Author
Larry Nan
Managing Associate (SF)
A European founder restructures into a Delaware C-Corp. Shares transfer cleanly. Investors are happy. The cap table reflects the new entity.
Six months later, diligence for the seed round begins. Investor counsel asks a simple question: "Who owns the IP?"
The answer is the Czech company. The one that was supposed to become a subsidiary. Nobody executed an IP assignment.
What a US flip actually transfers
A US flip is a corporate restructuring. It moves ownership from a foreign entity into a new Delaware C-Corp through a share-for-share exchange. See when and how to restructure into a Delaware C-Corp.
What it transfers: equity ownership. The new Delaware entity becomes the parent. The old European entity becomes a subsidiary (or is dissolved).
What it does not automatically transfer: intellectual property, contracts, domain names, trademarks, or any other assets. Those require separate assignments.
Why the IP gap exists
The flip transaction focuses on equity. The lawyers drafting the Stock Contribution Agreement are focused on making the share exchange tax-free under Section 351.
IP assignment is a separate workstream. It requires:
An IP Assignment Agreement between the old entity and the new entity
Invention assignment agreements from every individual contributor
Confirmation that no third-party licenses are disrupted by the transfer
Board approval on both the old and new entity
If the old entity had contractors or employees who wrote code, those individuals may also need to execute assignments to the new entity.
The git shortlog test
Run git shortlog -sn on your repository. Every name that appears contributed code.
For each name, confirm:
They signed an invention assignment agreement (PIIA or CIIAA)
The agreement assigns IP to the correct entity (the new Delaware C-Corp, not the old European company)
The agreement was signed before or at the time of the contribution
Any name without a valid assignment is a gap in your IP chain. Every gap is a diligence finding that slows your raise.
Contributors who are no longer involved
The hardest assignments to get are from people who have moved on. A former contractor who wrote early code has no incentive to sign an assignment retroactively. They may ask for compensation. They may not respond at all.
The fix: Get assignments at the time of contribution. Not months later. Not during diligence.
For contributors who are already gone, you may need to negotiate a retroactive assignment. In some cases, you may need to demonstrate that the contribution was made under a work-for-hire arrangement, which has its own limits worth understanding. This is fact-specific and may require legal analysis.
What investors look for
Investor counsel checks three things on IP during diligence:
Does the company own its core IP? Not the founders. Not the old entity. The Delaware C-Corp.
Are all contributor assignments in place? Every developer, designer, and contractor who touched the product.
Are there any encumbrances? Liens, licenses, or third-party claims on the IP.
A clean IP chain is a baseline expectation. Gaps delay closes and can kill deals.
The bottom line
A US flip is not complete when the shares transfer. It is complete when the IP, contracts, and assets are in the new entity with signed documentation.
Run the git shortlog test. Execute the IP assignment. Close the gap before your investor's counsel finds it.
We help founders structure flips that hold up in diligence. If you are planning a flip or have already done one without addressing IP, reach out at Fellow.
