Operating Under Two Companies? Here's Why You Need An Intercompany IP Licence (2026 Updated)

If you're running a business that's split across two companies (or you're thinking about it), you're not alone.

It's common to have one company that employs staff and signs contracts, and another that owns the brand, software, product designs, or "the magic" that makes the business valuable. Sometimes this happens deliberately for tax, investment or risk reasons. Other times it happens by accident after a restructure, a new shareholder comes in, or you set up a second company for a new product line.

But there's a legal catch that catches a lot of founders off guard: if one company owns your intellectual property (IP) and another company uses it to trade, you usually need a proper intercompany IP licence.

Without one, you can end up with messy ownership disputes, investor due diligence red flags, VAT and accounting confusion, and real problems proving who's allowed to use what.

Below, we'll break down what an intercompany IP licence is, when you need one, what it should cover, and the most common mistakes we see when businesses operate under two companies.

What Counts As "Intercompany IP" (And Why It Matters More Than You Think)

"IP" is a broad term, and in day-to-day business it usually includes the valuable assets people don't physically hold in their hands, like your branding, content, software, and know-how.

When you operate under two companies, you'll often have:

• Company A (the "IP Owner"): holds IP assets like the brand, software codebase, designs, manuals, or product formulas; and
• Company B (the "Trading Company"): sells to customers, hires staff, pays suppliers, runs the website, and invoices revenue.

That split can be sensible, but it creates a key legal question:

On what legal basis is Company B allowed to use Company A's IP?

If the answer is "we're owned by the same founder" or "it's all basically the same business", that's not the kind of answer banks, buyers, or investors want to hear. Legally, two companies are two separate people. They each need clear rights and obligations when they share assets.

An intercompany IP licence is the document that makes that permission clear. In plain English: it's the agreement where the IP-owning company grants the trading company the right to use specific IP, on defined terms.

In practice, IP that often needs licensing between group companies includes:

• Business names and branding (logos, taglines, packaging designs)
• Website content, blog content, and product photos
• Software (apps, platforms, internal tools, customer portals)
• Training manuals, SOPs, templates, internal playbooks
• Copyright works (videos, courses, written materials)
• Databases and proprietary datasets
• Trade secrets and confidential know-how

If your structure is still evolving, an intercompany licence often sits alongside other "foundation" documents, like a Subsidiary Set Up or group governance plan. The important thing is making sure your structure matches how you actually operate day to day.

When Do You Actually Need An Intercompany IP Licence?

You'll usually want an intercompany IP licence whenever one company owns IP and another company uses it in a way that matters commercially.

Here are the most common situations where an intercompany IP licence becomes essential.

1) You've Set Up A Separate "IP Holding Company"

This is a classic setup. You keep valuable IP in one company, and the trading risk (customer disputes, employment claims, supplier issues) in another. If the trading company is using the brand and systems, it needs permission.

A licence makes it clear the trading company can use the IP without "owning" it - and sets the rules for that use.

2) You're Spinning Up A New Entity For A New Product, Market, Or Investor

Let's say you've built software under your main business, but now you want a second company to commercialise it with a new investor cap table. If the software IP stays in the first company (or in a third holding company), you'll need a licence for the new entity to use it.

This is especially important if the new entity will:

• sign contracts with customers;
• offer warranties or service levels; or
• raise funds based on product capability.

3) Staff Create IP In One Company, But Another Company Uses It

This is where things quietly get risky.

For example, Company B employs your developers and marketers, but Company A claims it "owns the IP". Employment relationships are often where IP is created, and ownership can be affected by your contracts and practical arrangements.

Even when a business is friendly internally, you still want the paper trail to support the structure - including IP clauses and proper documentation. This often links back to having a solid Employment Contract in place with clear IP and confidentiality terms.

4) You Want Clean Due Diligence For A Sale, Investment, Or Finance Application

If you ever want to sell the business (or even just bring in an investor), someone will ask:

• Who owns the IP?
• Where is the IP documented?
• Does the trading company have a legal right to use it?
• Can that right be terminated unexpectedly?

