How do I protect myself from being cut out once the core software is built?


Not that I have any reason to suspect that this would happen, but to be diligent, I need some advice on this.

I have been invited on board with a promising new Software as a Service web project, having contributed significantly as a freelancer on the the project to date. It is now time for version 2, to rebuild the application so that we can scale and grow the business.

The team get on very well, but I'm likely to have to contribute around three months of unpaid time as my end of the bargain, and will likely not see any real money for 6 months to 1 year.

What I need to be careful of, is that once the core build is over, how I can keep myself from being cut out (again, there is no distrust here). What is the best way to protect my intellectual property here?

The company I'm working with will need sole rights to use the software. Should I be thinking about licensing? What sort of license is required here? What sort of costs might I incur getting this tied up legally?

Legal Founders Agreement Software Licensing

asked Oct 22 '10 at 05:31
Bomb Defused
227 points
Get up to $750K in working capital to finance your business: Clarify Capital Business Loans

5 Answers


You should try and get equity if you can , but if you are doing a consulting kind of gig you should get some paperwork done ( profit sharing or fixed amount ).

But since you are putting in quite some time without any income you should opt for some sort of stake in the company.

answered Oct 22 '10 at 05:58
Ravi Vyas
236 points
  • Good answer, includes a bit of what all the posts here said. – Bomb Defused 13 years ago


It is difficult to say anything definitive about structuring the business / legal relationship, because both parties' needs must be met.

That said, I see three steps that need to take place:

  1. Negotiate detailed business terms with the other party.
  2. Have the company prepare a written agreement that embodies the agreed-upon business terms.
  3. Ask a qualified lawyer to review the agreement for you.

Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.

answered Oct 22 '10 at 12:58
Dana Shultz
6,015 points


Equity is a good call, as is making sure that you're always looking towards the future of the product. The current core software that your building should not be the company's end-game. Remind them of that weekly, and be vocal in ways to move forward once the core is developed.

answered Oct 22 '10 at 10:07
205 points


I have worked with three start-ups, so my experience is somewhat limited. The best experience was when I was granted stocks with performance based vesting. I found the concept to be quite workable, concrete vestment of equity tied to concrete deliverables. A quick Google search found a slide deck from that covers several different types of restricted stock strategies.

answered Oct 22 '10 at 16:33
Larry Smithmier
226 points
  • Thanks for the link, I will read that doc. I'd +1, but don't have privilege yet! – Bomb Defused 13 years ago


You seem to be providing most of the value, yet you're receiving nothing in return. That's not a bargain, so you have nothing to uphold.

What are the other people actually contributing?

If you want to protect yourself, retain ownership of the IP in the software and just give them a licence to use it, with whatever conditions you want. If they stiff you, withdraw the licence.

answered Jan 21 '12 at 11:51
1 point

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