Startups often look to grow at a blistering pace, taking advantage of the winds of innovation blowing in their sails. While this breakneck progress can be advantageous, there are some risks. That includes the possibility of overlooking some small – but important – steps regarding intellectual property.
Among these potential mistakes? Failing to legally clarify ownership of relevant IP. It’s a misstep that can have serious consequences.
How it can go wrong with founders
Founders of startups often work on ideas and IP long before officially forming their company. This timeline can lead to some potential issues, as the American Bar Association explains.
A business entity does not automatically own IP previously created by its founders. To address this, when a business is founded, the founders usually agree to contribute relevant IP to the company (often in exchange for something like common stock). This ensures the business entity, not any individual, owns the IP.
There may also be issues due to previous employment contracts, which often stipulate any creations by the employee belong to the company. This language should always be reviewed before forging ahead. And if someone who helped create the IP leaves before the company is formed, there may also be some ownership questions to sort out.
Employees and contractors
Just because someone was working for you when they helped create IP does not mean the company automatically owns said IP. While that is generally the way things work, the safest course of action is to explicitly state as much in each employment contract.
This is true for contractors as well. If you bring on a consultant to help develop proprietary software, for example, they may be able to claim ownership of that IP. Just as with the above, a contract can resolve this issue while ensuring everyone involved is on the same page.
Innovative intellectual property is often the lifeblood of a startup. Do not let one error early in the process derail your future ambitions.