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Foreign Subsidiary

Can My Foreign Subsidiary Sell My Software to Its Own Customers?

Can My Foreign Subsidiary Sell My Software to Its Own Customers?

Your subsidiary in Ireland just closed its first local customer. Nobody drafted a license for it to sell your product.

That feels efficient. It is actually a gap that grows more expensive the longer it sits open.

If a tax authority or an acquirer ever asks what gives that entity the right to sell your software, “we’re the same company” is not an answer that holds up.

Your Subsidiary Does Not Automatically Have the Right to Sell Your Product

A foreign subsidiary is a separate legal entity, even when you own 100 percent of it. Owning the stock does not transfer the IP. Without a signed license, the subsidiary is selling something it has no right to sell, and its customer contracts rest on nothing.

What the Sublicense Agreement Actually Needs to Cover

A real intercompany sublicense is not boilerplate. It should spell out:

  • The exact scope of rights granted: product, territory, and customer types
  • Whether the subsidiary can modify, rebrand, or bundle the software locally
  • The royalty or transfer price the subsidiary pays, and how it is calculated
  • IP ownership language confirming the parent retains title
  • Termination triggers if the relationship or strategy changes

The Royalty Is Not a Formality, It Is a Tax Exposure

Once your subsidiary bills its own customers, you have created a related-party transaction. Tax authorities expect that royalty to reflect what an unrelated licensee would pay, an arm’s length price. Set it too low, or skip it, and you have handed a tax authority a reason to reallocate income between the two entities.

Skipping the Agreement Creates Problems That Compound

Founders who let a subsidiary sell informally are stacking risk, not saving time:

  • No documented arm’s length pricing, which invites a transfer pricing adjustment
  • Customer contracts signed by an entity with no right to license the underlying IP
  • A diligence flag the moment an investor or acquirer asks who owns what is being sold

Common Founder Mistakes

  • Assuming Common Ownership Replaces a Contract. Founders treat the parent and subsidiary as one business because they answer to the same board. Legally, they are two entities transacting with each other, and every transaction needs its own paper trail.
  • Setting the Royalty After the Fact, or Not at All. Many founders let the subsidiary keep whatever it collects, with no royalty flowing back. That looks generous until a tax authority asks why the entity holding the IP is not being paid for it.
  • Treating US IP Protection as Global Protection. Founders assume a US trademark or copyright registration covers the software everywhere the subsidiary sells it. IP protection is territorial. Selling in a country without confirming local protection leaves the product exposed in the exact market the subsidiary is building.

10-Minute Self-Check

Before your subsidiary invoices another local customer, you work through this:

  • Is there a signed, written sublicense agreement between the parent and the subsidiary?
  • Does it name the exact product, territory, and customer types the subsidiary can sell to?
  • Is a royalty or transfer price set, with documentation showing how it was calculated?
  • Does the agreement confirm the parent retains IP ownership, with the subsidiary holding only a license?
  • Have you confirmed what IP protection, if any, applies to the software in that country?
  • Does the agreement include a termination path if the subsidiary or the strategy changes?

If you cannot answer yes to all of these, your subsidiary is selling on borrowed authority, not a license.

Bottom Line

A subsidiary that sells software without a license is running on an assumption, not a contract. The gap stays invisible until a tax authority, an acquirer, or a dispute forces the question of who owns what is being sold. By then, fixing it costs far more than drafting it would have.

Ready to Put a Real License Behind How Your Subsidiary Sells?

Our launch-ready legal package is tailored to your software, your customers, and the way your product actually operates. Schedule a free 30-minute discovery call to discuss your business, your goals, and whether our team can help prepare your product for launch.

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