Who Owns the Code? IP Fights That Kill Startups

You've been building for six months. Late nights, caffeine-fueled Slack threads, a shared Google Doc titled "The Vision." Your technical cofounder wrote the first 30,000 lines of code. You designed the product, landed the first pilot customer, and mapped out the go-to-market strategy. Things are going well — until they aren't.

Maybe it starts with a disagreement about equity. Maybe one of you gets a job offer that's hard to turn down. Or maybe you simply realize you want different things. Whatever the trigger, your cofounder sends a message that stops you cold: "I wrote the code. It's mine. I'm taking it with me."

This is a cofounder IP dispute, and it kills more startups than bad product-market fit ever will. Not because the legal questions are unanswerable, but because most founding teams never bother to answer them upfront. This article walks you through exactly why these fights happen, who actually owns the code, and what you can do — starting today — to make sure your startup doesn't become a cautionary tale.

Key Takeaways

• Sign an IP assignment agreement before any code is written, ensuring all intellectual property created for the startup belongs to the company — not individual founders.
• Formally transfer any pre-formation code or prototypes to the company immediately after incorporation using a Technology Assignment Agreement.
• Have every cofounder review prior employment agreements and freelance contracts for invention assignment or non-compete clauses that could create third-party IP claims.
• Keep all code in company-owned repositories with documented commit histories, as Git logs and timestamps serve as critical evidence if an ownership dispute arises.
• Ask your cofounder the hard IP ownership questions now — while the relationship is strong — because these conversations become exponentially more expensive and adversarial once trust breaks down.

Why IP Ownership Is the Highest-Stakes Question Most Cofounders Ignore

Here's the uncomfortable truth: the intellectual property is the startup. In most early-stage companies, there's no significant revenue, no real brand equity, and no physical assets. The code, the algorithms, the designs, the proprietary data models — that's the entire value of the company.

And yet, a staggering number of founding teams operate for months (sometimes years) without a written agreement clarifying who owns what.

Why? A few reasons:

• It feels premature. When you're two friends hacking on a prototype, drafting legal documents feels like overkill.
• It feels awkward. Asking "who owns this if we break up?" signals distrust — or at least it feels that way.
• Everyone assumes they agree. The technical cofounder assumes they own the code they wrote. The business cofounder assumes the company owns everything. Both feel completely justified.

These assumptions are a ticking time bomb. And the blast radius is enormous.

Who Actually Owns the Code? The Legal Reality

The answer depends on several factors, and it's rarely as simple as "whoever typed it."

The Default Rule: The Author Owns It

Under U.S. copyright law (and similar frameworks in most countries), the person who creates a work owns it by default. If your cofounder wrote code on their own laptop, on their own time, with no written agreement assigning that code to the company — they may have a legitimate legal claim to it.

This is the part that shocks most non-technical cofounders. You may have come up with the idea, raised the money, and signed the customers. But without documentation, the person who wrote the code may hold the keys to your entire business.

The Exception: Work Made for Hire

If your cofounder is a W-2 employee of the company (not just a cofounder with equity), code they write within the scope of their employment is typically considered "work made for hire" and belongs to the company. But most early-stage cofounders aren't employees. They're equity holders with no salary, no employment agreement, and no IP assignment clause.

The Gray Zone: Pre-Formation Code

What about code written before the company was legally formed? This is where cofounder IP disputes get especially messy. If your technical cofounder started building the prototype six months before you incorporated, that code exists in a legal no-man's-land. The company didn't exist yet, so it can't automatically own something created before its birth.

What Investors Will Ask

Here's a practical reason to care about this beyond the cofounder relationship: investors will ask. During due diligence for any serious funding round, investors (or their lawyers) will want to see:

1. IP assignment agreements signed by every cofounder
2. Invention assignment clauses covering past and future work
3. Confirmation that no third party (like a cofounder's previous employer) has a claim to the technology

If you can't produce these documents, the deal may stall — or die entirely. VCs have seen too many cofounder IP disputes blow up portfolio companies to take the risk.

Real Scenarios That Tear Startups Apart

Let's look at three anonymized but realistic situations drawn from patterns that play out constantly in the startup world.

Scenario 1: The Departing Technical Cofounder

Rina and Dev cofounded a fintech startup. Dev built the entire backend. After eight months, they disagreed on fundraising strategy, and Dev decided to leave. He argued the code was his — he'd written every line, never signed an IP assignment, and the company had never paid him. Rina argued the code was built for the company, using the company's cloud infrastructure, during working hours dedicated to the startup.

Without a written agreement, they spent four months and $40,000 in legal fees reaching a settlement. The startup missed its fundraising window and eventually shut down.

Scenario 2: The Side-Project Surprise

Marcus and Leah built an AI tool for recruiters. What Marcus didn't know was that Leah had started the core algorithm as a side project at her previous job. Her old employer's IP agreement included a broad invention assignment clause. When the startup gained traction, the former employer's lawyers sent a cease-and-desist.

The technology Leah contributed wasn't hers to contribute.

Scenario 3: The "Equal" Partners Who Weren't

Jordan and Priya agreed to split everything 50/50. But they never defined what "everything" meant. Jordan contributed the codebase. Priya contributed $25,000 in seed funding, all the design assets, and the customer relationships. When tensions arose, Jordan claimed that since the code represented 80% of the company's value, he deserved 80% of the equity — retroactively.

No written agreement existed to contradict or confirm either position.

How to Protect Your Startup's IP: A Step-by-Step Approach

You don't need a $500-per-hour attorney to get the basics right (though you'll want legal review eventually). Here's what to prioritize.

1. Sign an IP Assignment Agreement — Before You Write a Single Line of Code

This is the single most important document for any startup with multiple founders. An IP assignment agreement states that all intellectual property created for the company belongs to the company — not the individual who created it.

