AeThex IP Management & Governance Framework

Executive Summary

The AeThex organizational structure implements a centralized IP holding company (IPCo) model where Labs acts as the IP owner, licensing proprietary technology to operational subsidiaries (Corp, Dev-Link) and the Foundation via formal agreements. This framework ensures clean IP ownership, maximizes valuation, manages tax efficiency through transfer pricing, and maintains compliance with related-party transaction rules.

1. Labs as IP Holding Company (IPCo)

All core intellectual property developed by Labs is owned by Labs, including:

• Patent portfolios (AI, algorithms, architectures)

• Software copyrights and source code

• Trade secrets and proprietary methodologies

• Trademarks and brand assets

Benefits:

• Clean IP Title: Consolidated, encumbrance-free IP ownership improves enterprise valuation

• Protection: IP separated from operational liabilities (Corp consulting disputes, Dev-Link platform issues)

• Management: Centralized IP portfolio administration across subsidiaries

• Tax Efficiency: Enables transfer pricing strategies and licensing revenue optimization

2. Labs → Corp: Commercial Licensing Agreement

Commercial Technology License

Corp receives a Commercial License to "make and use" proprietary Lab technologies in commercial service delivery, specifically:

• Advanced AI models for game development optimization

• Custom algorithms for multiplayer architecture

• Tools and frameworks created through R&D

Mechanics

• Formal Written Agreement: Mandatory documentation of rights, restrictions, and payment terms

• Scope: Right to integrate Labs IP into consulting deliverables and products for paying clients

• Exclusivity: Non-exclusive (Labs may license to Dev-Link or external parties)

• Term: Multi-year with renewal options

Royalty Structure (Transfer Pricing)

Licensing fees from Corp to Labs must comply with the Arm's Length Principle—pricing comparable to unrelated companies in similar circumstances.

Value-Based Pricing Model

For unique intangibles (advanced AI), cost-plus pricing is insufficient. Instead:

1. Economic Value Uplift: Measure how Lab IP enables Corp to charge premium rates

   • Example: If Lab AI enables Corp to charge 30% premium for specialized dev services, royalty should reflect that uplift

   • Comparable: Industry benchmarks for AI licensing typically 15-25% of incremental revenue

2. Benchmarking: Document comparable third-party licensing rates for similar technologies

3. Documentation: Maintain detailed transfer pricing study with:

   • Functional analysis (what each entity does)

   • Economic analysis (value creation from IP)

   • Comparable pricing analysis

   • Selection of transfer pricing method

Example Royalty Model

Labs AI licensing to Corp:
- 18-22% of gross revenue from projects using Lab IP
- Minimum annual royalty: $500K
- Quarterly true-up reconciliation
- Annually reviewed for market value updates

3. Labs → Dev-Link: Licensing for Platform Features

Dev-Link platform may license Lab IP for:

• AI-assisted candidate assessment and matching

• Specialized skill evaluation algorithms

• Predictive analytics for placement success

Licensing Terms

• Usage-Based: Royalty per successful placement (SaaS unit economics)

• Tiered: Higher rates for higher-volume usage

• Fair Market Value: Tied to cost-per-acquisition (CAC) savings to recruiters

Example: If Lab AI reduces CAC by $500 per hire, royalty of $100-150 per placement is defensible.

4. Transfer Pricing for Intercompany Services

Beyond IP licensing, subsidiaries share services (HR, payroll, IT, accounting). All must be priced at Arm's Length.

Routine Service Pricing (Simplified Cost-Based Method)

For routine administrative services, use Simplified Cost-Based Method (SCM):

Charge = Actual Costs + Markup (typically 5-15%)

Eligible Services:

• HR administration, payroll processing

• IT infrastructure and support

• General accounting and bookkeeping

• Legal documentation review

Requirements:

• Clearly define which activities qualify

• Meticulously track direct costs

• Document markup selection (compare to similar service providers)

• Revisit annually for continued compliance

Documentation

Maintain Intercompany Service Agreement including:

• Services provided

• Cost allocation methodology

• Markup rationale

• Annual cost reconciliation

5. Foundation-Related Transfers (Related-Party Safeguards)

The Foundation may receive services or assets from Corp/Dev-Link. All must be at Fair Market Value (FMV) to prevent private inurement and preserve 501(c)(3) status.

