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Ask HN: Using an LLC to protect side project IP

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Re: Ask HN: Using an LLC to protect side project IP

#31

Post by greenyoda »

dataflow wrote: post #8
montereynack wrote: post #6

I'll take this opportunity to plug my own question to the folks on HN - does anybody know how much protection an LLC generally provides you w.r.t. lawsuits and such? I'm currently looking at doing software consulting for a startup, but indemnification clauses have been touchy for the people I've talked to (and I'm paranoid about losing more than I gain in an unfortunate situation). My lawyer has told me that "piercin…

This is a fantastic question. I would love an informed answer to this question from someone who's actually been on the other side of a lawsuit in a 1-person company. For context, as a layman, when I Googled this a while ago, the understanding I came away with was that while there can be some benefit to form an LLC in this regard, in reality it's Very Hard (TM) for a 1-person company to truly avoid the risk of the cor…

> he way I understood it, the entity suing you will look for any and all excuses in your records to try to pierce the corporate veil—and these can include anything from "mixed personal & corporate funds" to "did not properly keep detailed minutes of corporate actions", to other things I'm not aware of.

It's not just a question of formalities, it's a question of general intent.

The Wikipedia article on "Piercing the corporate veil"[1] provides this example:

> A simple example would be where a businessman has left his job as a director and has signed a contract to not compete with the company he has just left for a period of time. If he sets up a company which competed with his former company, technically it would be the company and not the person competing. But it is likely a court would say that the new company was just a "sham" or a "cover"; and that as the new company is completely owned and controlled by one person that the former employee is deliberately choosing to compete, and so is in breach of that non-competing contract.

[1] https://en.wikipedia.org/wiki/Piercing_the_corporate_veil

Re: Ask HN: Using an LLC to protect side project IP

#32

Post by nicoburns »

gyulai wrote: post #26

Some assignment clauses are absurdly wide like "any IP you create belongs to us". This would imply absurd outcomes like when a software engineer signed that clause as part of their work contract for software company X, but also records music on weekends or reads audiobooks for librivox or stuff like that, and it's now unclear whether the IP in that music or those audiobooks might also belong to company X. I think it'…

If we interpret it literally; then it would seem that the employer would even own things like a birthday card you made for a friend. These clauses should definitely be outlawed!

Re: Ask HN: Using an LLC to protect side project IP

#33

Post by jotaen »

greenyoda wrote: post #30
gyulai wrote: post #26

Some assignment clauses are absurdly wide like "any IP you create belongs to us". This would imply absurd outcomes like when a software engineer signed that clause as part of their work contract for software company X, but also records music on weekends or reads audiobooks for librivox or stuff like that, and it's now unclear whether the IP in that music or those audiobooks might also belong to company X. I think it'…

> I think it's safe to assume that any such absurdly-wide assignment clause would end up unenforceable in a court of law and can thus be safely ignored. Since you're apparently not a lawyer, you haven't read the employment contract and you don't even know what state this person lives in, telling them they can safely ignore a contract that they signed seems rather irresponsible. The only reasonable advice to give here…

OP asked for exactly those thoughts, though?

> I apprecitate that this is probably one for a lawyer, but wanted to get some thoughts on this approach for protect one's side projects.

Re: Ask HN: Using an LLC to protect side project IP

#34

Post by Anunayj »

greenyoda wrote: post #30
gyulai wrote: post #26

Some assignment clauses are absurdly wide like "any IP you create belongs to us". This would imply absurd outcomes like when a software engineer signed that clause as part of their work contract for software company X, but also records music on weekends or reads audiobooks for librivox or stuff like that, and it's now unclear whether the IP in that music or those audiobooks might also belong to company X. I think it'…

> I think it's safe to assume that any such absurdly-wide assignment clause would end up unenforceable in a court of law and can thus be safely ignored. Since you're apparently not a lawyer, you haven't read the employment contract and you don't even know what state this person lives in, telling them they can safely ignore a contract that they signed seems rather irresponsible. The only reasonable advice to give here…

or even consult your employer to give you a exception on that clause/if they're willing to change that contract with that clause removed (limit it to company working hours or work done on company resources)

Re: Ask HN: Using an LLC to protect side project IP

#35

Post by PaywallBuster »

montereynack wrote: post #6

I'll take this opportunity to plug my own question to the folks on HN - does anybody know how much protection an LLC generally provides you w.r.t. lawsuits and such? I'm currently looking at doing software consulting for a startup, but indemnification clauses have been touchy for the people I've talked to (and I'm paranoid about losing more than I gain in an unfortunate situation). My lawyer has told me that "piercin…

Some states "specialize" in different things

States like Wyoming, Nevada, and New Mexico generally have a good reputation as private and good for asset protection.

