The short answer is YES!
Lots of technology startups, internet startups and software startups I work with have typically developed some degree of intellectual property prior to actually organizing a business entity (corporation, LLC…etc). Sometimes that IP is very early stage, sometimes, especially in the case where a founder is a developer or engineer, the IP may be very far along in terms of development. Sometimes that IP may simply be a domain name. This may not seem like a big problem initially – but if the company ever wants to (a) enter into any significant contractual relationships relating directly or indirectly to the IP, (b) raise capital via private equity or debt, or (c) sell the business, not assigning the IP to the company can be a big problem. The other parties in the transactions mentioned in the previous sentence will require that the company represent that it owns the IP – and when it can’t make that representation (because it doesn’t) – those other parties will require that it be duly assigned by the founder to the company. What if the founder then demands a big payday? What if he walks – and takes the IP with him?
To prevent all of this and a litany of other problems, founders should assign to the company whatever IP they own / have developed that is related to the business of the company – and the assignment should be made upon inception when the first grant of stock is made to the founder. This may be done via a simple, broadly worded, IP assignment agreement.
Of course, this assignment should be coupled with other considerations, such as whether the business should hold it’s IP in an IP holding company, and how founders ownership will vest. Check back soon for posts on these topics.
As always, you should consult an attorney to help you with the matters discussed in this post.