The Startup That Didn’t Own Its Own Code

The scenario is documented with enough frequency by startup attorneys that it has become a standard legal advisory warning. A company builds strong early traction: good revenue, low churn, investor interest. The lead investor’s counsel conducts technical due diligence and asks one question: “Can you show us proof that the company owns all of its source code?” The answer, in a surprising number of cases, is no. As documented by legal practitioners: “The developer had never signed an IP assignment. He technically owned the core backend code that powered the entire platform.” ([JD Supra — Weintraub Tobin](https://www.jdsupra.com/legalnews/who-really-owns-your-startup-s-ip-5341962/)) Under U.S. law, the person who creates intellectual property owns it unless they have assigned it in writing. A contractor who builds your app’s core functionality — and never signs an IP assignment agreement — may retain legal ownership of that code even after being paid. **The three situations that create this risk:** 1. **Contractors without IP assignment clauses in their agreements** — invoices and emails do not transfer ownership 2. **Founders who started building before incorporating** — pre-formation work belongs to the individual, not the yet-to-be-formed entity 3. **Co-founders without founder agreements** — each co-founder may legally own the code they wrote **The fix is inexpensive:** A Proprietary Information and Invention Assignment (PIIA) agreement, signed by every contributor before they write a line of code, establishes clear company ownership. Standard templates are available through legal services platforms. ## Why it matters Inability to prove IP ownership can stop a funding round, block an acquisition, or give a departed developer leverage over a company they no longer work for. ## Suggested next action Verify that every person who has contributed code to your product has signed an IP assignment agreement. If you’re not sure, ask a startup attorney. The cost of a 30-minute consultation is trivial compared to the risk.

The Startup That Didn’t Own Its Own Code

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