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
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.
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:
Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.
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.
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 http://www.mystockoptions.com that covers several different types of restricted stock strategies.
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.