Your technology is hot, and you have great write-ups, a pitch deck, maybe even a proof of concept. After a couple of weeks, you have a complete draft patent application ready. Now what? Many startup founders wonder whether they should file their patent application or form their company entity first. This timing dilemma often arises when co-founders are so excited about their core technology that they develop it faster than the formal structures associated with a business. The answer is clear: form a legal entity before filing your patent application. While it's technically possible to do it the other way around, the risks and complications of not forming an entity first far outweigh any perceived benefits.

When multiple founders work together without forming a legal entity, they can create several serious legal risks and other problems. First, they may be treated as a general partnership under state law, making each founder personally liable for the others' actions. If one founder causes an accident while conducting business, all founders could face personal liability to the injured party. Additionally, without a formal entity structure, each founder technically owns 100% of the patent rights and can license the technology to competitors without the others' consent.

Ownership disputes become inevitable without clear corporate structures. Who owns what percentage of the business? How are decisions made? How are income and profits accounted for or distributed? These fundamental questions become much harder to resolve after the fact, and equal ownership isn't automatically assumed without written agreements.

Perhaps most critically, arranging clear intellectual property ownership can be compromised. Each founder owns an undivided interest in the patent, meaning any founder can leave and potentially compete using the same technology. This scenario plays out regularly in startup disputes, costing companies thousands of dollars in legal fees and settlement negotiations. 

Additionally, without a legal entity, each individual founder must sign separate powers of attorney for USPTO representation, creating potential conflicts about who the actual client is and complicating confidential communications. IP law firms often decline to represent multiple individuals—even if they’re currently getting along well—in patent matters due to these representation complications. However, they readily represent legal entities. 

The good news is that forming a basic LLC can be accomplished in one day through services like LegalZoom for just a few hundred dollars. This simple step protects all founders and creates a clean foundation for future growth and investment. If the founders have clear views on share ownership, corporate control, and profit distributions, taking the greater time and expense to form a corporation rather than a simple LLC may make sense. Law firms like Baker Botts can assist with incorporation, whether the structure needed is simple or complex, and counsel founders about the right type of legal entity to form, and where for form it. For example, while Delaware historically has been the default jurisdiction to protect entities against certain kinds of shareholder actions, recent case decisions have refocused attention on Texas as a potentially better jurisdiction for formation.

The bottom line is straightforward: while the excitement of breakthrough technology naturally leads founders to rush toward patent protection, taking a brief pause to establish a legal entity first prevents costly disputes and complications down the road. Form your company structure before filing your patent application—your co-founders, investors, and your future self will thank you.