Reading time: 5 minutes

As a startup, your intellectual property (IP) is likely to be one of the most valuable assets in your business. Startup founders should ensure that they assign their IP rights to the company they create. Otherwise they risk compromising the business’ future growth. In this article, we set out four significant reasons why it is in the business’ best interests for founders to assign their IP rights to the company.

1. Proper Structuring of the Business

Many startup founders will dive headfirst into developing their ideas to see if they have commercial potential. As a result, it is common for founders to have already developed some IP by the time they set up their business’ legal foundations and incorporate a company. Therefore after incorporation, founders need to make sure they assign their IP to the company. This is because the startup is now the company entity, rather than you and your co-founders as individuals.

Instead of a single company, you may choose to set up a dual company structure. This means that valuable assets are contained in a holding company, while day-to-day operations are conducted by an operating company. If you use this structure, make sure the founders:

  • have assigned IP to the holding company; and
  • there is a licence for the operating company to use the IP.

2. Preventing Disputes

It is important for startup founders to assign their IP to the company. This is because the departure of a co-founder can threaten the progress of your business.

Although you and your co-founders may see eye-to-eye at the early stages of developing your business idea, unfortunately, circumstances may change. If your co-founder leaves the business, and no IP assignment has been made, they may have grounds to claim the IP they developed before the incorporation of the company is theirs to take. 

The last thing you would want is for your co-founder to  take valuable IP with them. This would leave your business with no ability to move forward and potentially a new competitor in the market.

3. A Risk When Raising Capital

When scaling your business, you will probably seek external investors to help fund their growth. Investors often come on board as co-owners and shareholders of your company. They usually conduct due diligence to ensure that the risk of investing in an early-stage startup is worth it.

As part of their due diligence, they will look at whether the company actually owns its most valuable assets. This is because they will want to assess the potential of successfully commercialising your IP. But if it turns out your company does not actually own that IP, then the value of your business decreases significantly.

Therefore, at worst, not assigning IP to the company can jeopardise external investment into your company. At best, sorting out your company’s IP ownership at the last minute can postpone a capital raising round, which can already be a stressful time.

4. Risking a Future Acquisition

Confirming IP ownership will also be an important factor if another company is interested in acquiring your business.

Any potential acquirers will want to confirm the value of the prospective purchase. Part of that involves checking that the company owns critical IP. When the acquirer takes over, they will want to ensure that they can continue to operate and grow the business. Your potential acquirer will not want to risk you and other founders leaving the company and taking the IP with you.

If the due diligence process uncovers that IP was not effectively assigned to the company by founders, this may impair or jeopardise the acquisition.

How to Assign IP to the Company

You can assign your IP to your company using an IP assignment agreement or deed. You can specify that this agreement will relate to all the IP owned by founders which relates to the business.

The deed assigns all current and future rights in the IP to the company. It would also state that any future IP rights that relate to the assigned IP automatically vest in the company.

Key Takeaways

Formally assigning IP to your company after incorporation may seem like an additional administrative burden. But it is actually a critical step for your future success. If the company does not own valuable IP, this can turn away potential investors and acquirers, or result in complicated disputes if a co-founder leaves. If you need assistance in preparing a founder’s IP assignment deed, contact LegalVision’s IP lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What does it mean to assign intellectual property rights?

When you assign your IP rights (including your copyright), you sell the rights to your work. You transfer ownership and you cannot use your work again. Likewise, you cannot impose terms and conditions on the use of the work.

What does it mean to license intellectual property rights?

When you license IP, you retain ownership of the IP rights. You give permission to another business to use your IP and you set the terms. 

Webinars

New Kid on the Blockchain: Understanding the Proposed Laws for Crypto, NFT and Blockchain Projects

Wednesday 25 May | 10:00 - 10:45am

Online
If you operate in the crypto space, ensure you understand the Federal Government’s proposed licensing and regulation changes. Register today for our free webinar.
Register Now

How to Expand Your Business Into a Franchise

Thursday 26 May | 11:00 - 11:45am

Online
Drive rapid growth in your business by turning it into a franchise. To learn how, join our free webinar. Register today.
Register Now

Day in Court: What Happens When Your Business Goes to Court

Thursday 2 June | 11:00 - 11:45am

Online
If your business is going to court, then you need to understand the process. Our free webinar will explain.
Register Now

How to Manage a Construction Dispute

Thursday 9 June | 11:00 - 11:45am

Online
Protect your construction firm from disputes. To understand how, join our free webinar.
Register Now

Startup Financing: Venture Debt 101

Thursday 23 June | 11:00 - 11:45am

Online
Learn how venture debt can help take your startup to the next level. Register for our free webinar today.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards