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Intellectual Property
Investors want to be sure that the company legally owns its intellectual property. Often, IP may be created or registered in someone else’s name. If so, investors will likely require that the relevant IP is assigned to the company as part of the investment transaction.
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Ownership of intellectual property (IP) will often be a critical aspect of a business. IP comes in various forms, including trade marks and trade names, copyright, know-how and patents.
For investors, it is crucial to verify during due diligence that the company legally owns the IP which it needs to carry on its business rather than any other person, including the company’s founders.
As an example, a domain name used by a company for its website might be registered in the name of an individual rather than the company itself. As a condition to investment, the investor should ensure that the domain registration is transferred to the company’s name.
Alternatively, a founder or someone else may have developed a business idea or concept prior to the company starting to trade. The rights to this IP may not ever have been formally transferred to the company.
Similarly, a third party contractor may have worked on creating the company’s trade mark, design or logo or on developing software. If the third party was not employed by the company at the time, the IP rights in the work might not automatically belong to the company unless the development or service agreement with the third party included an express assignment of IP rights to the company.
Accordingly, as part of the investment process, investors will require that all IP is properly assigned to and owned by the company.
