Ask HN: Using an LLC to protect side project IP

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.

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-3/2870-2872/2870/ ↗ [1] https://law.justia.com/codes/north-carolina/2005/chapter_66/gs_66-57.1.html ↗ [2] https://news.ycombinator.com/item?id=30660160 ↗

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.

Without being a lawyer, and of course this is in no way to be construed as legal advice.

Most employers, especially ones with IP assignment rules, don't allow working for another company at the same time. So off the bat you're going to be having a bad time there.

Next if your employer has an IP assignment section in your contract, assuming you use none of their time (I'm going to bet lawyers will have fun with what that means), and none of their equipment, some states and some countries do not consider such terms enforceable. But in that case you don't need an LLC (and making an LLC puts you in the "don't work for another company" bucket)

The obvious question (for your lawyer, I am not your lawyer, this is not legal advice) would be whether you could even assign your IP to the LLC, if the terms of your contract are enforceable and say your spare time IP belongs to your employer, then that IP is not yours to give to the LLC.

Of course the real think you should be doing is talking to an actual lawyer rather than asking random people on the internet.

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 "piercing the corporate veil" is difficult and an LLC should protect me relatively well, but a good friend told me that I should basically always limit my liability to the amount I've been paid as in his opinion the LLC would be of questionable utility. I know HN isn't the place for legal advice, just wondering if anyone has friendly opinions.

I tried googling this, but the SEO spam is so bad I always converge to the same damn sites. Maybe google search for legal layperson questions is the next big thing?