Of course, it's always a challenge to incorporate out of state, and do everything "remote".

Re: Ask HN: Using an LLC to protect side project IP

#36

Post by HWR_14 »

Anunayj wrote: post #34
greenyoda wrote: post #30

Earlier quoted context omitted.

> I think it's safe to assume that any such absurdly-wide assignment clause would end up unenforceable in a court of law and can thus be safely ignored. Since you're apparently not a lawyer, you haven't read the employment contract and you don't even know what state this person lives in, telling them they can safely ignore a contract that they signed seems rather irresponsible. The only reasonable advice to give here…

or even consult your employer to give you a exception on that clause/if they're willing to change that contract with that clause removed (limit it to company working hours or work done on company resources)

Is it common for employers to agree to your suggested limitations, or is there huge pushback? Anyone have experience?

Also, I wonder how useful "company working hours" is, when many companies push for more than 8 hours in a day.

Re: Ask HN: Using an LLC to protect side project IP

#37

Post by cj »

HWR_14 wrote: post #36
Anunayj wrote: post #34

Earlier quoted context omitted.

or even consult your employer to give you a exception on that clause/if they're willing to change that contract with that clause removed (limit it to company working hours or work done on company resources)

Is it common for employers to agree to your suggested limitations, or is there huge pushback? Anyone have experience? Also, I wonder how useful "company working hours" is, when many companies push for more than 8 hours in a day.

Yes. (Yes they’ll grant exceptions, but they probably won’t want to change the terms in your employment contract - which is fine).

When starting my company (which started as a side project while working for another company), I sat down with my boss and asked if he would agree to acknowledge in writing that the company will claim no right to IP relating to my side project.

I drafted an email stating that, sent it to him, and he replied in agreement. That turned out to be sufficient enough for me. A few months later I quit when my side project turned into a full time job.

Re: Ask HN: Using an LLC to protect side project IP

#38

Post by estaseuropano »

mdasen wrote: post #17

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…

Op should really consult a lawyer. That said I don't think your draconian conclusions necessarily hold. If you are a neurointerface engineer and generate neurointerface IP that you'd prefer to commercialize on your own, probably thats an issue. But if you write an unrelated javascript framework, author a podcast or invent genetically modified corn that makes your hair grow back surely that would not be covered. An agreement that covers any and all intellectual output will not hold in court.

So it really depends on details about what exactly the agreement says and what domain they work & generate IP on.

Re: Ask HN: Using an LLC to protect side project IP

#39

Post by HWR_14 »

cj wrote: post #37
HWR_14 wrote: post #36

Earlier quoted context omitted.

Is it common for employers to agree to your suggested limitations, or is there huge pushback? Anyone have experience? Also, I wonder how useful "company working hours" is, when many companies push for more than 8 hours in a day.

Yes. (Yes they’ll grant exceptions, but they probably won’t want to change the terms in your employment contract - which is fine). When starting my company (which started as a side project while working for another company), I sat down with my boss and asked if he would agree to acknowledge in writing that the company will claim no right to IP relating to my side project. I drafted an email stating that, sent it to h…

I'm curious. Have you consulted a lawyer to see if a commitment like that is sufficient? I mean, is your boss authorized to make such an arrangement?

Re: Ask HN: Using an LLC to protect side project IP

#40

Post by spiffytech »

You should consult a lawyer on this. They'll be able to give advice tailored for your specific situation.

For example, some states have laws saying IP assignments in employment contracts aren't enforceable for work done on your own time and equipment if it's unrelated to your employer's business (e.g., California[0], North Carolina[1]). Depending on your situation, you'll want a professional to assess whether your plan qualifies for that.

A lawyer can also help assess your risk level. Just because your employer would probably lose a lawsuit doesn't mean they couldn't cause you a lot of trouble suing you anyway.

In my IANAL opinion, the answer by @greenyoda[2] indicates an LLC is probably not appropriate protection for this specific concern. An LLC only protects you if you don't "pierce the veil"; that is, if you can show in court that you as a person and you as a company deserve to be treated as legally separate entities. There are lots of ways to mess that up, especially for one-person LLCs.

I'd expect that if you work for a small company, your risk level is low in any case unless you're directly competing. A tiny company has better things to do than pay for lawyers trying to seize an app that has nothing to do with their business. But BigCo, with an on-staff legal team, may be less reluctant.

You can also consider just asking your boss if the company would agree agree, in writing, that the company releases all claims to your side project.

[0] https://law.justia.com/codes/california/2011/lab/division-3/... [1] https://law.justia.com/codes/north-carolina/2005/chapter_66/... [2] https://news.ycombinator.com/item?id=30660160

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