Do I Actually Own the Code My Employees Wrote for My Startup?

“Of course we own it. We paid them to build it.”

That assumption can create a serious problem during due diligence.

If your first engineer or co-founder never signed a proper invention assignment agreement, they may still have ownership rights in work they created. You may not discover the gap until an investor or acquirer asks for the paperwork.

By then, fixing the problem can become a negotiation with someone who suddenly has leverage over your company.

A PIIA Transfers the IP to Your Company

A Proprietary Information and Invention Assignment Agreement (PIIA) is designed to transfer ownership of code, inventions, and other intellectual property from the creator to the company.

Simply paying someone to create the work does not necessarily establish the clean ownership investors expect. In most states, the creator generally owns their work unless an effective assignment transfers those rights to the business.

That is why every founder, employee, and relevant contractor should have the appropriate agreement in place.

Present-Tense Language Matters

Not every assignment clause works the same way.

Courts have distinguished between language promising a future assignment and language that actually transfers ownership when the agreement is signed.

For example:

• “Will assign” or “agrees to assign” can represent a future promise to transfer the rights.
• “Hereby assigns” is present-tense language intended to make the transfer when the agreement is executed.

That distinction matters.

A generic template using only future-tense language can leave room for an ownership dispute. A departing employee or another party could argue that the assignment was never actually completed.

For a startup, that can become particularly problematic when the disputed IP is central to the company’s product.

Not Every Invention Automatically Belongs to the Company

Even a properly drafted PIIA has limits.

State law can create carve-outs for inventions developed independently by an employee.

California, for example, protects certain inventions created entirely on the employee’s own time and with their own resources when the invention does not relate to the employer’s business or anticipated research and development.

This can matter when a founder builds a prototype before incorporation or an employee has a side project that later overlaps with the company’s roadmap.

Your agreement should therefore address applicable state-law carve-outs rather than assuming the company automatically owns everything an employee creates.

Investors Check IP Ownership Early

Why does this matter so much during fundraising?

Because investors are not only investing in your team and revenue.

They are investing in the company’s intellectual property.

Serious investors commonly check whether founders and employees have signed IP assignment agreements as part of diligence. A missing agreement from the company’s earliest days can therefore become a problem years later when the company is raising a larger round.

The same issue can arise during an acquisition.

If an acquirer discovers that a former employee or co-founder may own part of the technology, closing can be delayed while the parties determine how to fix the ownership gap.

Common Founder Mistakes

• Using generic or missing templates: Founders sometimes download a standard agreement or skip the paperwork because everyone on the early team seems trustworthy. That can become a serious issue when a co-founder leaves, an early employee joins a competitor, or an acquirer discovers the missing assignment during diligence.
• Trusting a verbal understanding: An offer letter or conversation saying that “all IP belongs to the company” is not a substitute for a properly executed assignment agreement. The ownership transfer should be clearly documented using appropriate present-tense assignment language.
• Not re-papering when roles change: Contractors who become employees may continue operating under an old contractor agreement that does not properly cover their employee work. Similarly, a co-founder’s work created before incorporation may never have been formally assigned to the new company. Both situations can leave ownership gaps that surface during diligence.

10-Minute IP Ownership Self-Check

Before your next fundraising round, ask:

• Has every co-founder signed a present-tense “hereby assigns” IP agreement?
• Has every employee, including the earliest hires, signed a proper PIIA?
• Did contractors who later became employees sign appropriate new agreements?
• Was any work created before incorporation formally assigned to the company?
• Do your agreements account for applicable state-law carve-outs?
• Could you produce every signed agreement immediately if an investor requested them?

If you cannot answer yes to all of these, your IP ownership may not be as clean as you think.

Bottom Line

IP ownership problems rarely announce themselves.

They sit quietly until a founder leaves, an investor starts diligence, or an acquisition forces someone to examine who actually owns the company’s technology.

A signed PIIA with appropriate assignment language can help establish clear ownership from the beginning. But founders should also account for state-law carve-outs, pre-incorporation work, and changes in a person’s role.

Fixing an ownership gap early is usually far easier than trying to resolve it after someone else discovers it.

Ready to Get Your IP Assignment Paperwork Launch-Ready?

Our launch-ready legal package is tailored to your software, customers, and the way your product actually operates. Schedule a free 30-minute discovery call to discuss your IP ownership and determine whether our team can help prepare your company for fundraising and growth.

Book here: Initial Consultation with Primum Law Group