- Who these ownership rules apply to
- The default ownership position you cannot rely on
- Founder IP: assign the work you did before the company existed
- Contractor and developer IP: assignment must be express
- Employee IP: document the ownership, and deal with moral rights
- Labour hire and quasi-employment: the classification drives ownership
- IP held in the wrong entity
- What happens if you leave it unaddressed
- A practical ownership checklist
- Where a lawyer helps
- The assignment nobody thinks to ask for
For most software and product startups, intellectual property is the single biggest driver of enterprise value. The source code, product architecture, algorithms, brand and data assets built in the first few years do most of the work that later attracts investors, partners and acquirers. Yet founders routinely assume the company owns all of it without checking whether the law actually says so. What the law provides by default is often very different from what the founders assume, and the gap is only discovered at the worst possible moment: during a capital raise, a sale or an investor's due diligence.
This article sets out the ownership obligations a startup has to itself. Getting title to IP into the right entity is not a single legal duty with a regulator behind it, but a set of structural steps the founding team must take so that the company genuinely owns what it builds. We look at who the rules apply to, what the default ownership position is under Australian law for founders, employees, contractors and labour hire staff, and the concrete documentation that fixes each gap before a transaction exposes it.
Who these ownership rules apply to
The ownership obligations covered here bite on any Australian business that creates intellectual property through more than one person. In practice that means every incorporated startup that:
- has founders who wrote code, built prototypes or developed branding before or just after incorporation;
- engages employees or contractors to write software, design products or produce content;
- uses freelancers, offshore engineers, design agencies or marketing providers;
- brings in staff through a labour hire provider or consultancy rather than hiring them directly; or
- has restructured, pivoted or held assets across more than one entity, trust or company.
If any of those describe you, you have an ownership gap that needs checking. The smaller and younger the business the easier it is to fix, which is exactly why the founders' obligation is to address title early rather than during a transaction.
The default ownership position you cannot rely on
The starting point under the Copyright Act 1968 (Cth) (the Copyright Act) is that the author of a literary, dramatic, musical or artistic work is the owner of the copyright: s 35(2). Software, product documentation and related written material are literary works, so the person who writes them owns them unless something else applies. That default can be displaced by agreement: s 35(3) allows the ownership rules to be "excluded or modified by agreement".
The crucial carve-out is for employees. Under s 35(6) of the Copyright Act, where a work is made by the author in the course of employment under a contract of service or apprenticeship, the employer owns the copyright. There is no equivalent for contractors. An independent contractor, freelancer or consultant remains the author and therefore the owner under s 35(2) unless the engagement contract expressly assigns the copyright.
Note that s 35 is confined to copyright in "works". Patents, registered designs, trade marks and other IP are governed by their own legislation. For a patent, for example, a patent may only be granted to the inventor or a person entitled to derive title from the inventor under s 15 of the Patents Act 1990 (Cth), so an employee's invention generally needs an assignment (or a contractual term obliging assignment) to end up owned by the company, and contractors need an express assignment even more clearly. None of this can be assumed away.
Founder IP: assign the work you did before the company existed
The most common gap appears at the very start. Founders build the early software, architecture and brand personally, often before the company is incorporated or shortly after, while working without a written agreement. Under the default rule in s 35(2), that IP stays owned by the individual founder. Once the company adopts and uses it, commercial reality and legal ownership have already diverged.
The fix is a deed of IP assignment. Every founder should formally assign to the company all intellectual property created before incorporation and any they continue to create in a personal or unwritten capacity. Because copyright can only be assigned in writing (s 196 of the Copyright Act requires it to be in writing signed by or on behalf of the assignor), a simple exchange of emails or an oral promise is not enough. A proper deed, signed by each founder, that identifies the IP and assigns it to the company is the minimum.
Founders who contribute ongoing work should also have an employment or services agreement with the company rather than an informal arrangement, so that work created after incorporation vests in the company by operation of s 35(6) rather than staying personal. Where a founder is also a director, clean board approval of assignments avoids later arguments about authority or breaches of duty. Do this early. Investors expect clear title at due diligence, and assigning at that point can delay closing while everyone scrambles to produce signatures.
Contractor and developer IP: assignment must be express
Contractors are where the ownership rules most often catch founders out. Freelance developers, offshore engineers, design agencies, consultants and marketing providers rarely transfer their IP to the engaging company automatically. Because there is no employment-carve-out equivalent to s 35(6) for contractors, the copyright in their work stays with them unless the engagement contract contains an express assignment.
Two drafting points matter. First, the assignment must be an actual assignment of IP, not a vague licence to use the work or a promise to deliver "all work product". Second, the agreement should deal with pre-existing materials: code libraries, templates, tools and other assets the contractor brought to the job and reused. If those are not identified and carved out, the company can find it holds a licence over part of its own core technology rather than title, or that the contractor retained ownership of a critical component. Where the contractor's pre-existing material stays with them, the engagement should include an agreed licence back to the company so the product can be used and built upon.
The best time to get this right is before work starts, when the contractor still wants the deal and negotiation is cooperative. Remediating later is harder. A contractor who has moved on, gone offshore or lost interest has no incentive to sign a retrospective assignment, and there is no guarantee they will agree. An express assignment clause negotiated at the outset removes the risk far more cheaply than any retrospective rescue.
Employee IP: document the ownership, and deal with moral rights
For employees, the law already does the heavy lifting. Under s 35(6), copyright in works an employee creates in the course of their employment vests in the employer. But this does not remove the need for documents, because investors and their lawyers will want written evidence of ownership, and because non-work IP and inventions need separate treatment.
