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A guide to intellectual property when selling a business

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What happens to intellectual property assets in a business sale?

When selling a business, all company assets will be transferred to the new owner, which will typically include intellectual property assets. Company assets can be separated into different categories and distinguished by type, such as tangible assets and intangible assets, which is where intellectual property belongs.

A tangible asset is a physical item of value, such as machinery or property.

An intangible asset holds value, although it is non-physical, such as goodwill, reputation, or intellectual property.

Selling a business with intellectual property rights means that the buyer can exploit the intellectual property to maintain profitability and gain an advantage over competitors.

We run through examples of intellectual property, how to sell a business with intellectual property assets and what happens to intellectual property when selling a business.

What is intellectual property?

Intellectual property is an intangible asset owned by the business - some of the common types of intellectual property are listed below.

-          Copyright - A copyright agreement restricts the use of certain material by other parties and grants exclusivity to the owner of the copyright agreement. It protects the material from being copied, reused, or duplicated without express permission or a copyright license.

-          Patent – A patent is an exclusive right to an invention that can be made or used, and it is granted by the UK Intellectual Property Office. If an individual or company infringes the patent, the patent holder will be able to take legal action and seek damages. Patents are invaluable as they guarantee exclusivity and can help establish household brands.

-          Trademark – A trademark grants the holder exclusive rights to a design, sign, or wording, such as a logo. It protects the brand identity and helps distinguish the original creator of a particular service or goods.

-          Trade secret – A trade secret can be anything from a prized recipe to a winning formula. This information is protected and can be transferred to the new owner to maintain future profitability and protect the unique qualities of the business. If the business holds a trade secret, the buyer will be required to sign a Trade Secret License Agreement and a Non-Disclosure Agreement (NDA) as part of the business transfer.

As intellectual property grants exclusive rights to the business over certain materials, an invention, sign, or wording, it is advantageous for business buyers to invest in a business with valuable intellectual property.

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How to sell a business with intellectual property (IP) assets?

When you prepare to sell a business with intellectual property assets, you will need to ensure that intellectual property is protected.

  • Review all formal documentation to ensure that it is up to date and all the supporting evidence is collated
  • Ensure that registration is completed promptly as the process can be lengthy
  • Renew intellectual property rights if renewal is due ahead of the sale, such as a patent
  • Establish a clear intellectual property infringement process to determine how infringement can be reported and subsequent action taken

Intellectual property is commonly sold as part of a business sale as the delivery of a particular service or goods is often dependent on intellectual property rights.  

When selling a business with intellectual property assets, you may request a Non-Disclosure Agreement (NDA) before divulging confidential information that the intellectual property rests on. Following the business sale, ownership of intellectual property assets will be transferred to the business buyer.

How to value a business with intellectual property assets?

Intellectual property is a highly prized asset as it can shape the profitability of a business and prove to be a unique selling point that competitors strive for.

As with any business, the value is often determined by how much a buyer is willing to pay.

The value of the intellectual property can be determined in three ways:

-          How much would it cost to create the intellectual property?

-          What is the current market value of the intellectual property?

-          What revenue does the intellectual property generate for the business?

It is important to remember that intellectual property is an intangible asset, and therefore, its value can fluctuate.

For more information on selling a business with intellectual property, get in touch with a member of the Selling My Business team.

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