Examples of Related-Party Transactions

1. Corp provides office space to Foundation

   • Must charge Fair Market Rent (comparable leases in area)

   • Document: Annual appraisal or comparable rent analysis

   • Forbidden: Below-market lease = private inurement

2. Corp donates curriculum materials to Foundation

   • Document as charitable contribution

   • Fair value: Cost of development + reasonable markup

   • Record in Foundation's fund accounting system

3. Foundation leases servers from Corp

   • Must charge market-rate cloud infrastructure pricing

   • Forbidden: Cost-based pricing (too favorable to Foundation)

   • Analyze: AWS/GCP pricing for equivalent services

Conflict of Interest Policy

Foundation must adopt and enforce a Conflict of Interest Policy including:

• Board members declare conflicts with related for-profit entities

• Disclosure of family/business relationships with Corp/Dev-Link executives

• Voting restrictions: Conflicted directors abstain on related-party votes

• Annual certification and review

Key Rule: Any director who derives financial benefit from transaction recuses themselves from approval.

6. Fair Market Value (FMV) Determination

Methodology

For Technology Licensing (Labs IP):

• Comparable License Analysis (market rates for similar IP)

• Relief-from-Royalty (value of IP to users)

• Residual Profit Split (allocate profit between Lab innovation and operational execution)

For Services:

• Comparable Uncontrolled Price (market rates for same services)

• Cost-Plus Analysis (cost + reasonable markup)

• Resale Price Method (if service is resold externally)

Documentation Requirements

For each significant related-party transaction:

- Description of transaction
- FMV determination method used
- Comparable benchmarks cited
- Calculation and rationale
- Supporting documentation (appraisals, market analysis, etc.)
- Board approval and minutes
- Contemporaneous written documentation

7. Operational Separation Checklist

To maintain liability shields and transfer pricing defensibility:

• Separate articles of incorporation for each subsidiary

• Separate corporate bylaws and governance policies

• Distinct boards of directors (even if overlapping members)

• Separate bank accounts and financial books

• No commingling of funds or assets

• Formal intercompany agreements for all shared resources

• Separate tax returns filed annually

• Separate insurance policies and liability coverage

• Distinct letterhead, business cards, signage

• Independent accounting and financial reporting

• Transfer pricing documentation for all intercompany transactions

• Minutes documenting substantive board decisions

• No guarantees of sibling subsidiaries' obligations

Risk: Failure to maintain separation invites IRS "piercing the corporate veil," exposing parent company to subsidiary liabilities.

8. Foundation Governance (501(c)(3) Compliance)

Fund Accounting

Foundation must use Fund Accounting (unlike for-profit accounting), separating resources into:

Unrestricted Funds: Available for any exempt purpose Restricted Funds: Donor-designated (e.g., "for open-source only")

All transfers from Corp must be documented as grants/contributions with restrictions clearly noted.

Related-Party Transaction Board Approval

Before any Corp transfer to Foundation:

1. Independent majority votes

2. Minority includes conflicted party vote counts documented

3. FMV analysis presented

4. Minutes record rationale and vote

5. Excess Benefit Transaction disclosure if applicable

Annual Form 990 Reporting

Foundation must file IRS Form 990 disclosing:

• Compensation of officers/directors

• Related-party transactions

• All grants and contributions received

• Fund balances and restrictions

Public Filing: These forms are public, subject to IRS scrutiny.

