What happens to a business's IP if a co-founder who created it leaves the company?

This depends entirely on whether the IP was ever properly assigned to the business, which is exactly why it becomes a problem so often — many co-founders build a prototype, write initial code, or design early branding before incorporating or before signing any formal agreement, and without a written assignment, ownership can legally remain with the individual founder rather than the company. If a founders' or shareholders' agreement, employment agreement, or standalone IP assignment already transferred that IP to the corporation, the departing co-founder's exit does not affect the company's ownership.

If no such assignment exists, the departing founder may retain personal rights in what they created, which can leave the remaining business exposed if that IP is core to the product, potentially needing to negotiate a retroactive assignment or licence with the departing founder on their way out, sometimes from a weak bargaining position. This is one of the strongest reasons startups are advised to have every founder, employee, and contractor sign IP assignment agreements from day one, ideally before development work begins, rather than trying to clean it up once a departure is already happening.