Complete DIY guide: Founders Agreement part 3: Intellectual Property
This is a third part of our line by line description of the Founders Agreement, that we’ve signed at Staply between Greg and me. Previously, I’ve describe the preamble part and first 3 clauses of the Agreement part: Responsibilities of the Founders, CEO’s responsibilities and COO’s responsibilities.
All clauses after the 3rd one (4-11) are so-called general things, not generally related to the Founders agreement. For example, in this article I’ll describe how the amendments can be done to the Founders agreement and where all the intellectual property should be stored. As you can see, these topics are important, but do not refer to the founders and their responsibilities. Basically, part, that corresponds to the founders responsibilities, is covered in the preamble and clauses 1-3.
The document, that I describe, is available here.
Amendments to the Agreement
In my opinion, one of the most important questions in all agreements, is the part, where parties of the agreement agree on the procedure, how the agreement can be amended, i.e. changed in the future. If we delete clause 4 from our agreement, then the “standard” procedure can be applied to the agreement. The “standard” procedure depends on the state and Supreme Court decisions.
In startup environment, changes and amendments to the agreements (not only Founders agreement) are a normal practice, since everything is changing very rapidly. For example, you may hire a new CEO or find a new partner, who can later become a new founder, etc. Such situations happen quite often and even more often they cause problems.
So, in my opinion, it’s much easier to describe the clear procedure of making changes to the agreement. It will solve issues, described above, since founders will have a clear understanding of how to make changes to the signed agreement.
In our Founders agreement, we agreed on a very simple procedure:
“4. Amendments to the responsibilities. The Founders agree, that all changes, amendments shall be in force only if the Founder signs another agreement, subsequent to the date of execution of the present Agreement.”
As you can see, the amendments and changes will be applied to the Founders agreement only if founders sign additional agreement after the date of signing Founders Agreement. Why did i specify the date of additional agreement? The main purpose of it is to prevent any separate agreements of the Founders (especially when there are 3 or more founders) to be in force, to change the contents of the Founders agreement.
It’s quite big and important topic, that from my point of view should be mentioned in the Founders agreement. Almost every startup and company in IT field produces tons of Intellectual Property objects, such as source code, texts, images, inventions, trademarks. And for sure you don’t want to lose any rights if one of the founders decides to leave the company.
In Staply, on the current stage, we didn’t open a legal entity, we are working as two separate persons. So in our agreement we couldn’t just say that all IP belongs to the company, since we don’t have the company right now. By default, if we don’t write anything related to IP in the Founders agreement, all IP, that I create, belongs to me, all IP that Greg creates, belongs to him, and finally all IP, that we created together, belongs to us. But there is no obligation to transfer these IP to the company, when we create one.
So, how to solve this issue in a simple way? Let’s review IP clause line by line:
“5. Intellectual Property. All intellectual property objects (“IP”), including but not limited to: patents, patent applications, trademarks, copyright objects, created after execution of this Agreement…”
Here I’ve described, what is included in IP objects. There is no obligation to do that, since Intellectual Property is a well-known term. However, in case of a lawsuit, it’s better to have a brief description of what is included into the term “Intellectual Property”.
Also here I explicitly say, that IP, created after the execution of the present agreement will be considered as Staply’s IP, since we’ve signed Founders agreement before we’ve started any activities.
In case you’ve already done some work in a startup and want to sign Founders agreement, you can specify the date, when work on the project starts, like this “… objects, created on 03.03.2014 and after it…” instead of “objects, create after execution of this Agreement”.
“… but before termination of the present agreement…”* end date of the IP creation.
In my opinion, its quite important to put the end date, since it makes it clear for founders, what IP is Staply’s IP. If we don’t put the end date of the IP creation, all IP, created even after founder leaves the company, but there can be issues if founder decides to work on another company or start his own company. So, basically it’s up to you. If you don’t want to put end date, just delete this part from the Founders agreement.
If we read the first part of the statement, the main idea is: IP created by founders, from the date of execution of the agreement till it’s termination is considered to be Staply’s IP.
“…should be transferred or assigned to the legal entity (“Staply Company”), upon its creation…”
All IP, that I described above should be transferred to the company, when it will be created.
“…Before Staply Company creation, all IP should be assigned to the Founders…”
Here I describe, that all IP, before we create legal entity, should be assigned to both founders (Greg and me).
“If one or more IP are assigned to the Founders after execution of the present Agreement, but before Staply company creation, the Founders should transfer all these IP to the Staply Company within 60 (sixty) calendar days after the date of Staply Company creation…”
Here I say, if one or both of us create IP after signing the agreement, but before company creation, we should transfer or assign all IP to the newly created legal entity within 60 days. It’s also important to put the period of time. If you don’t put it, it will be ok to transfer IP in 2-4 years without violating the present agreement. When specific date is established, it will be easier to manage and control the process of transfer and track violation.
Weak point here is that, if some IP created after the date of Staply company creation, then there is no obligation to transfer it. We did it, because we agreed to sign employment agreement upon company creation, which will have also IP section. If you worry about the IP, that was created after the date of company creation, please write in the comments, I will add several additional clauses to the Founders Agreement.
“…and agree to sign all necessary documents, required for IP transfer…”
Also an optional thing, because transfer of IP itself is a legal process, which requires signing one or more documents. Basically, it’s there just inform person, who is the party of the agreement, that he’ll be required to sign several documents in order to implement IP transfer.
In next article I will describe next 2 or 3 clauses of the agreement. If you have comments or suggestions, please feel free to submit them to our subreddit.