1. Founder-Created Code Needs an Ownership History
Before claiming software as a company asset, founders should establish who created it and when. Under 17 U.S.C. § 201, copyright generally begins with the author, subject to work-made-for-hire rules. Incorporation does not itself change that ownership.
Trace Development before Incorporation
Git commits, invoices, and messages can identify contributors and work dates. Separate pre-formation code from later versions and imported components.
A prototype may involve a former employer or freelancer. The startup incorporation process creates the entity, but ownership of its prototype needs separate review.
Separate Authorship from Repository Access
Repository access does not prove ownership. Under 17 U.S.C. § 202, owning a copy of a work differs from owning its copyright. Paying developers or holding source files does not convey copyright.
Shared code does not necessarily create joint authorship. Examine each person's original contributions and agreements rather than assume one founder owns the entire product.
2. Existing Copyrights Require an Effective Transfer
Under 17 U.S.C. § 204(a), a copyright transfer other than by operation of law generally requires a writing signed by the rights holder or an authorized agent. A founder agreement can qualify if its signed terms transfer the relevant rights.
Specify the Existing Code and Transfer Terms
An assignment should name both parties and identify the code and rights conveyed. Distinguish an effective transfer of existing copyright from a promise to assign it later.
If founders signed documents before incorporation, confirm who received the rights and whether the newly formed company later acquired them. Keep signed records with the code history. Broader technology and IP transactions may require a license where a founder retains ownership.
Identify Third-Party Rights in the Product
A founder can convey only rights the founder holds. Libraries, contractor modules, and code taken from other projects may remain subject to licenses or competing claims. Review their provenance and material license conditions, including applicable open-source obligations.
Document licensed components as licensed, not owned. Transferring original code also does not transfer ownership of an underlying idea or method.
3. Prior Employers and Contractors May Retain Rights
Prior employment and contractor work may affect ownership. California employee invention statutes govern certain contractual assignment obligations. Federal copyright law separately governs authorship, work made for hire, and copyright transfers.
Review Employee Invention Assignment Exceptions
California Labor Code § 2870 limits assignment clauses for inventions developed entirely on an employee's own time without employer equipment, supplies, facilities, or trade secrets. The exclusion does not apply to inventions related to the employer's business or actual or demonstrably anticipated research or development at the relevant time, or resulting from work for that employer.
Section 2872 requires written notice when a covered agreement is made. It places the burden of proof on employees claiming its benefit in an action under that provision. Review prior contracts, timelines, and invention disclosures. Neither section independently establishes copyright ownership.
Obtain Assignments from Independent Contractors
Paying a contractor does not ordinarily transfer copyright. Under 17 U.S.C. § 101, work made for hire covers employee work within the scope of employment and specified commissioned-work categories with a qualifying signed agreement. Merely labeling software development as work made for hire is insufficient.
Outside those rules, obtain a written copyright assignment from the actual owner. Check for subcontractors: the person delivering the project may not own every component.
4. Founder Equity Must Reflect the Technology Contribution
A founder agreement can record responsibilities, vesting, and technology contributions. Yet issuing shares and transferring copyright are separate legal acts. Neither a cap table entry nor a 50/50 equity split establishes company ownership of existing code.
Match Stock Issuance to Consideration Received
For corporations governed by California Corporations Code § 409, intangible property actually received may serve as share consideration; future services cannot. The board must state by resolution the fair monetary value of noncash consideration. Services already rendered may qualify under the statute.
Stock approvals and IP assignments should describe the same contribution. Companies incorporated elsewhere may face different share-issuance rules, even when they operate in California.
Address Future Work without Rewriting the Past
A prospective work-product clause may cover later contributions, subject to applicable law. It does not necessarily fix an unsigned transfer of existing code. Employee-created work may qualify as work made for hire under federal law when created within the scope of employment.
Vesting and repurchase terms belong in equity records; the IP documents should specify what technology transferred. A departing founder's stock repurchase does not automatically reverse or complete a copyright assignment.
5. Financing Due Diligence Tests the Chain of Title
Investors may ask how code moved from its original authors to the startup. That chain of title should match founder agreements and equity records. A functioning product does not establish ownership, and unresolved claims may complicate financing representations.
Assemble Documents That Support Ownership
Collect signed assignments, contractor and employment agreements, material licenses, and relevant formation and stock approvals. Match important software components to an owner, a valid transfer, or sufficient permission to use them. Preserve original dates and signatures.
IP diligence remains distinct from securities compliance. A venture capital financing review addresses offering requirements and investor rights separately.
Resolve Gaps before Making Representations
If an assignment is missing, first confirm who holds the rights. A confirmatory assignment may document a transfer but cannot defeat another party's valid claim. Do not backdate documents or present contested code as undisputed company property.
When a transfer is unavailable, consider a negotiated license or replacing affected components. A startup lawyer can compare the documents with the development history before the company makes ownership representations to investors.
22 Sep, 2026