Key elements to include:

• Scope: Covers all IP created in connection with the company's business
• Pre-existing IP: Lists any technology or code a founder is bringing into the company, and specifies whether it's being assigned or licensed
• Future work: Ensures that ongoing contributions are automatically assigned
• Moral rights waiver (where applicable): Prevents a founder from claiming personal credit in ways that block the company's use of the IP

2. Document Pre-Formation Contributions

If someone built a prototype before the company existed, you need to formally transfer that IP to the company after incorporation. This is often done through a Technology Assignment Agreement or as a schedule attached to the founders' agreement.

Don't skip this step. "We'll deal with it later" is how lawsuits are born.

3. Check for Third-Party Claims

Every cofounder should review:

• Employment agreements from previous or current employers (especially non-compete and invention assignment clauses)
• Freelance contracts that may have included IP assignment provisions
• Open-source licenses on any code being incorporated into the product (some licenses have viral provisions that could affect your proprietary code)

4. Include IP Provisions in Your Operating or Founders' Agreement

Your founders' agreement should explicitly address:

• Who owns the IP if a cofounder leaves
• What happens to IP if the company dissolves
• How IP-related disputes will be resolved (mediation, arbitration, etc.)
• Vesting schedules that tie equity to continued contribution

Tools like Servanda can help cofounders create structured, written agreements that address IP ownership and other common flashpoints — before emotions and legal fees start escalating.

5. Use Version Control and Documentation as Evidence

This is a practical tip that often gets overlooked: your Git history, commit logs, and project management tools serve as a paper trail of who contributed what and when. If a dispute ever arises, this documentation can be invaluable.

Make sure:

• All code is committed to a company-owned repository (not a personal GitHub account)
• Access credentials are shared or managed through the company
• Contributions are logged with timestamps and attribution

What to Do If You're Already in a Cofounder IP Dispute

If you're reading this and thinking, "It's too late — we're already fighting," here's a realistic path forward.

Don't Burn Bridges With an Opening Salvo

Sending a threatening legal letter as your first move almost always escalates the conflict. Before you involve lawyers, try to have a direct, structured conversation about what each person contributed and what a fair resolution looks like.

Get a Neutral Assessment

Bring in a third party — a mutual advisor, a mediator, or even a structured AI-assisted negotiation framework — to help both sides articulate their positions without the conversation devolving into accusations.

Understand Your BATNA

BATNA stands for "Best Alternative to a Negotiated Agreement." In plain terms: what happens if you don't reach a deal? For most cofounders in an IP dispute, the BATNA is ugly — litigation, frozen code, and a dead startup. Understanding this reality often creates the motivation to compromise.

Consider a Buyout or License

If a cofounder is leaving and claiming ownership of code, a clean buyout or licensing arrangement can preserve the startup while giving the departing founder fair compensation. Options include:

• One-time buyout: The company pays a negotiated sum for full ownership of the IP
• Royalty arrangement: The departing founder receives a small percentage of future revenue
• Equity adjustment: The departing founder retains (or receives additional) equity in exchange for assigning the IP

The Conversations Nobody Wants to Have

The reason cofounder IP disputes are so destructive isn't that the legal principles are complicated. It's that the conversations feel impossible to have when things are going well — and by the time things go badly, trust has already eroded.

Here are the specific questions you should ask your cofounder this week:

1. "If one of us leaves, what happens to the code?"
2. "Are either of us bound by IP agreements from previous employers?"
3. "Is any of the technology we're using built on someone else's work?"
4. "Are we comfortable putting our IP arrangement in writing right now?"

These aren't fun questions. But they're infinitely easier to answer over coffee than in a courtroom.

Conclusion

A cofounder IP dispute doesn't have to be the thing that kills your startup — but only if you address ownership questions before they become existential threats. The code, the designs, the algorithms, the data: these aren't just technical artifacts. They're the foundation your entire business sits on.

Formalize your IP agreements. Document pre-existing contributions. Check for third-party claims. Put it in writing. Do it now, while you still like each other.

The startups that survive aren't necessarily the ones with the best technology. They're the ones whose founders had the courage to ask uncomfortable questions early — and the discipline to write down the answers.

Frequently Asked Questions

Who owns the code if there's no written agreement between cofounders?

Under default U.S. copyright law, the person who wrote the code typically owns it if no IP assignment agreement exists. This means a technical cofounder who never signed over their work could have a legitimate legal claim to the entire codebase, even if the idea, funding, and customers came from someone else.

Does my cofounder own the code if they wrote it before we incorporated?

Code written before the company legally exists falls into a gray zone — the company can't automatically own something created before its formation. You need to execute a formal Technology Assignment Agreement after incorporation to transfer that pre-existing IP to the company.

What happens to startup IP when a cofounder leaves?

If a proper IP assignment agreement is in place, the code belongs to the company regardless of who leaves. Without one, the departing cofounder may claim ownership, potentially forcing a costly buyout, licensing arrangement, or litigation that can stall or kill the startup entirely.

Will investors care about cofounder IP agreements during due diligence?

Absolutely — investors and their lawyers will specifically look for signed IP assignment agreements from every founder, invention assignment clauses, and confirmation that no third party has a claim to the technology. Missing these documents can delay or completely derail a funding round.

How do I resolve a cofounder IP dispute without going to court?

Start with a direct, structured conversation rather than a legal threat, and consider bringing in a neutral third party such as a mediator or an AI-assisted negotiation tool like Servanda. Understand your BATNA — the costly alternative of litigation and a frozen startup — which often motivates both sides to reach a compromise through a buyout, royalty arrangement, or equity adjustment.