9. Benefit Corporation Governance (Parent Level)

Parent company incorporated as Benefit Corporation (not C-Corp) specifically to:

• Balance shareholder profit with stakeholder interests

• Legally protect Foundation funding decisions

• Enable long-term R&D investment (Labs) even during fiscal pressure

• Align investor expectations with dual mission

Board Duties

Benefit Corporation directors have legal duty to:

1. Consider impact on stakeholders (workers, customers, community)

2. Balance shareholder returns with general public benefit

3. Document consideration of non-shareholder interests in board minutes

This provides legal cover for capital allocation to Foundation or high-burn Labs research.

10. Private Inurement Prevention

Definition

Private inurement = net earnings of Foundation inure to benefit of any shareholder/individual = immediate loss of 501(c)(3) status.

High-Risk Transactions

1. Over-Compensation: Foundation paying executives above-market salaries = hidden private inurement

2. Below-Market Services from Foundation: Foundation providing services to Corp at cost (instead of FMV) = private inurement to Corp

3. Related-Party Conflicts: Foundation board dominated by Corp executives with financial interest in transactions

Controls

• Independent Board: Clear majority of unaffiliated directors

• FMV Documentation: All transactions with related parties must show FMV (can withstand IRS audit)

• Excess Benefit Transactions: Must be prohibited and subject to correction procedures

• Annual Certification: Officers certify no private inurement annually

• Form 990 Schedule: Disclose all related-party transactions transparently

11. Transfer Pricing Documentation Requirements

When Required

Any payment between related entities (Labs→Corp, Corp→Foundation, etc.) requires documentation.

Documentation Package

1. Intercompany Agreement

   • Parties, services/IP, payment terms, effective date

   • Signed and dated

2. Transfer Pricing Study

   • Executive summary

   • Functional analysis (functions, assets, risks of each party)

   • Economic analysis (industry data, market conditions)

   • Comparable price analysis

   • Selection and application of transfer pricing method

   • Sensitivity analysis

   • Conclusion re: Arm's Length pricing

3. Contemporaneous Documentation

   • Prepared at time of transaction (or within 60 days of return filing)

   • Supported by benchmarking analysis

   • Updated annually if rates change

IRS Penalty Risk: Failure to maintain documentation = 20-40% penalty on underpayment, plus interest and potential accuracy penalties.

12. Annual Compliance Checklist

Each Fiscal Year:

• Review intercompany transfer pricing—update for current market rates

• Verify FMV for all related-party transactions

• Update transfer pricing study if material changes

• Confirm operational separation maintained (separate accounts, agreements, etc.)

• Foundation Form 990 filed on time with related-party disclosures

• Separate tax returns filed for each subsidiary

• Conflict of Interest certifications renewed

• Board minutes document transfer pricing compliance review

• Fund Accounting records reviewed for restriction compliance

• Royalty/license payments reconciled and properly documented

• IP ownership and licensing agreements current

13. Key Documents Template Checklist

Maintain and update:

• Intercompany Technology License Agreement (Labs→Corp, Labs→Dev-Link)

• Intercompany Service Agreement (shared services pricing)

• Grant Agreement (Corp→Foundation donations)

• Conflict of Interest Policy (Foundation board)

• Related-Party Transaction Policy (approval procedures)

• Transfer Pricing Study (FMV methodology)

• Fund Accounting Manual (Foundation accounting standards)

• Operational Separation Documentation (evidence of corporate veil maintenance)

• Annual Compliance Checklist (governance review)

Conclusion

This framework ensures:

1. IP Protection: Centralized control and defensive valuation

2. Tax Compliance: Arm's Length transfer pricing reduces audit risk

3. Liability Insulation: Separate entities prevent cross-contamination

4. Tax-Exempt Status: Related-party safeguards preserve Foundation 501(c)(3)

5. Investor Confidence: Clear governance and discipline in capital allocation

All executives must understand and comply with these requirements. Non-compliance carries significant IRS penalties, potential loss of tax-exempt status, and personal liability for directors/officers.

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Last Updated: December 2024 Owner: General Counsel / Finance Review Frequency: Annual (or upon material change) Distribution: Board of Directors, CFO, Foundation Treasurer, Subsidiary Officers