A well-drafted employment agreement should include an express confirmation (and where appropriate an assignment) of IP ownership, a statement that inventions and source code created in the course of employment belong to the company, a carve-out for any pre-existing IP the employee brings with them and how it is licensed to the company, and confidentiality terms. It should also deal with moral rights.
Moral rights are the author's personal rights of attribution, not to have authorship falsely attributed, and of integrity (not having the work treated in a way that is prejudicial to the author's reputation). They sit in Part IX of the Copyright Act and, importantly, a moral right is not transmissible by assignment: s 195AN(3). That means the company cannot simply buy them or have them assigned. Instead, an employee must give a written consent to acts that would otherwise infringe those rights, or waive them. Employment and contractor agreements should therefore include appropriate moral rights consents so the company can edit, develop and commercialise work without tripping over the author's personal rights.
Labour hire and quasi-employment: the classification drives ownership
A particularly slippery set of ownership gaps arises in labour hire and quasi-employment structures. A startup will often bring in developers through a labour hire provider, a consultancy, or an informal contractor arrangement while treating them operationally as part of the internal team. Legally, however, the question is whether each individual is an employee or an independent contractor, because that determines whether the employer-vesting rule in s 35(6) applies at all.
Where an individual is engaged through a labour hire company, the copyright in their work may vest in the labour hire entity or in the individual, depending on the contractual chain, rather than in the startup that directs their day-to-day work. The startup can find it holds no direct ownership at all, only whatever the labour hire or consultancy agreement gives it. The classification of a worker as employee or contractor for these purposes is a multi-factor question, not a matter of labels, and the consequences of getting it wrong extend well beyond IP into tax and workplace law.
The practical obligation is to trace the ownership chain for every person contributing IP and make sure it ends at the company. That means effective assignment provisions and moral rights consents in the labour hire, consultancy and contractor agreements, and a review of the existing arrangements so ownership demonstrably flows to the operating company rather than sitting with a third party.
IP held in the wrong entity
A final structural gap appears where the IP was developed in a prior entity, or is held in a related company or trust rather than the operating company. This happens after restructures, pivots, or the incorporation of a new entity for investment, and it can also be deliberate, done for asset protection or tax reasons. Whatever the reason, at a capital raise investors will expect the core IP to sit with, or be clearly controlled by, the entity they are investing in.
If ownership sits in a separate entity, the company has two broad ways to fix it: transfer the IP to the operating company, or retain it in the other entity and put a robust licence in place. A transfer needs a written assignment, and in some cases can trigger tax consequences, including capital gains on disposal of the IP, so tax advice and sometimes corporate approvals are needed. A licensing model instead invites scrutiny over whether the arrangement gives the operating company sufficient control and certainty, particularly if the licence can be terminated or is not exclusive.
Because transferring IP later can be slower and more expensive, and can crystallise a tax event, the sensible approach is to decide which entity should own the IP at the start and keep it there. Where a restructure has already created the problem, early advice on the cheapest way to realign ownership is usually far less painful than discovering it during due diligence.
What happens if you leave it unaddressed
IP ownership gaps rarely cause an immediate problem, which is why they survive so long. They surface when the company most needs to look clean: a capital raise, a strategic transaction or an exit. At that point the practical consequences include extended closing timelines while documentation is chased, additional legal and tax cost, commercial uncertainty about who actually owns the core product, and in the worst cases an investor or acquirer walking away or re-pricing the deal. None of these are avoided by hoping the default rules worked in the company's favour, because for founders and contractors the default rules usually did not.
A practical ownership checklist
For a founder reading this, the concrete steps are:
- Founders: put in place a deed of IP assignment signed by every founder covering pre-incorporation and personal work, plus an employment or services agreement for ongoing contributions.
- Contractors: ensure each engagement contract contains an express assignment of IP, identifies pre-existing materials, and includes any licence-back arrangements before work begins.
- Employees: include IP ownership, invention, confidentiality and moral rights provisions in employment agreements.
- Labour hire and consultancy: trace the ownership chain so IP demonstrably flows to the company, and refresh agreements that do not assign it.
- Entity structure: confirm the operating (and investee) entity actually owns or clearly controls the core IP, and get tax advice before any transfer.
- Review before a transaction: treat a pre-transaction IP review as a standing item, not a fire drill, so gaps are found on your schedule, not the investor's.
Where a lawyer helps
A startup lawyer's role here is to look at who currently owns each piece of IP and what the contracts actually say, then close the gaps. That means reviewing and drafting assignment deeds, employment, contractor and labour hire agreements, moral rights consents, and intercompany licence or assignment documents, and flagging the tax and corporate-approval issues that arise on any transfer. The founder's part is simply to make the time for this early, while the paperwork is easy and everyone is still on good terms.
The assignment nobody thinks to ask for
If there is one step founders overlook most often, it is the written assignment from the people whose contributions are flattering rather than feared, the co-founder who wrote the first version of the product, the design agency that mocked up the branding, and the contractor whose code became a core module. The law does not reward warm feelings: for everyone who is not an employee, s 35(2) keeps the copyright with the author until a signed written assignment moves it to the company. Before your next raise, ask yourself whether you could produce a signed deed for every significant contributor other than a direct employee. If you could not, that list of names is exactly where the deal will stall, and it is precisely the document a lawyer can help you put in place this week rather than during the transaction.