Intellectual Property
In an investment transaction, the investor will want to know that the intellectual property which the company needs to carry on its business is legally owned in the company as opposed to any other person (including the company’s founders). If due diligence discovers that this is not the case, the investor will likely require an assignment of intellectual property rights to the company as part of the investment transaction.
Will developed intellectual property belong to a company?
In the investment process, an investor will need to be satisfied that the intellectual property which the company needs to carry on its business is legally owned in the company as opposed to any other person (including the company’s founders). Â
At its most simplest, this may mean that a domain name used by a company for its website may have been registered in the name of an individual rather than the company itself. As a closing item for the investment, the investor should require that the registration is altered so that the domain is registered in the name of the company.
More importantly, a founder or other person may have worked on the development of a business idea or concept prior to the incorporation of the company. When the company was incorporated, any rights that the individual may in the business idea or concept may not have been formally transferred to the company.
Alternatively, a third party might have been involved in the creation of a company’s trade mark, design or logo or in developing software. If the third party was not employed by the company at the time, any intellectual property in the work created or developed may not have vested in the company unless the development/service agreement with the third party contained an express assignment of intellectual property in favour of the company.