Transferring Founder IP Rights
Updated: May 17, 2020
If a company founder creates intellectual property ("IP") before forming an LLC or corporation, how does the LLC or corporation become the owner of the IP rights? For example, if a founder codes a software application (protected by copyright), then starts an LLC to license that software to clients, how does the LLC become the owner of the software and its copyright?
Short answer: It's not automatic. The founder needs to sign a legal document either licensing or transferring IP ownership to the LLC. Certain transfers also need to be recorded with the appropriate government office.
Longer answer: The founder owns the IP to her work when she creates it. Ownership in IP (trademarks, copyrights, trade secrets, and patents) does not automatically transfer to a company, even when the creator becomes an owner of the company. The only way to transfer the IP to the company is for the founder to sign and deliver an assignment of intellectual property rights to the company. This could be done at the founding of the new company by having the founder transfer ownership of the IP in exchange for her initial equity in the company. If a copyright, trademark, or patent was registered before the LLC was formed, then the transfer will need to be recorded in the Copyright or Patent & Trademark Office.
If the founder wants to retain ownership of the IP, the LLC or corporation still needs the rights to use the IP. In that event, the founder should enter into a written license agreement. The license agreement should contain, among other things, the right for the LLC to sublicense the IP, if necessary. A license is not recorded with a government office.
Next Question: Who owns the IP created by any member of the LLC after formation? That's a topic for another blogpost.