There are several legal and tax implications that may get triggered when you assign IP or assets.
An assignment or transfer of assets, rights, or contracts may occur in several scenarios, including:
- Assigning all or part of a company's assets, technology and intellectual property to a different entity as part of a corporate restructuring;
- Assigning all or part of a company's assets, technology and intellectual property to a different entity as part of an "asset sale" acquisition;
- Assigning just a few contracts or intellectual property assets to another entity in a spin-out transaction, or just to change who has the right/obligation to collect on or fulfill those contracts/rights; or
- Assigning the obligation to fulfill debts to another entity when one entity decides to wind-down operations.
So, what kind of legal implications should you keep in mind before going down this road? Consider the following:
- Some entities may require board or managerial consent before assigning or transferring assets or intellectual property, especially if it is a major assignment (such as a corporate restructuring, acquisition or spin-out transaction).
- Some contracts may have Non-Assignment provisions that would prohibit transfer or assignment. In fact, one of the biggest pieces of "legal due diligence" that the acquiring party will engage in (and also one of the biggest pieces of legal expense incurred) is reviewing assigned contracts to make sure they can be assigned. If there are Non-Assignment provisions in any contracts, then you need to execute a "Third-Party Consent" with the other parties to such contracts to approve the assignment.
- If the contracts or intellectual property being assigned have any value associated with them, then an assignment of those assets may trigger taxable gain for the recipient, depending on what the consideration is.
- Receiving consideration for the assignment of any assets (including intellectual property) may trigger taxable gain for the assignor, depending on the tax basis of those assets.
- Companies should always work with tax and accounting advisors during any asset or IP assignment to make sure assigned assets have the proper accounting allocations, otherwise end-of-year bookkeeping and taxes can become much more complicated.
Because of all of this, Savvi recommends that anybody going through any sort of IP or asset transfer or assignment should talk with legal counsel and tax advisors to understand all of the implications of this sort of transaction.
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