The Most Overlooked Mistake That Can Kill Your Company Before It Starts

Most founders assume their company owns what it builds. It doesn’t, at least not automatically.

Under U.S. law, the person who creates intellectual property owns it unless they’ve assigned it in writing. That means your company may not own its core code, designs, or brand even if you paid for them.

I’ve seen financings delayed, acquisitions fall apart, and founders lose control of their own products because they never secured clear IP ownership. It’s the single most common, and most avoidable, legal mistake in early-stage companies.

The Real-World Scenario

A SaaS company built a platform that was gaining real traction. The founders hired a freelance developer to build the initial backend and integrate several third-party APIs. By the time the company engaged Weintraub to negotiate its Series Seed, everything looked solid: strong revenue, low churn, and interested investors. Then the lead investor’s counsel asked for proof that the company owned all of its source code. It didn’t.

The developer had never signed an IP assignment. He technically owned the core backend code that powered the entire platform.

The investor froze the round until the issue was resolved. The developer, realizing his leverage, demanded both compensation and equity before signing. The founders ultimately resolved the dispute, but they lost months of momentum, leverage on valuation, and a portion of their cap table in the process.

All because of one missing agreement.

The Rule: Creation ≠ Ownership

Founders, employees, and contractors don’t automatically transfer IP to the company just by working for it or receiving payment. The law requires a written assignment agreement.

Without it, the individual creator remains the legal owner, and the company is simply using the work under an implied license. That’s not enough for investors or acquirers.

The Fix: Signed IP Assignment Agreements

Every person who contributes to your product—founders, employees, contractors, and advisors—must sign a Proprietary Information and Invention Assignment Agreement.

This document does three things: it assigns all inventions and creative work to the company, it confirms confidentiality and trade secret protection, and it prevents future ownership disputes.

No one should write a line of code, design a logo, or draft a deck until a signed assignment is in place.

If you use agencies or freelancers, make sure their contracts include identical assignment language. Invoices and emails don’t transfer ownership.

Founders Must Assign IP Too

Most founders start building before the company exists. That early work belongs to the individual founder, not the yet-to-be-formed entity.

Once the company is incorporated, each founder must formally assign their pre-formation IP to the company. This is typically handled as part of the founder stock purchase.

Every founder should have executed a separate IP assignment to the corporation. If not, that should be corrected immediately.

Due Diligence Reality Check

Investors and buyers will start their diligence with one question: does the company actually own what it’s selling?

Their counsel will review the records for a clean, unbroken chain of ownership. They expect to see signed IP assignment agreements for every founder, employee, contractor, and advisor who has contributed to the product. They’ll confirm that any pre-formation work was properly transferred and that no third party—a prior employer, university, or vendor—retains any claim to the IP. They’ll also check that all trademarks, copyrights, and patents are filed in the company’s name.

If you can’t produce that evidence quickly and confidently, diligence grinds to a halt, and so does your valuation.

Summary and Action Steps: Protect What You Build

Clean IP ownership isn’t just a legal technicality; it’s a signal of discipline.

Investors equate strong IP hygiene with strong governance. Founders who protect their intellectual property tend to protect everything else that matters.

If you want your company to attract serious investors or survive the scrutiny of an acquisition, your intellectual property ownership has to be airtight. Every contributor—founders, employees, contractors, and advisors—should have signed a Proprietary Information and Invention Assignment Agreement or equivalent transfer. Any IP created before incorporation must be formally assigned to the company, and every contractor’s agreement should include clear assignment language.

Until those steps are complete, your product isn’t truly your IP, and your company isn’t truly fundable.