Documenting Contributions of Technology for Shares

In most cases, the founders or key employees of a new corporation will purchase their shares in exchange for a nominal amount of cash or past services rendered to the corporation in connection with its formation or organization. There are, however, situations where a founder or key employee may also contribute his or her rights in technology to be used in a corporation's business. Intangible assets are lawful consideration for shares; however, the parties must carefully describe the transferred technology and assets by reference to the actual and proposed business of the corporation so as to minimize the risk of future disputes regarding ownership of technology that turns out to be key to the success of the corporation. 

In some instances the assignment may be done in the context of a broader agreement that includes undertakings and promises from the assignor to provide the corporation with ongoing technical assistance in connection with the transfer and use of the assigned technology. 

When you are transmitting a draft of an assignment agreement it should be accompanied by a letter or e-mail that seeks assistance from the founders in describing the assigned technology with specificity and also reminds them to be sure that procedures will be implemented, either in the assignment agreement or elsewhere, to make sure that the transferred technology is fully and efficiently integrated into the company’s development activities (e.g., including undertakings from the assignor to provide all necessary technical assistance for transferring the technology). 

In addition, your communication should make it absolutely clear to each founder assigning technology to the new corporation as consideration for his or her shares that the assignment is permanent and irreversible and that he or she will have no rights to use the assigned technology in the event that his or her employment with corporation terminates in the future.

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