Own the IP Your Company Creates
What PIIAAs, Contractor Assignments, and Work-for-Hire Cover
by
Teddy Ellison
Fundraising & Equity
Summary
A company automatically owns the copyright in whatever its employees create within the scope of their employment. Everything else, the company owns only after the person who made it signs it over. A contractor keeps the copyright in code they write for you. An employee keeps the patent rights to what they invent. A founder keeps whatever they built before incorporating. Each of them transfers those rights to the company only through a signed document, whether a PIIAA, a contractor agreement, or a founder assignment. When a buyer or an investor runs diligence, their counsel checks those signatures and pays only for the rights the company can prove it holds.
Many founders assume they automatically own any intellectual property their company creates. But in some cases, they don't. Copyright starts with whoever wrote the work, and a patent with whoever invented it. The company owns those rights only once they are assigned to it in writing, with one exception: under the US work-made-for-hire doctrine, the company usually owns the copyright in an employee's on-the-job work from the start, without a signed assignment. But investors do not want to rely on that (and neither should the founders).
Every person who works on the product adds a link to the company’s chain of title, and each link needs its own document to secure that chain. If a single link goes unsigned or is improperly drafted, a company may ultimately forgo ownership of part of its own product. Most company hires are routine, and tools like Clerky or Carta can generate standard templates to cover them (although those tools still leave gaps founders overlook, which our Clerky and Stripe Atlas guide covers). Beyond these cases, there are multiple hiring decisions and decision paths that can leave a company without a clear title.
The sections below trace title to each source, starting with a founder’s pre-incorporation code, then employees and contractors, and closing with the classification question that connects the two.
The company does not own a founder's pre-incorporation code
Almost every startup runs on code written before the company existed. The first prototype and the earliest working version belong to whoever wrote them. Incorporating the company does not transfer that work to it.
Without a written assignment of that pre-incorporation work, the company cannot prove it owns that code. If a cofounder leaves on bad terms, the copyright in the code they wrote might remain theirs. They can license it, reuse it, or bar the company from using it.
The fix is a founder IP assignment, signed at formation alongside the founder stock. It has to be a present assignment, one that transfers the rights the moment it is signed. The founder stock is the consideration that makes it binding, so the two get signed together.
Hiring an employee doesn't make their inventions yours
Hiring someone to build your product does not, on its own, make the company the owner of what they create. Copyright is the exception here. Work an employee creates within the scope of their job is a work made for hire, so the company holds the copyright from the start, with no separate assignment.
Patents do not follow that doctrine. An invention belongs to the person who conceived it, and a salary does not transfer it. In Stanford v. Roche, the Supreme Court held that "rights in an invention belong to the inventor" unless the inventor has expressly assigned them. An employee can build something core to your product and still own the patent personally.
The proprietary information and inventions assignment agreement, or PIIAA (sometimes called a CIIAA–replace proprietary with confidential), closes both gaps. Every employee should sign one, and its assignment clause should use present-tense language so that the rights transfer as the employee creates them. A promise to assign later can leave the company holding an IOU instead of the patent.
The offer letter should make signing the PIIAA a condition of the job. You do not want to be asking your employees to sign it later (or worse yet, after they leave) when you have less leverage. When the terms are more involved, a fuller employment agreement sets them out instead. Our guide to offer letters and employment agreements covers which one a given hire needs.
By default, a contractor owns what they build for you
When you bring on a contractor, ownership defaults to the contractor. The work-made-for-hire doctrine does not help here. Under the Copyright Act, a commissioned work qualifies as work for hire only if it fits one of the listed categories and the parties sign a written agreement labelling it one. Those categories cover things like translations, instructional texts, and contributions to collective works. Custom software is not among them.
This means a work-for-hire clause in a contractor agreement does not transfer the copyright in their code, whatever it says. The developer who built a core service on contract owns the copyright in it. They can reuse it for another client or license it to a competitor. The clause you relied on will not stop them.
Your contractor agreement needs an IP-assignment clause
The contractor agreement transfers the contractor's work to the company through an IP-assignment clause, not a separate document. Like the employee's PIIAA, it has to read as a present assignment "the contractor hereby assigns," so ownership passes to the company on signing.
The exact wording of this document matters. In Stanford v. Roche, a case involving a university research fellow, one inventor promised his rights with the words "agree to assign." He later signed a present "hereby assign" to someone else, and the present assignment prevailed. The same principle applies to contractors. A contractor who only agrees to assign can promise the same rights elsewhere first, and that promise can defeat yours. So sign the assignment in the present tense before the work starts.