If your answer is "it's all in our heads" or "they're sister companies so it's fine", you may be creating delay, renegotiations, and reduced valuation.

A properly drafted Intercompany IP Licence turns that uncertainty into a clear, bankable asset arrangement.

What Can Go Wrong If You Don't Have One?

Because the companies are connected, it can feel like an intercompany licence is "just paperwork". But skipping it can cause real headaches - especially when things change (new shareholders, new directors, new relationships, or a dispute).

Here are the big risks we see.

The Trading Company Might Not Be Able To Prove It Has Rights To Use The Brand Or Product

If Company B is selling under a brand owned by Company A, and there's no licence, Company B may struggle to show it has permission to:

• use the logo and brand assets;
• operate the website and social media under that name;
• license the product onward to customers; or
• grant sub-licences to distributors and partners.

This can become urgent if a platform, payment processor, or third party asks for proof of rights (especially in IP infringement or takedown scenarios).

You Can Accidentally Create A Tax And Accounting Mess

Intercompany arrangements often have financial implications: royalties, cost sharing, management charges, and VAT treatment can all come into play.

We won't dive deep into tax here (you should speak to your accountant for that), but from a legal perspective, your agreements should line up with how money and value actually move between the companies.

If the trading company is paying for development and marketing, but the IP holding company claims all ownership and value, you want a clear structure that matches the commercial reality.

Investors (And Buyers) May Treat It As A Red Flag

During due diligence, missing IP documentation is one of the fastest ways to lose momentum. It suggests the business isn't properly "investor-ready", even if the underlying product is excellent.

A clean IP chain usually involves two parts:

• documents showing who owns the IP (often assignments); and
• documents showing who can use the IP (often licences).

Depending on your history, you might also need an IP Assignment to fix historic IP ownership before the licence even makes sense.

Founder Fallouts Become Much More Complicated

Even if you're not expecting any disputes, it's smart to plan for the fact that businesses evolve. Co-founders leave. Directors resign. Shareholders disagree on direction.

If the IP sits in one company and trading happens in another, the lack of clear documentation can turn a simple separation into a high-stakes dispute about who controls the core asset.

This is also why a strong Shareholders Agreement can be so important alongside the intercompany licence - so ownership and decision-making rules don't get tested for the first time during a crisis.

What Should An Intercompany IP Licence Include (So It Actually Protects You)?

A good intercompany IP licence is more than "Company A licences IP to Company B." It should reflect how you actually run the business, and it should still make sense if the relationship becomes less friendly (for example, if ownership changes).

Here are the clauses we commonly include or review.

1) A Clear Definition Of The IP Being Licensed

Don't keep it vague. Ideally, the licence will define IP broadly but still identify key assets, like:

• brand names, logos, and domains;
• copyright works (content, designs, code);
• registered and unregistered trade marks;
• confidential information and trade secrets; and
• future improvements and updates.

This avoids arguments later about whether a new feature, product line, or rebrand is included.

2) Scope: Exclusive Or Non-Exclusive, And What The Trading Company Can Do

Scope is where licences often succeed or fail.

You'll usually need to decide:

• Exclusive (only the trading company can use the IP in the agreed territory/field); or
• Non-exclusive (the IP owner can license it to others too).

You'll also want to spell out whether Company B can:

• sub-license to customers, distributors, or franchisees;
• modify or adapt the IP (e.g. update the codebase);
• use the IP worldwide or only in the UK; and
• use the IP across multiple brands or trading names.

3) Fees, Royalties, Or "Nil Consideration" (And Getting The Paper Trail Right)

Some intercompany licences involve a royalty. Others are "nil fee" arrangements, especially early on.

Either way, you want the agreement to be explicit so it's not later argued that the trading company was meant to pay, or that the IP owner can suddenly demand backdated fees.

