Ask HN: Using an LLC to protect side project IP

Hundreds of dollars per hour over the course of 15 minutes isn’t too bad of a bill.

An IP agreement with an employer typically has the employee assign rights in any IP the employee develops to the employer. That gives the employer ownership of anything the employee personally develops. Creating an LLC wouldn’t change that since the employee is the one creating the IP, not the LLC. If others are involved in the LLC, the LLC could own IP developed by them (assuming they haven’t assigned their rights away to a different company), but not to IP (even IP yet to be developed) already assigned to a different company.

Ideally, the IP agreement with the employer is limited in scope so that the only IP assigned is that which relates to the employer’s products (e.g., a company that develops medical records software might not claim IP rights to a game the employee develops on the weekend). Unfortunately, many employers use overly-broad agreements, so it’s important to review the agreement. Even if the agreement is broad, the employer may be willing to amend it if the employee is working on something unrelated to the employer’s business and the work won’t affect the employee’s performance. Talk to an attorney in your state before you do anything that jeopardizes something of value to you, and definitely talk to an attorney before you concoct a scheme that opens you up to legal problems ;-)

Source: Attorney / software developer.

IANAL, but this sounds like "no." If you've signed an agreement with EmploymentCorp that any IP you create will be owned by EmploymentCorp, you can't create MyLLC and sign an agreement with MyLLC that the IP you're creating will be owned by MyLLC.

You can't sign two simultaneous agreements assigning your IP to two different companies. Imagine Amazon hires you and has you agree to assign any IP to them. You then get a second (simultaneous) job with Apple and you agree to assign any IP to them. At some point, a court is going to step in if there's a problem and figure out how to unwind the mess. If the second company is an LLC that's owned by you, the court isn't going to be amused and say "well, it's clearly not a scheme by the owner to get out of an assignment clause."

If you've signed away your IP as part of your employment, there isn't going to be One Simple Trick™ to get around that. Even if the court decided "yes, we have to treat this as if you were employed by two companies that have no relation to you," EmploymentCorp could simply sue you for not assigning them the IP, win, and then take your assets as compensation - including your ownership of the LLC.

You personally are still liable for complying with your agreement. If you violate that, your employer might sue you for breaching the agreement. Given that one of your assets is the LLC that "owns" the IP you didn't assign to your employer, that kinda makes it easy. If lots of other people owned a part of the other LLC/company, that makes it harder to unwind, but that doesn't let you or the LLC off the hook. Did the LLC's management know that you had an agreement with EmploymentCorp to give them the IP you were creating? Assuming you're the majority shareholder and/or otherwise in charge, yes. So the LLC knowingly entered into an agreement to "steal" EmploymentCorp's IP (using the word steal a bit loosely here, but it fits enough).

You're basically talking about signing an agreement with your LLC that you know violates your employment agreement and signing the agreement as an officer of the LLC that the LLC knows violates the employment agreement of the person (you). Seems like that creates plenty of liability on both sides of the coin.

Said with an air of authority despite plenty of evidence that single person LLCs have a veil that is not pierced by the law.

The proper answer is, consult the precedent of prior cases in your state, that will tell you how strong the LLC holds up in any particular jurisdiction. A lawyer in your area will also know this better than a lawyer in other areas. It’s not a one-size-fits-all answer, and in general the LLC typically holds up well. Regardless of the number of members.