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How do they earn any profits if they don't hold the equity? If they hold the equity, then they also are on hook for the liability. I used to work in banking and
by jacoblyles 16y ago
How do they earn any profits if they don't hold the equity? If they hold the equity, then they also are on hook for the liability. I used to work in banking and a lot of our clients would have loved to sell all their bad loans to a fully owned subsidiary, but the law simply doesn't let you do that.
I'm not a corporate lawyer but in my experience in the financial markets it is simply impossible to avoid liability while holding equity. Maybe there are some loopholes but it is not nearly as easy as you suggest.
- sokoloff 16y agoIANAL either, but I could imagine many structures that would allow for the effect the holding company would want. Pay a company for distribution and logistics expertise and make that transfer-pricing arrangement profitable for the logistics company. Then, what profit remains goes to the company owning the patent on the drug (and the liability). The parent company could hold limited partnership stakes, convertible bond and/or options with a fixed term (which might be conveniently the same length as the patent term). If the drug "survives" 17 or 20 years without significant lawsuits, call in the options and claim your equity. If the drug explodes and tanks the discovering company, the parent company holds options, bonds or LP shares that are now worthless. Still, they're in business.