Is Your Ownership Agreement Fair to Everyone?

Authored by:

Justin R. Jackson

Justin R. Jackson

Patent Attorney

All Posts by Justin

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Is Your Ownership Agreement Fair to Everyone?

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On one hand, being a solo entrepreneur is easy – there is only one person to consider. But when two or more people go into business together, numerous things can go wrong. On the other hand, collaboration with another person or business entity has significant advantages, including the ability to pool resources, divvy up tasks, expand your audience and customer base, and increase collaboration to create new products and services by leveraging shared intellectual property and expertise.

There are many ways a business partnership can turn sour and end in disagreements, misunderstandings, and can even result in failure of the entire business venture. Many of those pitfalls can be avoided or minimized with a well-crafted ownership agreement, and the clearer the agreement is from the beginning, the less likely there will be problems down the line. There are four key areas where diligence is required in drafting an ownership agreement that is fair to all parties:

Combining Resources

Quantifying and documenting the resources and assets each owner is bringing into the new enterprise is essential. These resources include capital, customer base, equipment, and social media presence. In many cases, these resources are unequal, which makes documentation all the more important. Each party should be in agreement on the value of separate and combined resources.

Combining Workforce Resources and Work Roles

Each owner will bring different skills and abilities to the combined enterprise. One owner may have more money, while the other is more available to attend to day-to-day duties. If one person is spending more time on the day-to-day operations, it should be documented.

Combining Intellectual Property

Agreeing who owns what as early as possible is a must. By law, each inventor is a co-owner of all the rights in a joint patent – regardless of how insignificant any one inventor’s contribution may be – unless there is an assignment that alters this. The key to any successful co-inventor relationship is to discuss the relationship directly, like any business relationship, and formalize it before things get complicated. This helps to avoid the possibility that any one inventor will go rogue and do things with the patent that other co-inventors did not agree to. Other factors to consider include ensuring company ownership of intellectual property and avoiding the dilemma of third-party ownership of some of a company’s IP.

Planning an Exit Strategy

It may seem odd or even pessimistic to plan an exit at the beginning of a business. However, putting a plan in place upfront can prevent or mitigate serious problems down the road while providing a clear goal to keep everyone on track. Changing goals for one or more owners, alterations in life circumstances, and even death can necessitate the winding up and dissolution of a business. Elements such as the right of first refusal for the remaining owner and maintaining the integrity of the company must be worked out at the onset of a business venture.

There are a lot of factors that must be considered when creating an ownership arrangement. Hiring an experienced IP lawyer can prevent hazards that can jeopardize your business down the road. Contact Peacock Law for assistance and click here to learn more about the agreements that we can do for businesses.

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