Also, contracts need to be properly formed and documented to be enforceable. If you're unsure what makes an agreement binding, the basics in What Makes A Contract Legally Binding are a helpful starting point.

4) Quality Control (Especially If The IP Is A Brand)

If Company A owns the brand, it may want control over how Company B uses it, so the brand reputation stays consistent.

Quality control can cover things like:

• brand guidelines and tone of voice;
• minimum product/service standards;
• approval rights for marketing materials; and
• rules on reputational harm.

This isn't about making things bureaucratic. It's about protecting the IP owner from the trading company damaging a valuable asset.

5) Improvements, New IP, And Who Owns What Going Forward

This is a big one for 2026, especially for tech-enabled businesses and teams using AI tools.

If Company B improves the product (new features, new content, new materials), does that new IP:

• automatically belong to Company A?
• belong to Company B, with a licence back to Company A?
• get jointly owned (often messy in practice)?

There isn't one "best" answer - but there is a best answer for your structure, and you'll want it written down clearly.

6) Confidentiality And Data Protection Alignment

Group companies often share staff access, customer data, and internal systems. If your intercompany licence involves access to platforms or customer information, you may also need to align it with your privacy and data arrangements.

That can include a Data Processing Agreement where one company processes personal data on behalf of the other, and ensuring your external-facing Privacy Policy matches what's actually happening behind the scenes.

7) Term, Termination, And What Happens After Termination

A licence needs an end-game plan.

Key questions include:

• How long does the licence last?
• Can it be terminated for breach, insolvency, or change of control?
• If it ends, does Company B have to stop using the brand immediately?
• What happens to customer contracts that depend on the IP?
• Does Company B have to transfer domains, social media accounts, or code repositories?

This is the section that often saves businesses when a restructure happens quickly or relationships change.

How To Set It Up Properly (A Practical Checklist For 2026)

If you're thinking, "Okay, we probably need this - where do we start?", here's a straightforward checklist you can work through.

Step 1: Map The Companies And Their Roles

Write down, in plain English:

• Which company signs customer contracts?
• Which company employs staff?
• Which company owns the domain, brand, and code repositories?
• Which company pays for development and marketing?

This helps avoid drafting an agreement that looks neat but doesn't match reality.

Step 2: Confirm Who Actually Owns The IP Today

Ownership can be complicated if contractors or previous directors created the work, or if IP was built before the company existed.

Where needed, you may have to fix ownership with assignments before licensing is meaningful.

Step 3: Decide The Commercial Deal (Even If It's "No Fee")

Are there royalties? Cost recovery? Or a nil-fee licence while the group is founder-owned?

Make sure your accountant is across the commercial approach too, so the legal agreement and financial treatment line up.

Step 4: Document It In A Proper Intercompany IP Licence

This is where the agreement should be tailored to your business model - especially around sub-licensing to customers, improvements, and termination mechanics.

Templates are risky here because group structures can look similar on the surface but differ in the details that matter (like who employs developers, who holds customer contracts, and where value is meant to sit).

Step 5: Keep Your Corporate Records Neat

Once signed, store the licence with your corporate records and make sure directors in both companies can access it.

And if you later restructure, bring in investors, or change directors, review the licence so it stays fit for purpose.

Key Takeaways

• If one company owns IP and another company uses it to trade, an intercompany IP licence is usually essential to document permission and protect value.
• Running two companies without a licence can create due diligence red flags, ownership disputes, and uncertainty over who can use the brand, software, and content.
• A strong intercompany IP licence should clearly define the IP, scope of use (including sub-licensing), fees (if any), improvements ownership, confidentiality, and termination outcomes.
• If historic ownership is unclear, you may need to fix the IP chain first (for example, through IP assignments and updated employment/contractor terms).
• Getting this right early helps you stay protected from day one and keeps your business "investor-ready" as you grow.

If you'd like help putting the right intercompany IP licence in place (or you're not sure whether your current structure actually matches your paperwork), you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.