You've spent months building your product. Late nights coding, designing, iterating. You've got a co-founder, maybe a freelance developer, and a friend who helped with your logo. The app works, customers are signing up, and an investor wants to talk.

Then due diligence starts, and someone asks a simple question: who actually owns the intellectual property?

For a surprising number of Canadian startups, the honest answer is: "we're not sure." And that uncertainty can kill a deal, invite a lawsuit, or hand your most valuable asset to someone who walks away.

The Default Rule Most Founders Don't Know About

Under Canadian law, the default position on IP ownership depends entirely on the relationship between your company and the person who created the work.

If someone is your employee and they create something in the course of their employment, your company generally owns the copyright. But even this has exceptions — moral rights, for example, always remain with the creator unless explicitly waived in writing.

If someone is an independent contractor — a freelance developer, a contract designer, an agency — the default flips completely. The contractor owns the IP they create, even if you paid for it. This catches founders off guard constantly. You paid $15,000 for a custom app, and unless the contract says otherwise, the developer technically owns the code.

Three Scenarios That Create IP Ownership Problems

1. The Co-Founder Who Leaves

Two friends start a company. One builds the product, the other handles sales. They never sign an IP assignment agreement. Eighteen months later, the technical co-founder leaves over a disagreement. They argue that since they personally wrote the code before the company was incorporated, they own it.

Without a proper IP assignment, they might be right. Pre-incorporation IP is particularly dangerous because it was created before the company even existed as a legal entity.

2. The Freelancer Who Built Your MVP

You hire a freelance developer on Upwork or through a referral to build your minimum viable product. You pay them $20,000. The app launches, gains traction, and you raise a seed round. During due diligence, the investor's lawyer asks for proof that the company owns the source code.

You check the freelancer's contract — it was a one-page scope of work that says nothing about IP. Under Canadian law, that freelancer still owns the copyright to the code they wrote. And now they know your company has money.

3. The Employee Side Project

Your lead developer builds a tool on evenings and weekends that becomes core to your product. Was it created "in the course of employment"? If they used their own equipment, on their own time, and it wasn't directly related to their job description, the answer might be no — even if you're now relying on it.

How to Fix It: The IP Assignment Agreement

The solution is straightforward but needs to be done properly. Every person who contributes to your startup's intellectual property — co-founders, employees, and especially contractors — should sign an IP assignment agreement that:

• Assigns all IP to the company. This includes copyright, patents, trade secrets, and any other intellectual property rights in the work product.
• Covers past and future work. For co-founders, this means assigning any IP created before incorporation that relates to the business.
• Includes a waiver of moral rights. Under the Canadian Copyright Act, moral rights cannot be assigned — but they can be waived. Without this waiver, the creator retains the right to be associated with the work and to prevent modifications they consider prejudicial.
• Is supported by consideration. For the agreement to be enforceable, each party needs to receive something of value. For employees, continued employment works. For co-founders, their equity stake. For contractors, payment under the service agreement.

Why Investors Care About This

IP ownership is one of the first things that comes up in investor due diligence, and for good reason. An investor is buying a stake in your company's value — and for most startups, the IP is the value. If the company doesn't clearly own its own technology, brand, or content, the investment is built on sand.

Common red flags investors look for include: no signed IP assignments from co-founders, contractors who built key technology without IP transfer clauses, employees without proper IP and inventions clauses in their employment agreements, and open-source code used without tracking license obligations.

These issues don't just slow down a round — they can kill it entirely, or result in significantly worse terms as the investor prices in the legal risk.

Your IP Ownership Checklist

If you're a founder of a Canadian startup, here's what you should have in place:

• Co-founder IP assignment agreements that transfer all pre-incorporation and ongoing IP to the company
• Employment agreements with IP assignment and moral rights waiver clauses for every employee
• Contractor agreements with explicit IP assignment clauses for every freelancer, agency, or consultant
• An IP register that tracks what IP the company owns, who created it, and what agreements are in place
• Open-source compliance — a record of any open-source components used and their license terms

Get Your IP House in Order

At For Founders Law, IP assignment agreements are a core part of our Founder Legal Stack — the fixed-fee legal package we built specifically for early-stage Canadian startups. It covers incorporation, shareholder agreements, IP assignments, employment contracts, and ESOP frameworks — everything you need to build on a solid legal foundation.

If you're not sure whether your startup's IP is properly protected, we'll tell you in a free 20-minute legal audit. No billable-hour surprises.

Book your free consultation here