Calling a worker a contractor doesn't make them one
You do not get to decide whether a worker is an employee or a contractor. However you label the arrangement, a court or a state agency can still classify the worker as an employee, and in California the test favors an employee designation.
California's ABC test presumes every worker is an employee. To treat someone as a contractor, the company must show the worker is free from its control, works outside its usual business, and runs an independent trade of their own. Prong B often trips up startups, because a contractor building your core product works inside that business. Because the test is all or nothing, failing that one prong is enough to make the worker an employee.
Getting it wrong costs the company twice. First comes the employment-law exposure, back payroll taxes, unpaid wages and overtime, and penalties under Section 226.8. Then comes the IP problem, because a "contractor" who never signed an assignment still owns their inventions. The misclassification and the ownership gap arrive together.
The federal version of this test has moved with each administration. California's presumption of employment has not. Do not build the ownership chain on the contractor label.
When the team crosses borders
Everything above assumes US law. When a company hires outside the US, the rules shift in ways that can both help and hurt. For instance, the EU Software Directive gives employers automatic economic rights in software their employees create on the job, with no separate assignment needed. But contractors in Europe get no such treatment, and the company still needs a written assignment. In many EU countries, moral rights belong to the author and cannot be waived or assigned away. A US-form PIIAA or contractor assignment may not transfer what local law says belongs to the creator.
Patent ownership is where international hiring gets expensive. Germany and a number of other jurisdictions require employers to pay statutory compensation to employee inventors, above and beyond salary. A US-style invention assignment does not override these obligations. A founder hiring developers in these overseas jurisdictions needs an invention policy drafted under local law, because a PIIAA alone may not hold up.
A framework for founders
Owning your IP mostly comes down to getting the right assignment signed by the right person at the right time (and ensuring no one else has a prior claim on that IP), and a template can handle this for a standard hire. It can't tell you which contributors still owe the company a signature, or which situations a standard form was never built to handle.
Knowing which decisions require a lawyer, which require careful self-review, and which are straightforward is what keeps this gap from opening in the first place. Our DIY legal guide for founders offers a general framework for how to approach these decisions, which we have translated to IP-specific guidance below.
What founders can handle themselves
A founder can secure most of the company's IP without a lawyer, as long as the forms are good and signed at the right time. Each founder, employee, and contractor signs a present assignment that transfers the new work they create for the company. A good form also has them represent that the work is not already someone else's and that they are free to assign it.
Before anyone starts, check that the assignment reads "hereby assigns" rather than "agrees to assign," so the rights pass to the company the moment it is signed. Reputable IP-assignment and PIIAA templates from Clerky or Carta already use that language.
Where it gets complicated
A founder's decisions get harder when a piece of the work has more than one possible owner. An ordinary assignment transfers only what the person signing it owns, so it cannot secure a right that already belongs to someone else.
A development agency, for instance, usually builds your product partly on its own pre-existing code. Its contract typically assigns you the finished work but keeps that underlying code as the agency's. A founder's code written at a prior job can belong to that old employer, under the invention agreement they signed there.
Open-source brings its own license, and a copyleft one can attach conditions to the code around it. Code generated by AI tools raises a separate question, because the Copyright Office has maintained that purely-AI generated output is not copyrightable, which leaves gaps in what an assignment can transfer. In each case, the founder has to spot the outside claim before picking a document.
Where expert counsel becomes mandatory
Two situations often call for a lawyer. The first is a cleanup before a financing or a sale, when a buyer's counsel wants a signed assignment from every contributor in the chain. A single gap turns into an indemnity, an escrow holdback, or a lower price. The signature you chase after a contributor has left costs leverage, because by then they can hold out.
The second is a live dispute, where a former contributor claims ownership of something the company is shipping. A claim like that can halt a launch or a license, and it can surface mid-deal and end it. If the work is a patentable invention, the company cannot file or enforce the patent without the inventor's signature, and that becomes a potentially expensive negotiation once they are gone. Serotonin Legal works through this kind of cleanup with founders.
Final thoughts
A company does not own its product by default. It earns that ownership one signature at a time, from every founder, employee, and contractor whose work forms a link in the chain. If any of these links are open going into a fundraise or a sale, close them before the process starts. That is when you still hold the leverage to get a signature. A pre-incorporation prototype no one assigned is worth a conversation. So is a core service a contractor built, or an early hire everyone treated as a contractor. Better to have it now than as a diligence item later.
Reach out to set up a free consultation.
Serotonin Legal advises technology founders on corporate, regulatory, and transactional matters at the intersection of AI, blockchain, and fintech. This guide is for general informational purposes and does not constitute legal advice. No attorney-client relationship is formed by reading this material.
