Why IP assignment belongs on day one

If you've built a prototype, registered a domain, or written code before incorporating, that work doesn't belong to your new company yet. It belongs to whoever created it. The company only owns it once it has been assigned in writing, and that assignment is far easier to get on the day the company is formed than at any point afterward.

IP assignment is the written transfer of intellectual property, such as code, designs, inventions, and domain names, from the person who created it to the company. Under US law, the creator owns the work by default unless they are an employee acting within the scope of their job, and founders working before incorporation are not employees. Assigning IP on day one means each founder assigns everything built so far, and every founder, employee, and contractor signs an agreement assigning what they create for the company in future. Investors check for these documents in diligence, and gaps are hardest to close once the person who holds the IP has left.

Below is who owns what by default, which documents close the gap, and why waiting costs more than founders expect.

By default, the creator owns the work

Copyright. Code, designs, written content, and other creative work are owned by whoever created them. The main exception is work made by an employee within the scope of their employment, which belongs to the employer.

Inventions and patents. Rights to an invention belong to the inventor. A transfer of patent rights has to be in writing.

Contractors. Independent contractors generally own what they create unless a written agreement assigns it to the company. Software built by a freelancer is not automatically the client's, even if the client paid for it.

Founders before incorporation. Before the company exists, founders are not its employees, so the employment exception doesn't apply. Everything a founder builds before incorporation belongs to that founder until it is assigned.

Domains, accounts, and brand assets. Domain names, social media handles, app store accounts, and trademark applications are often registered in a founder's personal name. They need to be transferred to the company too.

The documents that move IP into the company

Technology assignment from each founder. Each founder assigns the IP they created before incorporation, usually as part of their restricted stock purchase agreement, where the IP counts toward the purchase price, or in a separate technology assignment agreement. The assignment should describe the IP specifically.

Invention assignment agreement for each founder. A confidential information and invention assignment agreement covers what founders create for the company from here on. It should be signed on or before the same day as the stock purchase agreement.

The same agreement for every employee. Each new hire signs one as a condition of employment, before they start work.

Contractor agreements with assignment language. Every contractor or freelancer who creates anything for the company signs an agreement that assigns their work to the company, not just one that licenses it.

Transfers of accounts and registrations. Domains, handles, and trademark filings are moved into the company's name, or held under company-controlled accounts.

The wording of the assignment matters

An assignment should transfer rights immediately, using language such as "hereby assigns." A promise to assign in the future, such as "agrees to assign," may not transfer anything until a later document is signed. The US Supreme Court's 2011 decision in Stanford v. Roche turned on exactly this difference: a present assignment to one party beat a promise to assign to another.

Two other details are worth checking.

Prior inventions. Invention assignment agreements usually include a schedule where each person lists work they created before joining and want to keep. Anything related to the business that isn't listed there, and isn't covered by the technology assignment, is a gap.

Founders outside the US. Where a founder lives and works outside the US, local law can add requirements. India's copyright law, for example, expects an assignment to state its duration and territory, and an assignment that doesn't may be treated as limited. Founders in that position should have the assignment reviewed by counsel in their country.

Why waiting costs more

Investors check every piece. In diligence for a first priced round, investors' counsel confirms that the company owns its core technology. Missing assignments have to be fixed before closing.

People leave. A co-founder who leaves before assigning their pre-incorporation work still owns it. Getting a signature from a departed founder, especially after a disagreement, can be slow or expensive, and gives them leverage they would not have had on day one.

Former employers can make claims. A founder who built part of the product while employed elsewhere may face a claim from that employer, depending on their employment agreement and state law. Identifying this early, and listing what was built where, is far easier than defending it later.

Contractors disappear. A freelancer who built the first version of the app may be hard to reach two years later, when investors ask for the assignment.

Acquirers check too. In an acquisition, the buyer is paying for the IP. Gaps can reduce the price, delay closing, or require an escrow.

A worked example

Northwind Labs' CTO, Daniel, spent four months building a prototype before the company was incorporated. A freelance designer created the logo and landing page during the same period.

At incorporation, Daniel's stock purchase agreement includes an assignment of the prototype code, described specifically, and he signs an invention assignment agreement on the same day. The CEO, Maya, does the same for the domain and early market research she produced. Northwind also has the designer sign an assignment of the logo and landing page. Everything the company relies on now belongs to the company.

Had Northwind skipped these steps and Daniel left a year later after a disagreement, the company would be running on code it didn't own, and the seed investors' counsel would flag it before closing.

The bottom line

A company only owns the IP that has been assigned to it in writing. Before incorporation, everything belongs to whoever created it, and after incorporation, every founder, employee, and contractor needs an agreement that assigns their work. Getting this done on day one costs a few signatures from people who are all still aligned. Doing it later means tracking down former co-founders, freelancers, and employers' claims at the moment investors or acquirers are waiting on the answer.

Frequently asked questions

Who owns code written before a company is incorporated?

The person who wrote it. Founders aren't employees of a company that doesn't exist yet, so their pre-incorporation work belongs to them until they assign it in writing, usually in their stock purchase agreement or a technology assignment.

Do contractors own the work they create for a startup?

Generally, yes, unless a written agreement assigns it to the company. Paying a freelancer doesn't by itself transfer ownership of the code or design they produce.

What is a CIIAA?

A confidential information and invention assignment agreement. It assigns to the company the IP a founder or employee creates for it, protects the company's confidential information, and usually includes a schedule of prior inventions the person is keeping.

Why does "hereby assigns" matter in an IP assignment?

It transfers rights immediately. "Agrees to assign" is a promise to transfer later and may not move ownership until another document is signed. The difference decided the US Supreme Court's Stanford v. Roche case in 2011.

What happens if a co-founder leaves without assigning IP?

They keep ownership of what they created before the assignment. The company then has to negotiate an assignment from them, which can be slow or costly, and investors will expect it resolved before a financing closes.

Do domain names and social accounts need to be transferred to the company?

Yes. Domains, social handles, app store accounts, and trademark filings registered in a founder's personal name should be moved into the company's name or company-controlled accounts.