Fixing a Decade of Informal IP Use Before an Investment Closed

The situation

Omar, a pharmacist, developed a topical therapeutic formulation more than a decade ago while working out of a small compounding operation. His partner Rabia, a physiotherapist, saw how well it worked with her own clients and the two of them built a product line around it. What started as a side project became a company with a national distribution footprint and annual revenue between roughly $5 million and $20 million. Their daughter Natalia joined a few years in, took over day-to-day operations, and now holds a minority stake alongside her parents.

The company had never raised outside money before. That changed when a growth-stage investor offered a substantial capital injection in exchange for a minority equity position, with the money earmarked for a second production line and an expanded sales team. The offer came with a due diligence process, and due diligence on a manufacturing and consumer products company always includes a hard look at intellectual property: who owns the formulations, the trademarks, and the manufacturing know-how the business depends on.

Omar and Rabia were confident going into diligence. The company had clean financial statements, a decade of steady growth, and no history of disputes with suppliers or customers. They expected the process to confirm what they already believed — that after ten years of building the business together, there was nothing left to find. That confidence, as it turned out, was exactly the reason the gap had gone unnoticed for so long.

What the review found

The investor's counsel asked a simple question that the company could not answer cleanly: who actually owns the formulation the entire product line is built on? The answer, on paper, was Omar personally. When the company incorporated years earlier, the formulation, the manufacturing process notes, and the registered trademark under which the products were sold had never been transferred from Omar to the corporation. The company had simply kept using them, informally, the way many founder-led businesses do in their early years, when there is no time and no perceived need for paperwork among people who trust each other completely.

This is a more common gap than most business owners expect. A person invents something, or writes the software, or builds the client list, before the company exists to own it. Once the company is formed, everyone assumes the IP came along with everything else — the bank account, the lease, the equipment. It does not. Ownership of intellectual property does not transfer automatically on incorporation. It has to be assigned in writing, the same way title to a car or a house has to be transferred by a document, not by informal understanding. Incorporation transfers a business's activities into a new legal person; it does not reach backward and gather up rights that already existed somewhere else in someone's own name.

The practical exposure was significant. If Omar personally owned the core formulation, he could in theory license it elsewhere, or his estate could deal with it separately from the company, or a future dispute between the family members could turn into a fight over who actually controls the product the company sells. For the investor, that risk was unacceptable: they would be buying a minority stake in a company whose central asset was not, legally, the company's to begin with. Their term sheet made clean IP ownership a condition of closing, with a deadline measured in weeks, not months.

The estate scenario was the one that concerned us most, even though nobody involved wanted to say so directly. Omar was healthy and had no reason to think about his estate plan in the context of a business transaction. But the company's central asset sitting in his personal name, rather than the corporation's, meant that if anything happened to him unexpectedly, the formulation would pass through his estate like any other personal asset — subject to probate, potentially to competing claims among heirs, and entirely separate from the shares Rabia and Natalia held in the company. An investor's lawyers are trained to spot exactly that kind of structural risk, whether or not the family had ever considered it themselves.

What we did

1. Mapped every piece of IP the business actually relied on. Beyond the core formulation, this included the registered trademark for the product brand, internal manufacturing process documents, supplier specifications, and a customer database built up over a decade. Each had a different ownership history and needed to be traced separately rather than assumed to travel together, because a due diligence team asks about each asset individually and a single gap anywhere in the list would have reopened the whole question. The resulting inventory became the checklist the rest of the engagement worked through.
2. Confirmed what was registered and what was not. The trademark was registered federally, which made the chain of title easy to check and, once confirmed as Omar's personal registration, straightforward to formally assign. The formulation and manufacturing know-how were unregistered trade secrets, which meant the assignment had to be built around a clear written description of exactly what was being transferred, since there was no public registry entry to point to instead.
3. Drafted a formal IP assignment agreement from Omar to the company. The agreement transferred all rights, title, and interest in the formulation, the trademark, and the associated know-how to the corporation, for consideration recorded in the company's records, with Omar retaining no residual personal claim. This is the document that should have been signed at incorporation and effectively closed that decade-old gap in a single step.
4. Addressed Rabia's contribution separately. Rabia's clinical refinements to how the formulation was used and marketed had also never been documented as company property. Because those refinements had been developed alongside Omar's original work but were hers individually, treating them as automatically covered by Omar's assignment would have left a second, quieter gap in exactly the same place the first one had been. The assignment was drafted to cover her contributions explicitly and separately, closing both at once.
5. Filed the trademark assignment with the federal registry. A transfer of a registered trademark is only fully effective against third parties once it is recorded on the register, so this filing was treated as a closing condition in its own right, not an afterthought to be handled later. Leaving it for after closing would have left the public record showing Omar as owner even after the private assignment was signed, exactly the kind of loose end a future buyer's or investor's diligence team would flag again.
6. Built a short licensing framework for Natalia's operational role. Natalia had informally handled supplier relationships and made small formulation adjustments for regional production runs. Rather than leave that ambiguous, the assignment package included a simple internal authorization confirming the company, not any individual family member, controlled decisions about the formulation going forward — useful both for the investor and for the family's own long-term clarity.
7. Delivered a clean opinion letter to the investor's counsel. Once the assignments were signed and the trademark filing was submitted, we provided a summary of the company's IP ownership position for the investor's diligence file, walking through each asset, its previous ownership history, and the document that now confirmed it belonged to the corporation, so the investor's lawyers could close their diligence checklist without needing to reconstruct the chain of title themselves.

The outcome

The investment closed on schedule, with the IP condition satisfied well ahead of the deadline in the term sheet. The company received its capital injection, the second production line moved forward, and the family retained full operating control with Natalia continuing to run day-to-day operations. Because the assignment was handled as a straightforward internal transfer for proper consideration rather than a contested negotiation, it cost the family very little beyond the legal work itself — no argument over value, no hard feelings about who owned what, because everyone agreed the company should have owned it all along.

The trademark assignment was recorded on the federal register within the weeks that followed, giving the company a clean, publicly verifiable chain of title that will make any future transaction — another investment round, a bank financing, or eventually a sale of the business — considerably faster than this one was. Diligence on IP ownership does not go away; it resurfaces every time outside money gets involved. Having it resolved once meant the company would not have to relive this scramble at the next milestone, and the next set of investor lawyers will find a registry entry rather than a question mark.

Omar and Rabia also came away with a better understanding of a distinction that had never mattered to them before: the difference between a company using something and a company owning it. For ten years those had felt like the same thing inside a business run entirely by family. It took an outside investor's lawyers to show them they were not.

The estate-planning concern that had worried us during the review resolved itself as a byproduct of the fix rather than needing separate attention. With the formulation, trademark and know-how now owned by the corporation rather than by Omar personally, none of it would pass through his estate if something happened to him — it would simply remain the company's asset, governed by the shareholders' existing ownership of the corporation, exactly as everyone had always assumed it already was.

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