IP Assignment: The Clause Every Startup Gets Wrong

The question arrives near the end of a term sheet's exclusivity period, from the investor's counsel, in one line: "Please confirm the company owns all intellectual property in the product, and provide the chain of title." The founder forwards it with a note — "we have IP clauses in all our contracts, this should be quick." It rarely is. In the composite matter this briefing is built around (details altered), the codebase traced back to a founder's pre-incorporation laptop, a Lahore agency's licence terms, and a freelancer abroad who had never signed anything. The company had clauses. It did not have the IP. Here is why that happens, as the law stands in July 2026, and how to fix it before someone asks.

The clause everyone has

Open a typical Pakistani startup's employment contract and you will find something like: "All intellectual property created by the Employee shall belong to the Company, and the Employee shall assign such rights as required." The sentence fails three times in twenty-six words.

First, tense. "Shall assign" is a promise to do something later — an agreement to agree, leaving ownership where the law put it until a second document is signed. The working formulation is present-tense and self-executing: "the Employee hereby assigns." Under the Copyright Ordinance, 1962, an assignment of copyright must be in writing signed by the assignor [FORMAL REQUIREMENTS FOR ASSIGNMENT UNDER THE 1962 ORDINANCE — TO BE VERIFIED BY REVIEWING LAWYER]; a future promise is not that writing, and the employee who leaves on bad terms will not be signing the follow-up deed.

Second, scope. "Intellectual property" undefined invites argument at every boundary — is training data covered, are improvements to open-source components, is the side project that became the main product? The clause should enumerate: copyright (which under the Copyright Ordinance, 1962 covers the code, designs, text, and most of what a software company makes), inventions and patentable subject matter under the Patents Ordinance, 2000, designs, marks, and — because no registration statute reaches them — confidential information, know-how, and data, which move only by contract under the Contract Act, 1872.

Third, coverage of future work. A present assignment of things not yet created needs deliberate drafting — an assignment of future works effective upon creation, coupled with a further-assurances obligation to execute registry paperwork later [EFFECTIVENESS OF FUTURE-WORK ASSIGNMENTS UNDER THE 1962 ORDINANCE — TO BE VERIFIED BY REVIEWING LAWYER]. Without the further-assurances limb, the company holds rights it cannot perfect: the Patent Office and the Trade Marks Registry will want forms signed by people who left years ago.

Founders sometimes point to the statutory employer default and ask why any of this matters. The Copyright Ordinance, 1962 does make the employer the first owner of certain works made in the course of employment under a contract of service [SCOPE OF THE EMPLOYER-OWNERSHIP DEFAULT — TO BE VERIFIED BY REVIEWING LAWYER] — but the default demands a genuine employment relationship and work inside its course, covers copyright rather than every IP category, and produces a statutory-interpretation argument where a clean contractual assignment produces a document. The clause is not redundant with the default; it is the insurance against the default's edges.

The gap before the company existed

Every startup has a day zero problem. The prototype, the brand name, the pitch deck, the first ten thousand lines of code — all typically created before incorporation, which means the company could not have been the first owner of any of it. Under the Copyright Ordinance, 1962 those works belong to their authors personally; under the Trade Marks Ordinance, 2001 a mark filed by a founder pre-incorporation is registered in the founder's own name. No employment contract signed after incorporation reaches backwards to move them, because a contract assigns what the assignor owns from its date, and "in the course of employment" cannot describe work done before the employment existed.

The repair is specific: a founder IP assignment deed, executed after incorporation, in which each founder identifies the pre-incorporation assets — repositories by name, the mark, the domains, the datasets — and assigns them to the company for stated consideration, since the Contract Act, 1872 requires consideration for the contract to bind; nominal consideration works if stated. Where a trademark sits in a founder's name, assign it and record the assignment at the Trade Marks Registry under the Trade Marks Ordinance, 2001 so the register itself shows the company as proprietor. Investors' counsel ask for this deed by name, and its absence in year four costs what the same signature would not have in month one.

