and Zoran Vranjovic—for sharing their valuable insights on the valuation and tax considerations involved. Their expertise brings clarity to a nuanced but critical aspect of IP strategy, helping organizations better understand how to protect and position their intangible assets for long-term success.

When thoughtfully managed, your IP can do more than protect—it can power your next stage of growth.

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Expertise You Can Trust.

When to Engage Stratford or Welch

Structuring your IP is a strategic decision that requires both vision and precision. Each firm brings a distinct lens to your IP strategy—legal, strategic, financial, and tax—to help you build a structure that protects value and positions you for what’s next.

• Engage Stratford Intellectual Property when you need to assess the strategic value of your IP, align your IP portfolio with business objectives, or develop a flexible, growth-focused IP structure.
• Connect with Welch when you're ready to evaluate tax implications, ensure compliance with Canadian and international regulations, or prepare your business for financing, restructuring, or a transaction.