Merging Two Rivals Meant Chasing Down a Missing Signature

The situation

Ines worked shifts as a grocery clerk for most of a decade, and in her spare hours she built a scheduling and route app for small delivery operators who needed a cheaper alternative to enterprise software. Manuel, an early childhood educator, built something similar on nights and weekends, aimed at home childcare providers who needed to manage bookings, invoicing and staff shifts without a full back office. Both apps found the same audience over time: small service businesses around Belleville and the surrounding region that needed simple, affordable scheduling tools and nothing more.

For five years the two companies competed for the same customers, undercutting each other on price and occasionally poaching each other's clients. Eventually Ines and Manuel realized they were spending more energy fighting each other than growing the market. They agreed, in principle, to merge the two companies into one, combining their customer bases and splitting ownership of the resulting business. An outside operator who ran a larger scheduling platform in a neighbouring province offered to acquire the merged company outright once it was combined, in a deal valued at roughly $5 million, reflecting the combined customer contracts, the software itself and the goodwill built over five years. Ines and Manuel came to Treadstone Law to handle the merger and the sale that would follow it.

What the review found

Before any merger or sale can close, the party buying the business needs confidence that it actually owns what it is paying for. For a software company, the single most important asset is usually the code itself, and the question due diligence has to answer is simple: does the company hold clear legal title to every line of it?

Under Canadian copyright law, the person who writes code generally owns the copyright in it automatically, unless that person is an employee acting within the scope of their employment, or unless they have signed a written agreement assigning their rights to someone else. A written contract that simply says someone was hired to build an app is not the same thing as a signed assignment of copyright. Without a specific, signed assignment clause, the person who wrote the code can retain ownership of it even after being paid in full for the work.

Reviewing Manuel's company first, the file was clean: he had written the core scheduling engine himself as sole developer, and every contractor who touched the code afterward had signed a standard agreement that included a copyright assignment clause. Ines's company was different. Her original scheduling algorithm, the part of the software that every customer actually relied on, had been written four years earlier by a freelance developer named Tesfay, working under a short, informal contract that covered payment and scope but said nothing about who would own the resulting code. Ines had paid Tesfay in full at the time and had not spoken to him since. On paper, Tesfay could still be the legal owner of the core intellectual property that Ines's company had been selling to customers and was now about to fold into a multi-million-dollar merger.

This is a more common gap than most founders expect. Early-stage work is often done quickly, on a handshake or a short email exchange, with the parties focused on price and deadline rather than ownership. It rarely causes a problem until the company is being sold or merged, at which point a buyer's lawyers will ask for it directly, and an unclear answer can stop a deal in its tracks.

What we did

1. Flagged the gap before the buyer's lawyers found it. Our review of Ines's corporate records surfaced the missing assignment during our own diligence process, ahead of the outside operator's legal team reaching the same document. Raising the issue first let the founders control the narrative and the timeline, rather than reacting to a buyer's demand under pressure near a closing date.
2. Located Tesfay and opened a direct conversation. He had moved to a different city and was no longer doing contract development, but he was reachable. We explained plainly what the merger required: a signed agreement formally assigning any copyright he held in the code he wrote, effective from the date he was originally paid, so there could be no dispute about ownership going forward.
3. Negotiated the terms of the assignment. Tesfay was under no obligation to sign anything and knew the merger depended on it, which gave him real leverage. Rather than risk a standoff that could collapse the timeline, we negotiated a one-time payment in exchange for a full, unconditional assignment of his rights, plus a release confirming he would make no further claim against either company or the merged entity.
4. Documented the chain of title cleanly. Once signed, the assignment was added to the corporate records for the merger, along with a summary confirming that every other contributor to both codebases had a valid written assignment on file. This gave the outside operator's lawyers a complete, verifiable paper trail rather than a single missing document sitting alongside otherwise solid records.
5. Adjusted the deal terms to reflect the cost. The payment to Tesfay came out of the merger proceeds allocated to Ines's side of the new company, since the gap originated in her company's records. We negotiated with Manuel's side to agree on how that cost would be shared, since a collapsed deal would have cost both founders far more than resolving it properly.

The outcome

Tesfay signed the assignment about six weeks after he was first contacted, which pushed the merger's closing date back but did not derail it. The outside operator's legal team reviewed the completed chain of title and accepted it without further conditions, since every piece of code sold as part of the deal now had a documented, signed owner. The merger closed, followed by the sale to the outside operator, at the originally agreed value of roughly $5 million for the combined business.

The compromise cost Ines more than either founder wanted. The payment to Tesfay, plus the legal work required to negotiate and document it properly, reduced her net proceeds from the deal by a meaningful amount, and the six-week delay meant both founders carried ongoing operating costs for longer than planned before the sale closed. Manuel's proceeds were largely unaffected, though he absorbed some of the delay cost as well under the terms the two founders agreed to. Neither founder walked away with everything they had hoped for, but both walked away with a completed deal, clean legal ownership of the combined company going forward, and no lingering claim hanging over the business they had just sold.

Had the gap surfaced during the buyer's own diligence instead of during Treadstone Law's review, the outcome would likely have been worse. Buyers who discover a title problem themselves tend to use it to renegotiate price downward, delay closing indefinitely, or walk away entirely rather than trust a founder's assurances. Finding it first, and bringing a resolved answer rather than an open question, kept the deal on a controlled path even though it still cost time and money to fix.

What you can learn from this