Some of our most critical product designs and software codes were developed by independent contractors without formal intellectual property agreements. How do we resolve these ownership issues during our exit runway so a buyer's legal team does not flag them as a deal-killer during due diligence?

Question

Tyler Smith · Accepted Answer

Informal intellectual property agreements are a massive red flag that can stall or completely derail a transaction during due diligence. Buyers will not pay for proprietary software, custom designs, or unique brand assets if there is any ambiguity about who actually owns them. If an independent contractor developed your core technology without signing an assignment of invention agreement, you do not technically own that asset.

You must resolve these ownership gaps early on your exit runway. Conduct a thorough audit of all your intellectual property assets and identify who created them. If you find gaps, contact those historical contractors and have them sign retroactive intellectual property assignment agreements. This is much easier to accomplish when you are years away from an exit than when you are under the pressure of an impending transaction.

Once your historical IP is secured, implement a strict policy for all future projects. Ensure that every contractor and employee signs a standard intellectual property agreement before they begin work. Document this process as a mandatory step in your HR and onboarding systems. By cleaning up these legal details today, you ensure that your proprietary assets are legally secure and ready to withstand the intense scrutiny of a buyer's legal team.