Spinning a product out of an employer: what to settle first

As of 2026-10-10, this is general information, not legal or financial advice. Employment and intellectual property rules differ by country and by state, and your own agreements decide the outcome. Ask a lawyer licensed where you work.

A product often starts inside a company. An engineer builds an internal tool that other businesses would pay for. A team inside a large organization sees that a prototype has outgrown its brief. An employee spends evenings on an idea that happens to sit next to their day job. In each case the same question arrives sooner or later: can this leave?

The answer depends on who owns the work, what you agreed to, and how the employer sees the matter. This article lists what to settle first, and what to ask counsel about each item. It does not say what you should do, because the correct answer depends on documents the article has not seen.

Two shapes of spin-out

The phrase covers two very different situations.

An employer-backed spin-out. The employer wants the product to become a separate company, perhaps keeping a stake, a license or a customer relationship. The conversation is a negotiation between two parties who both want it to happen.

A departure with an idea. An employee leaves, or considers leaving, to build something related to the work they did. The employer may not know yet, and the interests are not aligned by default.

Most of the questions below apply to both, but the order and the tone differ. In the first case the employer is a counterparty. In the second it is someone whose rights you need to understand before you say anything to anyone.

First: who owns what you have already made

Ownership is the foundation, and the rules come from three layers: statute, your employment agreement, and the facts of how the work was made.

Copyright in code. In United States law, when a work is made for hire, the employer or other person for whom the work was prepared is considered the author. The statute’s definition of a work made for hire includes a work prepared by an employee within the scope of his or her employment. So code written within the scope of the job is likely to be treated as the employer’s. Ask counsel what falls within the scope of employment for your role, because a job title does not settle it.

Inventions. Rules about inventions are set separately and differ widely. Delaware’s statute is one example: it addresses an employment agreement clause that requires an employee to assign an invention, and it treats differently an invention that the employee developed entirely on the employee’s own time without using the employer’s equipment, supplies and other listed resources. The same section lists exceptions, including inventions that relate to the employer’s business or to its actual or demonstrably anticipated research or development. The exceptions are broad enough that a product close to the employer’s business may fall back inside the employer’s reach.

In the United Kingdom, the Patents Act 1977 takes a different approach. An invention made by an employee belongs to the employer in the cases the statute lists. One is where it was made in the course of the normal duties of the employee or in the course of duties falling outside their normal duties, and the statute attaches further conditions to that case. Another is where the employee had a special obligation to further the interests of the employer’s undertaking. Any other invention made by an employee is taken to belong to the employee.

These are two jurisdictions out of many. The point is not to learn them, but to see that the same facts can produce different answers in different places. If you and the employer sit in different jurisdictions, ask which law governs and why.

Second: what your agreement says

Statute is the floor. Your contract may add to it. Bring every document to your lawyer, including the ones you signed on your first day and have not read since.

• An invention or work assignment clause. What does it assign, and from when? Does it cover things made outside work hours, or only things related to the business?
• A “moonlighting” or outside activities clause. Does the agreement require approval before you work on a side venture?
• A confidentiality clause. What counts as confidential? Does the obligation continue after you leave, and for how long?
• A non-competition or non-solicitation clause. Whether such clauses are enforceable at all depends heavily on where you live. Ask counsel what applies to you today, in your place and for your role.
• Handbook and policies. Many employers set rules for personal projects, use of company equipment and open source contributions in documents that are not signed contracts. Ask whether they bind you.

Third: what you used to build it

Facts matter as much as clauses. Counsel will ask, and you should be able to answer, questions such as:

• When was each part written, and on what machine?
• Was any company data, tooling, test environment or customer information used, even once?
• Who else contributed, and under what agreement?
• Does the product incorporate code from the employer, from a client of the employer or from a third party with its own license?
• Is there a record of when the idea first appeared, and where?

A clean story is easier to defend when the record supports it. A messy one is better disclosed early to counsel than discovered later by an investor or a buyer doing their own review. The article on intellectual property and access diligence for small engineering teams describes what that review tends to look for.

