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How do I protect my intellectual property when withdrawing from an LLC?

Elkridge, MD |

I have put almost two years into developing an ecommerce website. My partners have done very little to help me. I now realize that I will be the only one doing all of the work and I am sick of it. We have not earned any income from the business as of yet. I would like to withdraw from the LLC but I don't want my partners to profit off of my creative ideas and hard work. What options do I have to protect my ideas and hard work?

Attorney Answers 5


  1. Best answer

    Have you assigned the source code or any of the intellectual property components of the stie to the LLC? If not, in all likelihood title to that IP is still vested in you, which would allow you to walk away with all source code, etc. It might be easier to convince your fellow LLC members to take a more modest share and just be silent, but if you want to separate completely, then you will need to take all of the IP with you.

    Ideally you would have the LLC assign any interest it has, though it may have none, to you and that would be the end of it. However, your claim to the source code, etc. may be solid.

    Of course, more details are necessary to give you a cogent answer. I am, of course, happy to chat with you about the matter.

    Kindest regards,

    Ken
    Admitted in MD, DC, PA, OH


  2. Whether you can do anything really depends on the language of the operating agreement for the LLC. There should be a section that specifically discusses ownership of intellectual property rights, which -- ideally -- would discuss what happens to those rights in the event of a breakup or dissolution of the LLC. Typically, the IP belongs to the LLC, not to the member who contributed the work by designing the website, writing the code, etcetera, but perhaps your operating agreement says otherwise.

    If the LLC's operating agreement is silent on those issues, then you need to go see a local IP attorney (not the LLC's attorney) and explore your options.


  3. Geting into an LLC is easier than getting out of it, and as pointed out, the proceeds of your creative ideas and hard work isn't yours anymore, it belongs to your LLC.

    You presumably own a fractional membership share of this LLC, and if your LLC has an Operating Agreement, it should spell out how a member can withdraw, and how they can get paid for the value of their share.

    Right now the value of the LLC and its assets is all speculative because the work hasn't been turned into a product and monetized yet. You're going to have to see an IP lawyer to dissolve this LLC and work out a solution for ownership to the IP rights. That may require you to buy out your co-members and get their assignments of all rights to the IP.

    PLEASE READ THIS BEFORE YOU COMMENT, EMAIL ME OR PHONE ME. I'm only licensed in CA. This answer doesn't make me your lawyer, and neither do follow-up comments and/or emails and/or phone calls, and you shouldn't expect me to respond to your further questions if you haven't hired me. We need an actual agreement confirmed in writing before any attorney-client relationship is formed. This answer doesn't constitute legal advice, and shouldn't be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue.


  4. As noted above, your operating agreement, if you have one, should guide you on how you could withdraw as a member from the LLC. However, you might want to consider buying the other two out. If the LLC has not earned any income and keeping it in good standing will cost money, the other members might be willing to sell their interests to you.

    If you are able to get that kind of agreement, you should also have everyone sign mutual releases of all claims that may have accrued against each other.

    You should definitely consult with counsel who can comment upon the LCC situation and the disposition of the IP.

    LEGAL DISCLAIMER: Please note that this comment does not constitute legal advice nor has an attorney-client relationship been created.The law may vary depending on the state in which you reside or the jurisdiction where the activity took place. This comment is intended only to give some direction in which to seek further guidance.


  5. I agree with Attorneys Lawrence and Koslyn. The LLC is a separate entity that you gave your efforts and resulting work to in the hope of eventually recovering a profit. Although more facts are needed, under the facts you've provided you just may be -- pursuant to copyright law at least -- an "employee" of the LLC and, as such, the copyrights and trademarks and trade secrets and trade dress and know-how and computer code that makes up the LLC's website belongs to the LLC. Not you. You need to speak with an intellectual property attorney licensed to practice in your state before you tell the other LLC members that you want out. Good luck.

    The above is general information ONLY and is not legal advice, does not form an attorney-client relationship, and should NOT be relied upon to take or refrain from taking any action. I am not your attorney. You should seek the advice of competent counsel before taking any action related to your inquiry.

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