Q: What is IP?
A: IP, or Intellectual Property, is a creation owned by an individual or company that is protected by law, similar to how physical property such as real estate is protected. The most common forms of IP are copyrights, trademarks, patents, and trade secrets. As you start working on your company, you are likely developing multiple forms of IP: business plans and strategies, product prototypes, software code, domain names, logos, websites, sketches, drawings, algorithms, company processes, customer lists, and “negative know-how” (things you’ve learned not to do). It is not necessary to have registered your IP (i.e., patent filings, trademark filings, domain names, etc.) for it to be protected. If you have been developing the business model or product for your new company, you likely have created IP.
Q: How do I use my IP to purchase my shares?
A: When incorporating your business, it is essential that you purchase your shares from the corporation. You can do so using cash or IP. Atlas makes it easy to use IP – you can click a button in our dashboard and use the IP that you are already contributing to the business during the incorporation process to purchase your shares.
Q: How much do I need to pay for my shares? How does this work if I’m using IP?
A: Atlas follows the standard market practice of assuming that at formation, your company is worth US$0.00001 multiplied by the number of issued shares. Atlas defaults to 10,000,000 shares issued at formation. You need to purchase your shares at par value (US $0.00001 each). Atlas calculates the amount you need to pay, in either cash or with IP, to purchase your shares. For example, if you own 85.0% of the company, which is 8,500,000 shares and each share is initially worth US$0.00001, the purchase price of your shares is US$85.00.
Because the amount you will pay for your shares is small, newly formed companies generally assume that your existing IP is worth at least the value of the shares you are purchasing from the company. Using Atlas ensures that your contribution qualifies as a tax free exchange. If you believe that you hold IP that is worth substantially more than your shares, please seek the advice of an attorney or tax accountant.
Q: Why should I contribute my IP to the company?
A: You need to contribute your IP to the company because the company must own the IP it uses to operate. When you create a company using Atlas, all founders assign relevant IP —both IP that is developed prior to forming your company as well as the IP that will be developed after the company is formed—to the company. Future investors and potential acquirers will expect that your company owns this IP when entering into an agreement with you, and assigning your IP to your company could help you avoid future litigation over IP ownership, for example if a founder were to leave the company.
Transferring your IP at the time you form your company also avoids negative tax implications.
Q: Is there any IP that I should not be contributing to the company?
A: You should only contribute IP relevant to your newly formed company. For example, if you have been working on a different business idea or an artistic endeavor, such activities likely created IP that you would not want to assign to your new company. Similarly, employers—both prior and current—usually own the IP you created while working for them. You cannot use this IP in your new business and, because you don’t own it, you cannot assign it to your new business. The legal documents you sign while incorporating a business with Atlas contribute only your IP that relates to the company. Read more from Cooley about Moonlighting
If you have registered IP that is relevant to your business, additional steps may be required in order to properly assign this IP to the company, including submitting filings to the authorities with whom the IP was originally registered. To be certain that you understand what is required, check with the authority you originally registered the IP with and/or an attorney.
Note: This FAQ is not intended to be legal or tax advice. Circumstances will vary substantially. Atlas provides documentation and incorporation services only. We are happy to refer you to qualified legal, tax and accounting professionals if you have any questions.
Q: What documentation can I use to demonstrate that I purchased my shares with IP?
A: Your Confidential Information and Inventions Assignment Agreement (CIIAA) assigns all IP you create to the company you are forming. When you purchase with IP, Exhibit B to the Common Stock Purchase Agreement (CSPA) is an Assignment of IP and Other Assets and contains the terms of the IP assignment used to purchase your shares. Both the CIIAA and CSPA can be found on your Atlas Documents page.