Implementing the transformation: focus on licenses
Reorganizations are slowly becoming commonplace in the life of the company (groups), be they transformations of a smaller or larger volume. If these also affect the legal personality of the company, including separation, spin-off, merger, and amalgamation, we must also deal separately with the licensed assets within the assets of the company. In the event of a change of ownership (such as a company acquisition), we must proceed with similar caution, whether it is a group of companies, either in the previous or in the new group.
In the previous parts of our series of articles, we examined the possible restructuring forms and the definition of the licensee, as well as the operational part of the process and the topic of managing licenses and related documentation. In conclusion, we deal with the management of subscriptions and maintenance contracts, and we examine the risks inherent in company restructuring and possible ways to reduce the risk.
Software maintenance and subscriptions: what should we pay attention to?
In the case of perpetual licenses, it is a common decision to purchase software maintenance on an annual basis, as it provides usage rights for newly released versions, as well as other additional rights for users (virtualization, license movement between devices, etc.) while providing support. Maintenance documentation must be handled in conjunction with perpetual license documentation, as this is the only way to prove to the vendor that we have had, and may still have, tracking.
Managing subscriptions can be trickier than this, as the validity of a subscription for a given period does not depend on whether we can prove that we have had that subscription before. However, if the vendor provides a discount for the renewal of a subscription, proof of the previous period (s) may be required. It is also a good idea to keep documents proving extended subscriptions.
Why restructuring is an audit risk?
Company restructuring always involves a high audit risk due to the uncertainty arising from the transformation. Improper or incomplete transfer of licenses, whether in terms of discrepancies or incomplete license documentation, will result in a lack of licenses. Not to mention that there is likely to be an infrastructure transformation underway that could also affect the number of licenses required.
In addition, there are vendors, including the deservedly infamous Micro Focus, which specifically highlights company restructuring as an event generating non-compliance and, in our experience, visits their customers after the transformation.
Conscious preparation for company restructuring and proper, prudent procedures significantly reduce audit risks. If we are aware of our license assets and the expected infrastructure transformations, we can start risk management already when planning the restructuring, thus minimizing the license shortage and the subsequent acquisition of licenses.
Grace period: good possibility, take all the opportunities!
In the case of some vendors, we saw an example that after the negotiation – given the complex processes surrounding the company restructuring – in agreement with the customer, the vendor grants a grace period to settle the licenses. Vendors are not obliged to provide a grace period. Depending on the agreement or the vendors’ discretion, this is a period of up to a few months during which the vendor waives the non-conformity.
If we have such a grace period, we have that time to settle any deficiencies with the vendor. We can only really take advantage of this opportunity if we are aware of our existing rights and infrastructural transformations – that is, we have planned exactly how we want to operate after the restructuring and what licenses we need, so a relatively short grace period can be enough to solve the deficiencies.
Summary
In our three-part serie of articles, we reviewed the most important features of company restructuring from a licensing point of view, dealing with the management of licenses and license documentation, and reducing the risks arising from the transformation.
The most important thing is to be aware of our licensed assets, the rights provided by the licenses, and to be able to prove all of this. In this case, we should not be surprised and the process of restructuring will be much simpler, better, and finally yet importantly, cheaper for us. Licensing experts can help with this, assisting to map licenses, optimize infrastructure, and provide strategic support in consultation with vendors to complete the restructuring process in a legally appropriate and cost-effective manner.
The original article was published in Hungarian in ITBusiness.hu.