FAQs
Who owns the intellectual property in a startup?
By default, new work belongs to the person who created it, even when a company paid for it. Copyright vests in the author, and a patentable invention belongs to the inventor. A startup owns that IP only two ways, through a signed agreement that transfers it through a present assignment or through the work-made-for-hire doctrine. Founders, employees, and contractors each transfer their work through a PIIAA, a well drafted contractor agreement, a stand-alone IP assignment, or a founder assignment for pre-incorporation code. A company that skips any of those links cannot prove it owns part of its own product.
Do founders need to sign an IP assignment?
Yes. The code, designs, and inventions a founder builds before the company exists belong to the founder personally, and incorporating does not transfer them to the company. To move that pre-incorporation work over, the founder signs a founder IP assignment at formation, usually alongside their founder stock, which supplies the consideration that makes it binding. Like every other assignment, it has to use present-tense language, "hereby assigns," so the rights pass on signing. Without it, a founder who later leaves can still own a core piece of the product the company is built on.
What is a PIIAA?
A PIIAA, or proprietary information and inventions assignment agreement, is the document a startup asks each employee to sign to assign their work to the company. It also protects the company's confidential information. Some firms call it a CIIAA (confidential instead of proprietary). Without one, the company leans on the work-made-for-hire doctrine, which covers copyright but not patents, employees but not contractors. An employee can then hold personal rights to an invention the company depends on. A signed PIIAA with present-tense assignment language closes that gap.
Do contractors own the work they create for a startup?
Yes, by default. When an independent contractor creates work for you, the copyright belongs to the contractor unless a signed agreement transfers it to the company through a present assignment. A work-for-hire clause is not enough on its own. Federal law counts a commissioned work as made for hire only in nine narrow categories, and custom software is not one of them. To own a contractor's code, the company needs present-tense assignment language in the contractor agreement. Get it signed before the work starts.
What is chain of title, and why do investors check it?
Chain of title is the documented path from every person who created the company's IP to the company itself. In an acquisition or a financing, the buyer's counsel traces that path through founders, employees, contractors, and agencies. They flag when a link in missing a signed present assignment. One unsigned contractor or unassigned founder prototype can lower the price, push the gap into escrow, or stall the deal entirely. It is cheaper to build the chain than to repair it under deal pressure.
Curious to learn more about Serotonin Legal? —
Get in Touch
Own the IP Your Company Creates
What PIIAAs, Contractor Assignments, and Work-for-Hire Cover
by
Teddy Ellison
Fundraising & Equity
Summary
A company automatically owns the copyright in whatever its employees create within the scope of their employment. Everything else, the company owns only after the person who made it signs it over. A contractor keeps the copyright in code they write for you. An employee keeps the patent rights to what they invent. A founder keeps whatever they built before incorporating. Each of them transfers those rights to the company only through a signed document, whether a PIIAA, a contractor agreement, or a founder assignment. When a buyer or an investor runs diligence, their counsel checks those signatures and pays only for the rights the company can prove it holds.
Many founders assume they automatically own any intellectual property their company creates. But in some cases, they don't. Copyright starts with whoever wrote the work, and a patent with whoever invented it. The company owns those rights only once they are assigned to it in writing, with one exception: under the US work-made-for-hire doctrine, the company usually owns the copyright in an employee's on-the-job work from the start, without a signed assignment. But investors do not want to rely on that (and neither should the founders).
Every person who works on the product adds a link to the company’s chain of title, and each link needs its own document to secure that chain. If a single link goes unsigned or is improperly drafted, a company may ultimately forgo ownership of part of its own product. Most company hires are routine, and tools like Clerky or Carta can generate standard templates to cover them (although those tools still leave gaps founders overlook, which our Clerky and Stripe Atlas guide covers). Beyond these cases, there are multiple hiring decisions and decision paths that can leave a company without a clear title.
The sections below trace title to each source, starting with a founder’s pre-incorporation code, then employees and contractors, and closing with the classification question that connects the two.
The company does not own a founder's pre-incorporation code
Almost every startup runs on code written before the company existed. The first prototype and the earliest working version belong to whoever wrote them. Incorporating the company does not transfer that work to it.
Without a written assignment of that pre-incorporation work, the company cannot prove it owns that code. If a cofounder leaves on bad terms, the copyright in the code they wrote might remain theirs. They can license it, reuse it, or bar the company from using it.
The fix is a founder IP assignment, signed at formation alongside the founder stock. It has to be a present assignment, one that transfers the rights the moment it is signed. The founder stock is the consideration that makes it binding, so the two get signed together.
