Who owns a software company's source code if it was built by contractors instead of employees?

This is one of the biggest hidden risks in buying a software company, because the default rule for contractors is essentially the opposite of the default rule for employees. Code written by an employee in the course of their job generally belongs to the employer automatically. Code written by an independent contractor generally belongs to the contractor unless the contract specifically assigns ownership of the work to the company that hired them — and a surprising number of small software companies never got that assignment properly documented, especially in their early days.

If a contractor never assigned their rights, the company may hold only a licence to use the code, not outright ownership, which can materially limit what a buyer is actually acquiring and create real risk if that contractor later objects to the company's use, or the buyer's continued use, of their work. This is exactly the kind of gap that due diligence needs to surface before closing, not after.

Reviewing every contractor agreement tied to material parts of the codebase, and securing confirmatory assignments from contractors where the original paperwork is missing or unclear, protects the buyer's actual ownership of what it's paying for.