Procedures for Establishing a Spin-Off Business

General Principles

There may be a number of reasons and objectives in establishing a spin-off business. In turn that may lead to a number of possible structures and levels of participation in terms of ownership and management.

Whatever structure is adopted, there are likely to be 4 stakeholders:

The University, as:

the original owner of the information and/or intellectual property on which the business is likely to be based, and

the party which has funded and otherwise supported the background development of that information and/or intellectual property,
facilitated the initial commercialisation strategy.

The originator(s), who have:

made contribution to the development of the information and/or intellectual property on which the business is likely to be based, and participated in and possibly assisted with the initial commercialisation strategy.

External managers (and possibly financiers) who can bring management expertise to establish, develop and run the business at the early stages and who may provide some funding or resources to enable that to occur.

External investors who may enter the business when capital is raised.

The University's Intellectural Property Policy will provide a guide to the allocation of interests between the University and the originator(s) but, in the event of other stakeholders being introduced, equity allocation will vary from case to case depending on:

the level of input from the University and the originators
whether any other institution claims ownership of any element of the intellectual property or information, for example if originators were previously employed elsewhere and the former employer claims an interest
the number of originators
the nature of the business
the requirements of the external managers and investors.

Specific Procedures

Allowing for flexibility based on the above, the following requirements should be considered in a proposal to establish a spin-off business:

Adherence to a tax effective [precedent] model for the establishment of the spin-off business and the allocation of equity interests.

Unless there are other imperatives, the preferred spin-off vehicle is a standard company, limited by shares and incorporated in Australia.

A business plan must be prepared, to the satisfaction of the Director Swinburne Knowledge, demonstrating the potential for the spin-off entity to assume the business and provide a return to equity holders.

The University, for the reasons described above, should be:

granted free-of-fee equity carry,
able to take that equity through Swinburne Ventures as trustee for the Swinburne Intellectual Property Trust,
reimbursed for any intellectual property protection expenses incurred to date,
granted a right to participate in future spin-offs, and
receive a royalty entitlement on either future income or capital raisings.

Intellectual property will be transferred to the spin-off entity and it must assume the responsibility and costs of continuing any intellectual property protection and defence.

The University should be granted free-of-fee rights to continue to conduct research and teaching on a non-commercial basis in the particular field, provided that does not prejudice the commercial interests of the spin-off entity.

The University should have first rights to be appointed to perform R & D services for the spin-off entity on arms-length commercial terms.

External managers must be able to provide the resources to establish, develop and run the business at the early stages without recourse to the University for further funding or support.

External Investors will be introduced to fund commercialisation activities on the understanding that the founding equity holders will be diluted according to the amount of capital raised compared to the value of the business.

There will be no presumption that the University / Swinburne Ventures or the originators will have or maintain a controlling interest in the spin-off entity.

There must be a Shareholders Agreement (or its equivalent) in terms satisfactory to the University / Swinburne Ventures [in standard form]

Outcomes should be tax neutral for the University / Swinburne Ventures.