IP Transfers

IP Part 2 - Assignments

Continuing from the last post introducing the concept of Intellectual Property, this time I wanted to focus on exactly what to do with that IP you possess. Let's take a step back though and see why this is important before we talk about getting it into the company.

Your Value

Chances are, your company is worth nothing when you start. That's not a dig, it's the truth. You may incorporate and issue shares to the founders and those shares are worth...drumroll please....ZIP! Your company's initial valuation is based upon what it has earned, produced, or possesses that is worth something. Beginning, your company likely doesn't have anything earned, hasn't produced anything worth paying for yet, and possesses nothing of value.

Notice in that last sentence I said "your company" doesn't have anything of value.

You, individuals, possess a design, you might possess a trademark, you might possess code or an app. People create those things, not companies. But if you want your company to actually have some value to make your valuation make some sense to an investor, all of the stuff you've created needs to be owned by the company.

Get it In!

Very, very soon after incorporating you need to do a couple of things. First, you need to assign the founders' IP to the company. That's how the founders are, in effect, buying their shares to the company. I give you something of value, and you give me shares in a corporation. This insures that when someone is looking to invest in this company or buy the company, the thing that makes the company valuable is actually owned by the company. Otherwise, it's just a valueless shell of a legal fiction.

The second thing you need to do is be sure that everyone who does any work for the company (founders, employees, contractors) signs an invention assignment agreement. This document basically says that any work done by the worker on behalf of the company is owned by the company and not the individual who did the work. Ideally, you'd want this done before the work is done, but sometimes you'll have people working for months before you even incorporate. This could cause a sticky situation later if it isn't taken care of.

As a side note...if you're working your 'day job' while forming your startup, make sure to have a lawyer review your employment agreement to see if you signed an invention assignment...which would possibly give your day job the ownership rights in everything you do for your startup