Contractors: the payment illusion

The most expensive misunderstanding in Pakistani startup IP is the belief that paying for work buys the rights in it. It does not. The employer-ownership default of the Copyright Ordinance, 1962 turns on a contract of service — employment — and an independent contractor sits outside it, owning what they create until a written assignment moves it [OWNERSHIP OF COMMISSIONED WORKS UNDER THE 1962 ORDINANCE — TO BE VERIFIED BY REVIEWING LAWYER]. The freelance developer paid by bank transfer against an invoice, the design agency that "did the branding," the video studio, the consulting technical co-founder who joined properly only in year two: absent signed assignment language, each of them is a co-owner of your product's history.

Agencies deserve a separate warning, because their standard terms are often drafted the other way on purpose — the agency retains ownership and grants the client a licence, sometimes limited to a campaign or a medium. A licence to your own logo is a defect an acquirer will not accept. Read agency terms before signing, insist on assignment of the deliverables, and for anything already delivered under licence terms, negotiate the assignment now. The sequencing rule for all contractor work is uniform: the assignment is signed before the work starts, because afterwards the same signature is a negotiation.

Formalities: where good assignments die

Three mechanical failures recur in diligence. Stamping: an assignment deed is an instrument under the provincial stamp laws built on the Stamp Act, 1899, and section 35 of that Act renders an unstamped instrument inadmissible in evidence until duty and penalty are paid — a toll gate on your chain of title that opens only after delay and cost [APPLICABLE PROVINCIAL RATES — TO BE VERIFIED BY REVIEWING LAWYER]. Execution: deeds signed by one party, or by "the team" in a group email, are not signed instruments; electronic signatures are generally effective under the Electronic Transactions Ordinance, 2002 within its stated exceptions, but the file should hold a complete executed copy either way. Recordal: assignments of registered rights should be recorded at the relevant registry within the Intellectual Property Organization of Pakistan framework — the Trade Marks Registry under the Trade Marks Ordinance, 2001, the Patent Office under the Patents Ordinance, 2000 — because an unrecorded assignment leaves the public record contradicting your claim and clouds standing to sue infringers [CONSEQUENCES OF NON-RECORDAL — TO BE VERIFIED BY REVIEWING LAWYER].

The chain-of-title checklist

Run this asset by asset, not contract by contract.

• Inventory the core assets: repositories, brand and mark, domains, datasets, content, inventions, key know-how.
• For each asset, name every human who created any part of it, and their relationship to the company at the time of creation.
• Pre-incorporation creators: founder IP assignment deed executed after incorporation, for stated consideration, identifying the assets.
• Employees: present-tense assignment clause covering all IP categories, future works, further assurances, confidentiality — in the signed contract, not the template.
• Contractors and agencies: written assignment of deliverables signed before work began; for licence-only terms, a negotiated assignment on file.
• Every deed stamped under the applicable provincial stamp law at execution; complete signed copies held centrally.
• Trademark and patent assignments recorded at the respective registries; the registers checked to confirm the company appears as proprietor.
• Domains, app-store accounts, cloud accounts, and repositories moved to company-controlled credentials.
• The whole folder assembled in the data room before anyone asks for it.

What this means for you

Read your actual signed contracts this week — the ones in the drive, not the template — and check the tense of the assignment language. List everyone who has ever written code or made creative work for the business and match each name to a signed, stamped assignment; the unmatched names are your exposure, and each quarter they go unfixed the price of the fix rises. Execute the founder pre-incorporation deed if it does not exist. Then keep the discipline: new hire, new contractor, new deed, before the work starts. Our reference page on IP assignment under Pakistani law sets out the statutory defaults in full, and our IP protection practice runs chain-of-title audits as standard pre-fundraising work. The clause is twenty minutes of drafting; the missing clause is the finding that stops a closing.