Over the years, our business used external 1099 contractors and software developers to build core delivery processes and digital assets without formal IP assignment agreements. How do we clean up chain of title before a buyer legal audit?

Question

Tyler Smith · Accepted Answer

When a buyer acquires a company, they are purchasing assets that the company legitimately owns. If freelance software developers, creative agencies, or former contractors built your proprietary workflows, databases, or delivery platforms without executing written Intellectual Property Assignment Agreements, your company might not actually own the underlying work product.

Under intellectual property law, independent contractors typically retain copyright and patent rights to work product unless an explicit, signed agreement assigns those rights to the hiring business. Handshake agreements, paid invoices, and verbal understandings do not satisfy institutional M&A attorneys. A missing signature can derail a closing or force you to place hundreds of thousands of dollars into an indemnity escrow.

You must audit and clean up your intellectual property chain of title early in your exit runway.

Start by compiling a complete list of every internal system, proprietary workflow, brand asset, and custom software integration built by external parties over the past five to seven years. Review contractor agreements to verify whether each agreement includes clear work-made-for-hire language and broad, present-tense IP assignments.

For every contractor where paperwork is missing, outdated, or incomplete, secure a retroactive Proprietary Information and Inventions Agreement or Quitclaim Assignment. Reach out to these vendors well before any acquisition is rumored. When an owner asks a former contractor to sign a clean-up document during a quiet operating period, contractors readily sign. If you wait until a transaction is pending, that same contractor may demand significant compensation to sign the required release.