Legal Question in Business Law in New York

It's the age old comparison of money vs. time -- your money vs. the designer's time.

One way to look at it is from a risk/loss point of view. According to the designer's wishes, in the event the business does not do well, she would not really lose much as she could take her designs and continue working on them elsewhere. The investor, however, will lose the investment. So, unless the designer is willing to make the investors whole, the risk of loss should not be bore solely by the investors and therefore the designs are to be treated as the intellectual property of the design company.

Under this scenario, in the event the company needs to shut down, the assets of the company could be purchased by one of the three members and/or sold off to the highest third party bidder with the proceeds divided among the three members in accordance with their agreement.

Another option is to give equal rights in the designs to both the designer and the design company. In the event the designer wants to leave (with the acquiescence of the rest of the members in the company) she and the company can both retain rights to the designs. Though this options does present certain additional challenges, it nonetheless recognizes that all parties have rights to the work.

The most important concern for any investor in a LLC, is to have a strong and properly worded Operating Agreement (the document that governs the existence of a LLC and which must be in place). I cannot tell you how many companies I see that experience unnecessary problems because the members wrote an agreement themselves or hired an attorney who is not familiar with the intricacies of LLC governance. Needless to say that to protect your investment you should retain an attorney familiar with startups.

Roman R. Fichman, Esq.

www.TheLegalist.com │ @TheLegalist

Start-Ups * Technology, Internet & New Media * IP & Business Law * M & A * Due Diligence

Disclaimer: This posting has been written for educational purposes only and was not meant to be legal advice and should not be construed as legal advice. You should always consult an attorney admitted to practice in your jurisdiction for specific advice.