Hiring an employee doesn't make their inventions yours
Hiring someone to build your product does not, on its own, make the company the owner of what they create. Copyright is the exception here. Work an employee creates within the scope of their job is a work made for hire, so the company holds the copyright from the start, with no separate assignment.
Patents do not follow that doctrine. An invention belongs to the person who conceived it, and a salary does not transfer it. In Stanford v. Roche, the Supreme Court held that "rights in an invention belong to the inventor" unless the inventor has expressly assigned them. An employee can build something core to your product and still own the patent personally.
The proprietary information and inventions assignment agreement, or PIIAA (sometimes called a CIIAA–replace proprietary with confidential), closes both gaps. Every employee should sign one, and its assignment clause should use present-tense language so that the rights transfer as the employee creates them. A promise to assign later can leave the company holding an IOU instead of the patent.
The offer letter should make signing the PIIAA a condition of the job. You do not want to be asking your employees to sign it later (or worse yet, after they leave) when you have less leverage. When the terms are more involved, a fuller employment agreement sets them out instead. Our guide to offer letters and employment agreements covers which one a given hire needs.
By default, a contractor owns what they build for you
When you bring on a contractor, ownership defaults to the contractor. The work-made-for-hire doctrine does not help here. Under the Copyright Act, a commissioned work qualifies as work for hire only if it fits one of the listed categories and the parties sign a written agreement labelling it one. Those categories cover things like translations, instructional texts, and contributions to collective works. Custom software is not among them.
This means a work-for-hire clause in a contractor agreement does not transfer the copyright in their code, whatever it says. The developer who built a core service on contract owns the copyright in it. They can reuse it for another client or license it to a competitor. The clause you relied on will not stop them.
Your contractor agreement needs an IP-assignment clause
The contractor agreement transfers the contractor's work to the company through an IP-assignment clause, not a separate document. Like the employee's PIIAA, it has to read as a present assignment "the contractor hereby assigns," so ownership passes to the company on signing.
The exact wording of this document matters. In Stanford v. Roche, a case involving a university research fellow, one inventor promised his rights with the words "agree to assign." He later signed a present "hereby assign" to someone else, and the present assignment prevailed. The same principle applies to contractors. A contractor who only agrees to assign can promise the same rights elsewhere first, and that promise can defeat yours. So sign the assignment in the present tense before the work starts.
Calling a worker a contractor doesn't make them one
You do not get to decide whether a worker is an employee or a contractor. However you label the arrangement, a court or a state agency can still classify the worker as an employee, and in California the test favors an employee designation.
California's ABC test presumes every worker is an employee. To treat someone as a contractor, the company must show the worker is free from its control, works outside its usual business, and runs an independent trade of their own. Prong B often trips up startups, because a contractor building your core product works inside that business. Because the test is all or nothing, failing that one prong is enough to make the worker an employee.
Getting it wrong costs the company twice. First comes the employment-law exposure, back payroll taxes, unpaid wages and overtime, and penalties under Section 226.8. Then comes the IP problem, because a "contractor" who never signed an assignment still owns their inventions. The misclassification and the ownership gap arrive together.
The federal version of this test has moved with each administration. California's presumption of employment has not. Do not build the ownership chain on the contractor label.
When the team crosses borders
Everything above assumes US law. When a company hires outside the US, the rules shift in ways that can both help and hurt. For instance, the EU Software Directive gives employers automatic economic rights in software their employees create on the job, with no separate assignment needed. But contractors in Europe get no such treatment, and the company still needs a written assignment. In many EU countries, moral rights belong to the author and cannot be waived or assigned away. A US-form PIIAA or contractor assignment may not transfer what local law says belongs to the creator.
Patent ownership is where international hiring gets expensive. Germany and a number of other jurisdictions require employers to pay statutory compensation to employee inventors, above and beyond salary. A US-style invention assignment does not override these obligations. A founder hiring developers in these overseas jurisdictions needs an invention policy drafted under local law, because a PIIAA alone may not hold up.
A framework for founders
Owning your IP mostly comes down to getting the right assignment signed by the right person at the right time (and ensuring no one else has a prior claim on that IP), and a template can handle this for a standard hire. It can't tell you which contributors still owe the company a signature, or which situations a standard form was never built to handle.
Knowing which decisions require a lawyer, which require careful self-review, and which are straightforward is what keeps this gap from opening in the first place. Our DIY legal guide for founders offers a general framework for how to approach these decisions, which we have translated to IP-specific guidance below.
What founders can handle themselves
A founder can secure most of the company's IP without a lawyer, as long as the forms are good and signed at the right time. Each founder, employee, and contractor signs a present assignment that transfers the new work they create for the company. A good form also has them represent that the work is not already someone else's and that they are free to assign it.
