Understanding Company Ownership and Intellectual Property Rights in a Funding Scenario

In a partnership of two, your role as the creator and the other party as the investor with 100% ownership can lead to significant misunderstandings regarding intellectual property (IP) rights and the structure of the company. This article aims to clarify these concepts to ensure clear delineation of roles and ownership.

Common Misconceptions in Company Structure

There is a basic confusion evident in the premise of your scenario. If the other party owns 100% of the company, then it is not a partnership but rather a different form of business relationship, such as an employment contract, a contractor agreement, or a volunteer arrangement. A partnership, by definition, involves multiple individuals sharing in the ownership of the entity.

The Difference Between a Partnership and Ownership

In a traditional partnership, two or more individuals come together to form a business, each contributing a mix of capital, skills, and intellectual property. The ownership is typically split based on the agreed-upon relative value of each partner's contributions, often in a 50/50 ratio or another arrangement negotiated by the partners. Conversely, when one party owns 100% of the company, it implies a different type of agreement where the individual or a corporation holds all shares, effectively making the other party an employee, contractor, or volunteer.

Ownership of Ideas, Knowledge, and Skills

In the context where you contribute ideas, knowledge production formulas, and skills, these items generally belong to you as the creator, unless there is a written agreement stating otherwise. In a partnership, these contributions are typically evaluated for their value and are incorporated into the business. However, in a company where you are not a partner, the ownership of these assets remains with you unless you decide to transfer them to the company or enter into a binding agreement.

The Role of Investment and Financial Contributions

When one party provides capital to the company, this investment usually represents a minority interest in the company, at least in the early stages. The majority of the company's value is conventionally attributed to the assets and expertise (ideas, knowledge, and skills) that you and other potential partners bring to the table. This means that the non-monetary contributions, such as your intellectual property, might hold more value in the early stages of the business.

Assessing Relative Contributions

To evaluate the relative contributions of each party, it might be helpful to use tools such as the Gush Contribution Calculator. This calculator can provide a starting point for determining the value of each party's input, helping to establish a fair ownership structure and avoid future disputes.

Conclusion

Understanding the difference between partnership and ownership, along with the implications of intellectual property and financial contributions, is crucial for setting up a successful business. While the scenario described may complicate the picture, the key is to establish clear agreements and ownership structures to protect the rights and contributions of all parties involved. With the right documentation and clear communication, both you and the investor can work together harmoniously towards shared success.