Fourth: what the employer thinks

Even when the law favors you, the employer may disagree, and a dispute is costly for a company that has barely started. Questions to take to counsel:

• Would the employer see this product as competing with its own?
• Does the employer have a policy for releasing technology, and who decides?
• Would a written release, license or assignment from the employer be possible, and what would the employer expect in return?
• Is the employer already a customer, a supplier or a potential investor, and how does that change the conversation?
• What happens to the working relationship if you ask, and what happens if you do not?

The last question is uncomfortable and real. Counsel can help you understand what asking creates and what staying silent creates, so that the decision is made with the facts in view.

Fifth: timing and people

A product has a date when it begins to belong to a company rather than to a person. Ask counsel about the following:

• When to leave. Some agreements run obligations until the last day of employment, and some beyond it.
• Who comes with you. If other employees would join, ask what non-solicitation terms say and how recruiting is treated.
• What to say, and to whom. A conversation with a prospective investor or customer can raise confidentiality questions before the company exists.
• What to put in writing. If a release is agreed, ask that it be in a signed document that names the assets, rather than in an email thread.

If the work might become a company with other founders, the article on questions to ask your counsel before you sign offers a general list of questions for the agreements that follow.

A checklist of documents to gather

Bring these to your first meeting with counsel:

1. Your employment agreement and any amendments.
2. Any invention, confidentiality or intellectual property agreement.
3. The employee handbook sections on outside work and equipment.
4. A written timeline of how the product came about.
5. A list of the people who contributed and their status.
6. A list of third-party components and their licenses.
7. Any emails or messages where the employer commented on the project.

Collecting them is useful even if you decide not to proceed, because you will understand what you hold. The seed data room checklist shows how the same records are later organized for an investor.

What this article cannot tell you

It cannot say who owns your product. That depends on your agreement, the law where you work, and the facts of how the work was made. The four sources cited are the U.S. Copyright Act provision on ownership, the Act’s definition of a work made for hire, one U.S. state statute on employee inventions and one section of the United Kingdom’s Patents Act; they do not cover other states, other countries, trade secrets, non-competition rules, trademarks or tax. Employment relationships also differ for contractors, for part-time staff and for people in academic or government roles, whose employers often have separate policies. If your employer is a large organization with a venture or spin-out program, its internal rules may matter more than any statute. Nothing here predicts how an employer will react, and the article does not suggest that any spin-out will succeed.

In the data

These figures describe U.S. businesses in general, not WE’s results. Each one names its source.

Show the data as a table

Average founder age by growth tier, startups founded 2007 to 2009

Group	Mean	Standard deviation	Mean minus 1 SD	Mean plus 1 SD	Founders in the group
All startups	41.8 years	11.9 years	29.9 years	53.7 years	1,079,000
Fastest-growing 10%	41.6 years	11.5 years	30.1 years	53.1 years	126,000
Fastest-growing 5%	42.1 years	11.5 years	30.6 years	53.6 years	62,000
Fastest-growing 1%	43.7 years	11.1 years	32.6 years	54.8 years	13,000
Fastest-growing 1 in 1,000	45 years	10.7 years	34.3 years	55.7 years	1,700
Successful exit (IPO or acquisition)	46.7 years	10.6 years	36.1 years	57.3 years	4,000

Source: Azoulay, Jones, Kim and Miranda, Age and High-Growth Entrepreneurship (NBER WP 24489; AER: Insights 2020) , April 2018 (working paper); March 2020 (AER: Insights)

Retrieved 2026-10-15. Means, standard deviations and founder counts are copied from Table 5 as printed; growth is employment five years after founding.

Sources

1. Delaware Code Title 19, section 805, Employee's right to certain inventions, Delaware General Assembly . Accessed October 10, 2026.
2. Patents Act 1977, section 39, Right to employees' inventions, legislation.gov.uk, The National Archives . Accessed October 10, 2026.
3. 17 U.S. Code section 201, Ownership of copyright, Legal Information Institute, Cornell Law School . Accessed October 10, 2026.
4. 17 U.S. Code section 101, Definitions, Legal Information Institute, Cornell Law School . Accessed October 10, 2026.

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