Fixing a Founder's Unassigned Code Before a $9M Investment

The situation

The company had grown into something real. Built around scheduling and billing software used by healthcare clinics across Ontario, it had reached roughly $38 million in annual revenue with a small but committed customer base and a growing waiting list of clinics wanting to switch over. Three shareholders sat around the table when the big offer came in: a growth equity firm was prepared to invest roughly $9 million for a 15% stake, valuing the company at about $60 million.

Kofi had written the original version of the software years earlier, before the company existed, teaching himself as he built it in the evenings. Adaeze, a dentist who owns a practice in Markham, had been an early tester of the software in her own clinic and later became a shareholder and board member when the founders needed capital to hire their first employees. Anita, an investment advisor, joined a little later, bringing structure to the company's early funding rounds and eventually holding a smaller equity stake of her own. Together the three of them, along with a couple of smaller shareholders, had steered the company from a side project into a business a well-known investor now wanted to back.

Everyone assumed the company owned its own software outright. It had built its whole valuation on that assumption. No one had ever specifically checked it.

What the review found

Growth investments this size do not close without legal due diligence, and one of the first things the investor's lawyers asked for was a clean chain of title showing exactly how the company came to own its core technology. That request exposed a gap nobody at the company had thought to look for.

Kofi had written the original codebase entirely on his own, before the corporation was ever incorporated. Under copyright law, the person who creates a work is its owner unless that person created it as an employee acting in the course of employment, in which case the employer owns it automatically, or unless the creator has signed a written agreement assigning their rights to someone else. Kofi could not have been an employee of a corporation that did not yet exist. That meant the copyright in the original software was, legally, his personal property — not the company's — from the moment he wrote it.

When the company incorporated under the Ontario Business Corporations Act a few years later, nobody had drafted an agreement transferring that pre-incorporation code, or the copyright in it, from Kofi to the new corporation. Everyone had simply carried on building the business on top of it, assuming ownership had somehow followed along with the incorporation. It had not. On top of that, the trademark application covering the company's product name had been filed at the Canadian Intellectual Property Office in Kofi's personal name rather than the corporation's, likely because he was the one who happened to fill out the form years earlier.

The investor's position was straightforward and, from a risk standpoint, entirely reasonable: they were not prepared to put roughly $9 million into a company that could not prove it owned the product the investment was meant to grow. If Kofi ever left on bad terms, became incapacitated, or disputed the company's use of the software, the corporation's legal claim to its own core technology was, at that moment, genuinely uncertain. The deal would not close until the gap was fixed.

What we did

1. Mapped the full creation history of the technology. We reviewed the incorporation documents, the shareholder agreement, and interviewed the founders to establish precisely what was written before incorporation, what was written after, and by whom, so the assignment we drafted would cover everything that actually needed covering — not more, not less.
2. Confirmed the trademark's registered ownership. A search at the Canadian Intellectual Property Office confirmed what the investor's counsel had flagged: the trademark application was filed in Kofi's name personally, not the corporation's, creating a second, related title gap that needed its own fix.
3. Drafted an intellectual property assignment agreement. The agreement had Kofi assign to the corporation, retroactively and completely, all right, title and interest in the pre-incorporation software and any associated intellectual property, effective from the date the company began using it commercially.
4. Worked through the consideration question with the company's accountant. A transfer of valuable property from an individual to a company he is a shareholder of can carry tax consequences if the consideration does not reflect fair value. We coordinated with the company's accountant so the assignment was structured and documented in a way that reflected genuine value exchanged, rather than leaving it as an informal handshake that could be challenged later.
5. Filed the correction with the Canadian Intellectual Property Office. We prepared and filed the paperwork to record the transfer of the trademark application from Kofi personally to the corporation, closing the second gap in the chain of title.
6. Built assignment clauses into the company's standard agreements going forward. To stop the same problem from recurring, we added intellectual property assignment language to the company's template employment and contractor agreements, so future code, designs and other work product would vest in the corporation automatically and in writing, rather than depending on everyone remembering to sort it out later.

The outcome

The assignment agreement and the trademark correction were both completed and filed within a few weeks of the issue being raised — tight, but well inside the investor's closing timeline once everyone understood exactly what needed to happen. The investor's counsel reviewed the corrected chain of title, confirmed it resolved their concern, and the deal closed on schedule. The company received its roughly $9 million investment for the agreed 15% stake, with no reduction in valuation and no renegotiation of terms.

The consideration structure the accountant helped design mattered as much as the legal drafting. Kofi received a modest cash payment on top of the equity he already held, documented as fair consideration for the assignment rather than as an afterthought. That paper trail meant the transfer could stand up to scrutiny both from the investor's tax advisors during due diligence and, later, from the Canada Revenue Agency if the assignment were ever questioned. Cutting that corner to save time would have created a second problem in place of the first.

More importantly, the company now has something it did not have before: a corporate structure where its most valuable asset, the software the entire business is built on, is unambiguously owned by the corporation rather than resting on an assumption. Adaeze, Kofi and Anita walked away from the deal with the capital they needed to expand, and with a set of agreements in place that mean the next round of financing, or the next serious inquiry from a much larger acquirer, will not turn up the same surprise twice.

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