University spin-out companies - and the legal work advising on them - could be set for a renaissance after the Inland Revenue last week recognised a new tax structure that safeguards the interests of the academics who invest in them.

The Finance Act 2003 closed off many opportunities for such spin-out companies through anti-avoidance measures, which effectively forced academics investing in them to pay tax on their shareholdings before the companies had made any profit.

But the University Companies Association (UNICA) last week agreed a memorandum of understanding with the Revenue which offers tax safety for academics.

David Cohen, a partner with City firm Norton Rose, which acted for UNICA in negotiating the memorandum, said: 'Before this memorandum, if academics invested in spin-outs they faced the risk of large tax charges soon after purchasing the shares, when they had acquired no cash.

This has been a cause of spin-outs not going ahead.

The memorandum gives them a way forward and they will be able to participate without paying tax until they sell the shares.

'All the spin-outs from the last year or so which have been held back will now be able to go ahead.

There are many in the pipeline.'

David Mardle, a corporate partner at Taylor Wessing's Cambridge office, said the market for spin-out companies had been patchy, but added: 'If you speak to technology transfer companies - who help to create spin-outs - they have been dealing more with licensing agreements for universities than with spin-out companies for the past couple of years.

But that is beginning to change and spin-outs are becoming popular again.'

Jeremy Fleming