Assignments of Property to the New Company

Folks rarely start businesses with no assets to contribute to the business at all.  If you’ve created a design that you’ve copyrighted, purchased some start up equipment, before you incorporated your business, you need to get those assets to the company.  Typically this is done by was a contribution agreement or an assignment agreement under which the owner of the assets contributes the property to the corporation in exchange for stock of the corporation.  This can sometimes be a tricky endeavor, and you need to be aware of a few things including the following:

• Valuation – certain property, such as intellectual property, is tough to assign a value to.  This can affect the total valuation of the company and can affect the per share price at which equity and options may be issued (if the per share price is too low, adverse tax consequences can result). 
• Taxation – in order to the contribution to be a tax free contribution for the founder, Section 351 of the Internal Revenue Code must be complied with.  In a nutshell, in order for a founder’s contribution of assets to a corporation to be tax free under Section 351, the founder must only receive stock in exchange for the intellectual property, and the founders, after the contribution, must own at least 80% of the company immediately following the contribution and exchange for stock. 

The lesson here is to be careful at the outset when you are performing these inital maneuvers. A little caution at the start can save a lot of time and headache down the road.

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