After establishing a living trust and a limited liability company (LLC), I decided to set up an intellectual property holding company (IPHC) with a Wyoming LLC to further protect my copyrights from any potential personal and/or business liabilities.

Since I live in California, I have to take additional steps to avoid paying the minimum $800 USD annual tax to the Franchise Tax Board (FTB). The trick is to make sure that the IPHC does no “work” in California, therefore sidestepping the requirement to register with the California secretary of state and paying the franchise tax.

Here’s my workflow for using a Wyoming LLC as an IPHC:

• As the writer, I transfer all my literary copyrights and other business-related intellectual properties (i.e., domain names and artwork) to the IPHC (Wyoming LLC).
• As the IPHC owner, I sell first serial and reprint rights to third parties (i.e., anthology and magazine publishers), and licensed the ebook business (California LLC) to further monetize the copyrights.
• The ebook business (California LLC) turns the licensed copyrights into ebooks and hosts the related websites, paying a 25% royalty rate to IPHC on all related income.

Under this particular arrangement, I no longer get paid as a writer and everything I write is out of love for the craft. (Some things never change.) With both the IPHC and the ebook business being taxed as corporations, all the monies from writing are staying in the businesses for now.

The only work that the IPHC does is responding to emails and signing licensing agreements. If a short story needs a revision before being submitted, the manuscript get sent back to the unpaid writer in California. Since the IPHC derives passive income from licensing to third parties and the ebook LLC, the business isn’t subject to California tax laws.

The ebook business still pays for the annual $800 USD franchise tax since a substantial amount of work and income is taking place in California.

Why go through the trouble of setting up an IPHC? With the copyrights and other intellectual properties in a separate business entity (the Wyoming LLC), the opposing attorney who sues me personally and/or the ebook LLC will have to hire a Wyoming attorney and the charging order will prevent the IPHC from being liquidated. If the ebook LLC implode from a lawsuit, I can start a new business entity and resume business with the licensed intellectual properties.

If you’re interested in setting up an IPHC, do your homework and consult with an IP attorney (if necessary). This isn’t something that you should rush into. An IPHC is like any other business. You need a business plan to outline your goals, establish a clear workflow and maintain a well-documented paper trail. Failure to do any of this correctly will result in an expensive mess if you’re sued and everything unravels.