Who owns the code when you buy a small software company?

Buying a software company does not hand you the code automatically. What you end up owning depends on two things: whether you buy the company’s shares or its assets, and whether the company really owned the code to begin with. Both can be checked before closing, and the second deserves most of your attention.

A share purchase leaves the code where it is

In a share purchase you buy the shares, and the company carries on as the same legal owner. The Canada Business Corporations Act and Ontario’s Business Corporations Act both say a corporation has the capacity and the rights, powers and privileges of a natural person. So the company holds its own property, code included, and a change of shareholders does not move it. Any weakness in the company’s title stays in the company, and so becomes yours.

An asset purchase moves code only by agreement

In an asset purchase the seller keeps its company and you buy a list of things, so the code moves only if the agreement names it and the seller has the right to hand it over. The Canadian Intellectual Property Office describes an assignment as the transfer of some or all of an owner’s rights, for the whole term of the copyright or part of it. A licence is different: it gives permission to use the work while the owner keeps ownership. For trademarks, the office advises telling the Registrar about changes in ownership.

Whether the seller owned it at all

The deal structure only moves what the company holds. If an outside developer wrote part of the product and never assigned it, a share purchase leaves that gap in place and an asset purchase cannot assign what the seller does not have. The default rule for contractors is in who owns code written by a contractor, and the wider checks are in buying a software business in Canada.

What a buyer can ask for

• A list of everyone who has written code for the product, with the agreement covering each person.
• Signed written assignments for anything an outside developer built.
• A list of components licensed in rather than owned, with their terms.
• Ownership warranties in the agreement, with a stated remedy if they prove untrue.