Innovative advisers often put in place complex foundations, for reasons such as;
- Asset protection
- International markets
- CGT planning
- Exit, ETC
The concern is that many of these designs and models maybe unhelpful when one considers the law's pertaining to ESIC.
Take the 'vanilla' separation of IP and trading strategy. Holding PL with two 100% owned subsidiaries.
For a start you've got issues with R&D, but that aside, will the ATO agree that investment in Holding PL is investment in an ESIC when its actually IP co that owns the innovation and trading co that's engaged in commercialisation?
We've seen this exact model rejected by the ATO, even with consideration of the consolidation regime.
OK, that may not be the result in trial, or in other circumstances, however its a good clue regarding the policy interpretation and may result in many early stage innovation companies becoming ineligible ESIC's.
Its a developing area and one of considerable interest.
Consider a two company structure where company B acquires the IP of company A. Good from an investment clarity perspective. Innovation = share ownership = commercialisation, however more difficult for consideration of the early stage, revenue, expenditure and incorporation tests.
For Startups, fail fast & pivot aren't just buzz words, they're a method statement, so the intersection of ESIC laws, complex structuring and innovation is sure to cause more than a few trials before these complexities are drawn out.
Don't drown in complexity; Get your MVP, funding, move forward, fast!
That's what ESIC is trying to incentivise,