Before anyone starts, check that the assignment reads "hereby assigns" rather than "agrees to assign," so the rights pass to the company the moment it is signed. Reputable IP-assignment and PIIAA templates from Clerky or Carta already use that language.
Where it gets complicated
A founder's decisions get harder when a piece of the work has more than one possible owner. An ordinary assignment transfers only what the person signing it owns, so it cannot secure a right that already belongs to someone else.
A development agency, for instance, usually builds your product partly on its own pre-existing code. Its contract typically assigns you the finished work but keeps that underlying code as the agency's. A founder's code written at a prior job can belong to that old employer, under the invention agreement they signed there.
Open-source brings its own license, and a copyleft one can attach conditions to the code around it. Code generated by AI tools raises a separate question, because the Copyright Office has maintained that purely-AI generated output is not copyrightable, which leaves gaps in what an assignment can transfer. In each case, the founder has to spot the outside claim before picking a document.
Where expert counsel becomes mandatory
Two situations often call for a lawyer. The first is a cleanup before a financing or a sale, when a buyer's counsel wants a signed assignment from every contributor in the chain. A single gap turns into an indemnity, an escrow holdback, or a lower price. The signature you chase after a contributor has left costs leverage, because by then they can hold out.
The second is a live dispute, where a former contributor claims ownership of something the company is shipping. A claim like that can halt a launch or a license, and it can surface mid-deal and end it. If the work is a patentable invention, the company cannot file or enforce the patent without the inventor's signature, and that becomes a potentially expensive negotiation once they are gone. Serotonin Legal works through this kind of cleanup with founders.
Final thoughts
A company does not own its product by default. It earns that ownership one signature at a time, from every founder, employee, and contractor whose work forms a link in the chain. If any of these links are open going into a fundraise or a sale, close them before the process starts. That is when you still hold the leverage to get a signature. A pre-incorporation prototype no one assigned is worth a conversation. So is a core service a contractor built, or an early hire everyone treated as a contractor. Better to have it now than as a diligence item later.
Reach out to set up a free consultation.
Serotonin Legal advises technology founders on corporate, regulatory, and transactional matters at the intersection of AI, blockchain, and fintech. This guide is for general informational purposes and does not constitute legal advice. No attorney-client relationship is formed by reading this material.
FAQs
Who owns the intellectual property in a startup?
By default, new work belongs to the person who created it, even when a company paid for it. Copyright vests in the author, and a patentable invention belongs to the inventor. A startup owns that IP only two ways, through a signed agreement that transfers it through a present assignment or through the work-made-for-hire doctrine. Founders, employees, and contractors each transfer their work through a PIIAA, a well drafted contractor agreement, a stand-alone IP assignment, or a founder assignment for pre-incorporation code. A company that skips any of those links cannot prove it owns part of its own product.
Do founders need to sign an IP assignment?
Yes. The code, designs, and inventions a founder builds before the company exists belong to the founder personally, and incorporating does not transfer them to the company. To move that pre-incorporation work over, the founder signs a founder IP assignment at formation, usually alongside their founder stock, which supplies the consideration that makes it binding. Like every other assignment, it has to use present-tense language, "hereby assigns," so the rights pass on signing. Without it, a founder who later leaves can still own a core piece of the product the company is built on.
What is a PIIAA?
A PIIAA, or proprietary information and inventions assignment agreement, is the document a startup asks each employee to sign to assign their work to the company. It also protects the company's confidential information. Some firms call it a CIIAA (confidential instead of proprietary). Without one, the company leans on the work-made-for-hire doctrine, which covers copyright but not patents, employees but not contractors. An employee can then hold personal rights to an invention the company depends on. A signed PIIAA with present-tense assignment language closes that gap.
Do contractors own the work they create for a startup?
Yes, by default. When an independent contractor creates work for you, the copyright belongs to the contractor unless a signed agreement transfers it to the company through a present assignment. A work-for-hire clause is not enough on its own. Federal law counts a commissioned work as made for hire only in nine narrow categories, and custom software is not one of them. To own a contractor's code, the company needs present-tense assignment language in the contractor agreement. Get it signed before the work starts.
What is chain of title, and why do investors check it?
Chain of title is the documented path from every person who created the company's IP to the company itself. In an acquisition or a financing, the buyer's counsel traces that path through founders, employees, contractors, and agencies. They flag when a link in missing a signed present assignment. One unsigned contractor or unassigned founder prototype can lower the price, push the gap into escrow, or stall the deal entirely. It is cheaper to build the chain than to repair it under deal pressure.
Curious to learn more about Serotonin Legal?
Get in Touch
