Licensing a Side-Project App Without Losing Control of It

The situation

Khalil worked as an administrative assistant for a logistics company by day. In the evenings, he and two friends, Imran and Rabia, built a piece of inventory-tracking software meant for small retail shops — the kind of business that still counted stock by hand at closing time. Rabia, who worked as a bookkeeper, had seen the problem up close in three different jobs and pushed the idea from a spreadsheet prototype into something a shop owner could actually run on a tablet at the till.

The three of them incorporated together, each holding an equal share, and kept the company small and profitable — somewhere in the range of a few hundred thousand dollars a year, most of it from a loyal group of independent shops paying a modest monthly fee. It was never meant to make any of them rich. It was meant to be a good side business that occasionally paid better than the day job.

That changed when a mid-sized retail chain with several dozen locations across Ontario approached them. The chain wanted to license the software for use across every store rather than build something similar in-house. It was the kind of opportunity a three-person company built in spare evenings rarely gets, and it came with a catch: the retailer wanted to pay based on usage — a royalty tied to how many active store terminals were running the software each month — rather than a flat fee. That structure only works for the company being paid if it can actually check the number being reported.

The problem

Before the three of them could license anything, our team asked a question that stopped the conversation cold: who legally owned the software?

The answer, on paper, was less clean than any of them expected. The original code had been written by Khalil before the company was incorporated, on his own laptop, in his own name. When the three of them formed the corporation, they had transferred money and effort into the business but had never signed anything formally assigning the intellectual property — the ownership rights in the code, the trademark on the product name, and the accompanying documentation — from Khalil personally into the company. For a business selling monthly subscriptions to a dozen loyal shop owners, that gap had never mattered. It would matter enormously to a retail chain's lawyers, who would want to see, in writing, that the company they were licensing from actually owned what it was licensing.

The second problem was the royalty structure itself. The retailer's initial draft proposed paying based on its own internal count of active terminals, reported to the company once a quarter, with no mechanism for Khalil, Imran or Rabia to verify that count against anything. A retailer with dozens of locations has every incentive to report accurately, but also every practical opportunity not to — a terminal quietly kept running past a reporting cutoff, a location that opens mid-quarter and gets left off the count until the next cycle, an internal system that undercounts by nature of how it tags active versus idle devices. None of that requires bad faith to produce a shortfall; it just requires nobody checking.

Rabia, with her bookkeeping background, understood the risk better than most licensors would. She had audited enough small businesses' books to know that self-reported numbers drift from actual numbers even when everyone involved is honest, simply because nobody's incentive is to catch the drift early.

What we did

1. Fixed the ownership gap first. Before any licence could be signed, we prepared an intellectual property assignment agreement transferring all rights in the software, the underlying code, and the product name from Khalil personally to the company, effective from the date the company was incorporated. This is a common gap in small companies that grow out of one person's personal project — the business operates as though it owns the product for years before anyone checks the paper trail — and it is far easier to fix while the founders are on good terms than after a dispute or a sale forces the question.
2. Registered the trademark the company was actually relying on. The product name had been used in the marketplace for over a year but never formally registered. We filed a trademark application in the company's name, giving it a clearer basis to stop anyone else from using a confusingly similar name as the product's profile grew with a larger retail partner in the picture.
3. Negotiated a licence, not a sale. A licensing agreement lets the owner of intellectual property authorize someone else to use it under specific conditions while keeping ownership. We drafted the agreement so the retailer received a right to use the software across its locations for a defined term, with the company retaining full ownership and the right to license the same software to other retailers who were not direct competitors of this one.
4. Built in real audit rights. The core of the negotiation was the royalty mechanism. We secured the company's contractual right to audit the retailer's terminal counts — meaning the company could, on reasonable notice and at defined intervals, review the retailer's own usage records or engage an independent accountant to verify the reported numbers against what the software's own activation logs showed. We also negotiated a clause requiring the retailer to pay any shortfall found during an audit, plus the reasonable cost of the audit itself if the shortfall exceeded a modest threshold — giving the company a real incentive structure rather than a right that existed only on paper.
5. Set clear termination and data return terms. The agreement specified what happened to the software and any data at the end of the licence term, and gave the company the right to end the agreement early if royalty payments were persistently late or consistently understated.

The outcome

The licensing agreement closed within a few months of the first conversation with our team, once the ownership assignment and trademark filing were in place and the retailer's lawyers had reviewed the audit clause. The retailer's legal team pushed back initially on the audit rights, proposing to limit the company to reviewing summary reports rather than underlying records. We held the line on access to the activation logs directly, since a summary report is only as good as the honesty of the person who compiled it, and the whole point of an audit clause is not needing to rely on that.

Roughly eight months after signing, the company exercised its audit right for the first time — not because anything seemed wrong, but because Rabia had built the review into their own quarterly bookkeeping routine as a matter of habit. The audit found the retailer's reported terminal count matched the company's own activation logs closely enough that no shortfall claim was needed. That result mattered less for the money involved, which was modest, and more for what it confirmed: the mechanism worked, both sides knew it worked, and the company never had to find out the hard way whether a shortfall would go noticed.

The licence added a meaningful new stream of royalty income on top of the company's existing subscription revenue, and the three owners kept full ownership of the software going forward, free to license it to other retailers under separate agreements. What began as a side project run around two day jobs now had a licensing structure built to survive scrutiny from a much larger commercial partner.

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