Why Form A Business

Many people have great new ideas, but only a subset of those people follow through and successfully navigate the waters of obtaining a patent. By obtaining a patent the inventor has taken the very important step of protecting their invention and all the research, development, and general hard work that the inventor has put in to develop their idea into a full-fledged patented invention. It is equally important to protect the inventor’s personal assets as the next phase of bringing their invention to market is attained.

Once manufacturing, marketing, and sales of the patented invention begins, liabilities may start to arise. Where an inventor carries on business without properly insulating themselves, they risk having their own personal assets garnished or seized to satisfy the debts and obligations of the business. If the invention fails in some way, causing damages to a consumer, the consumer may proceed to take legal action against the manufacturer and the inventor. Without proper insulation of the inventor from accidents that result from their invention, the results of such a law suit may greatly affect the inventor’s personal accounts. Inventors work hard to get funding together to pursue their patents, but still need to pay their everyday bills. When their personal assets are at risk as a result of their invention, their personal accounts can be devastated and maintaining their lifestyle may become exceedingly difficult.

What is an inventor to do then? Fortunately, there are ways to limit an inventor’s liability when it comes to their inventions. An inventor can start a business and assign all their rights in the patent, and associated intellectual property, into their new business. In such a way, where lawsuits arise out of such intellectual property, the plaintiff may be limited to the business’ assets and accounts, thereby leaving the personal accounts of the inventor out of reach in such a suit. By separating the inventor from the invention and associated intellectual property, an inventor can limit their liability from accidents and such that stem from the invention.

Forming a business is not only a defensive measure, but also allows an inventor to further grow and develop their intellectual property. The inventor only has so many hours in a day and may not be able to handle all of the tasks necessary to fully develop the invention and bring it to market. Forming a business allows the inventor to raise capital, hire employees to carry out such critical tasks as accounting, marketing, management of the business, and administrative support, as well procure property and technology which may further aid them in developing their own intellectual property.

Once an inventor forms a business, they can determine exactly how the business is managed, what capital contributions are required from members, how profits and losses are accounted for, and many other such decisions. Formation of a business generally requires filing paperwork with the state and executing a formal document amongst the employees of the business. There are several types of business structures that an inventor can choose from, and the benefits of each structure must be carefully weighted against potential downsides. Each inventor is unique, and the path they have selected for bringing their product to market will greatly vary. Such decisions much be accounted for prior to determining which type of business to form