Featuring three essential Q&As on IP capital contributions, corporate due diligence, and post-investment asset management.
With the implementation of the newly revised Company Law of the People’s Republic of China, shareholder capital contribution obligations for limited liability companies are now more clearly defined—providing businesses with more actionable legal guidance in capital operations. Against this backdrop, intellectual property (IP) contributions, as a form of intangible asset investment, have attracted significant corporate attention.
This chapter highlights the key legal considerations for IP capital contributions to help businesses better understand and apply the relevant legal framework.
Focusing on practical issues such as IP capital contributions, corporate due diligence, and post-investment asset management, we have selected three essential Q&As from Chapter 4: Legal Practice of Intellectual Property Contribution in the Context of the New Company Law of the Practical Q&A Guide to Cutting-Edge Intellectual Property Issues, co-authored by Wolters Kluwer, Lusheng Law Firm, and its strategic partner Rouse.
The basic process for fulfilling an intellectual property capital contribution is as follows:
1. Incorporation or capital increase – For a company in formation, shareholders must specify the details of the intellectual property contribution in the articles of association, including the type, quantity, value, investment ratio, ownership and usage rights. For established companies, shareholders must pass a resolution approving the capital increase in accordance with relevant laws and the articles of association, and amend the articles accordingly.
2. Valuation – The investor must conduct a valuation independently or engage a professional intellectual property valuation agency.
3. Capital verification – Based on the issued asset valuation report, the registered capital contribution must be verified, and a capital verification report issued.
4. Ownership transfer – The investor must complete the transfer of ownership for the contributed intellectual property.
5. Regulatory filings – The company must handle the record-filing of paid-in capital with the Market Supervision Administration, Tax Bureau and other relevant authorities.
Article 49 of the new Company Law stipulates that: “A person who makes a capital contribution with non-monetary property shall complete the transfer of the property rights in accordance with the law.” Accordingly, capital contributions involving intellectual property must meet statutory requirements for property rights transfer.
Additionally, Article 10 of the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of the Company Law of the People’s Republic of China (III), as amended in 2020, stipulates that: “Where the investor makes a capital contribution with property such as buildings, land use rights, or intellectual property rights that need the completion of registration of ownership, and has already handed over the property to the company for use but has not completed the formalities for changing the ownership, and the company, other shareholders or creditors of the company claim that the investor has not fulfilled the obligation to make capital contributions, the people’s court shall order the party to complete the formalities for changing the ownership within a specified reasonable period of time; If the formalities for changing ownership have been completed within the aforementioned period, the people’s court shall determine that it has fulfilled its obligation to make capital contributions; Where the investor claims that it enjoys the corresponding shareholder rights when it actually delivers the property to the company for use, the people’s court shall uphold it.”
Thus, determining whether an investor has met their capital contribution obligations depends on both the formal ownership transfer and the actual delivery and use of the intellectual property. The timing of shareholder rights may be influenced by when the company receives and begins using the intellectual property.
In practice, investors and companies must strictly comply with applicable laws and regulations to ensure the legality, validity and security of intellectual property capital contributions. Timely communication and coordination between parties are also essential to resolve potential issues and facilitate a smooth contribution process.
Before accepting an intellectual property capital contribution, a company should conduct a comprehensive review of the intellectual property’s ownership, validity, stability, and any potential defects or restrictions. This includes verifying legal ownership, registration status, any ongoing legal disputes, the validity period, and whether the intellectual property is subject to exclusive licensing or other encumbrances. Ensuring the validity of intellectual property rights is essential to protecting the company’s legitimate interests.
The market value of the intellectual property is a crucial factor in determining whether the capital contribution aligns with the company’s interests. The valuation process may involve:
The contract terms and articles of association play a critical role in structuring the intellectual property capital contribution. These should clearly define:
To ensure a thorough due diligence process, the company and shareholders should consider the following key areas:
1. Review relevant documents
Examine registration certificates, authorization letters, assignment agreements, and other supporting documents to verify the legitimacy of intellectual property rights. Additionally, monitor any updates, such as renewals, changes, licenses, or pledges. If needed, request an official inquiry or evaluation report from the relevant intellectual property authority.
2. Check the legal status of the intellectual property
Identify any ongoing litigation, arbitration, or administrative proceedings related to the intellectual property. Determine whether third parties have raised infringement claims, as unresolved disputes could pose future legal risks.
3. Analyze technical value and market potential
Assess the technical content, maturity, originality, and brand recognition of the intellectual property. Additionally, evaluate industry trends, market competition and future demand to determine its commercial viability.
4. Consult professionals
Seek expert advice from intellectual property lawyers, patent attorneys, and valuation specialists. Their insights can provide a more comprehensive and objective evaluation, ensuring the company makes well-informed decisions.
By conducting thorough due diligence and structuring agreements carefully, a company can minimize risks and maximize the strategic value of an intellectual property capital contribution.
Clearly define the definition, exclusive rights, scope of use, duration, geographical restrictions, and type of license (e.g., exclusive license, sole license) in the contract or articles of association. This ensures that the company and shareholders fully understand how to use these assets legally and efficiently. Clarifying these details in the articles of association and shareholder agreements helps prevent legal disputes and ensures that the rights and interests of all parties are well-defined.
To align intellectual property with business strategy, companies should:
Companies should also set up an intellectual property management system,
which includes:
To encourage innovation and effective use of intellectual property, companies can implement incentive mechanisms linked to intellectual property outcomes.
The Patent Law of the People’s Republic of China and its Implementing Rules stipulate that entities must reward inventors for service inventions: “Under normal circumstances, the entity to which the patent right has been granted may agree with the inventor or designer on the method and amount of the reward and remuneration, and such agreement takes precedence and can exceed statutory standards or, within a reasonable range, fall below them. However, if no such agreements are made or no provisions are outlined in the entity’s regulations, the entity shall pay the inventor or designer a reward within three months from the date of the announcement of the grant of the patent right.”
The law further specifies minimum rewards:
If an invention is based on an employee’s proposal that is adopted by the company, “the entity shall pay a reward to the inventor or designer as generously as possible.”
Although the Copyright Law also includes provisions for rewarding work made for hire, it does not specify minimum amounts. Instead, it classifies ownership based on the type of work. For example, “Within two years after the completion of a work made for hire, with the entity’s consent, the author may license a third party to use the work in the same way as the entity. The proceeds obtained from this use shall be shared by the author and the entity according to the agreed ratio. The two-year period begins upon the delivery of the work to the entity.”
The author retains the right of authorship for works such as product design drawings and software, while other copyright rights belong to the entity, which may compensate the author accordingly.
In collaboration with our strategic partner Lusheng in China and Wolters Kluwer, Rouse has developed a valuable resource for rightsholders: “The Practical Q&A Guide to Cutting-Edge Intellectual Property Issues in China”. This guide, compiled by over 30 senior China IP experts from the two leading IP firms, addresses the key concerns of businesses by providing insights on patents, trade marks, copyright, trade secrets, internet unfair competition, intellectual property investment, and punitive damages in an accessible Q&A format. It offers readers the latest legal interpretations, case studies, and practical guidance applicable to their operations.
To request a full copy, please complete the form through the link here.
Please note that due to publishing restrictions, we may not be able to fulfil every request. The application will be reviewed, and the report will only be available to corporate organizations. Thank you for your understanding.
Chapter Contributors
Sunny Su, China Head of Digital & Commercial, Lusheng Law Firm, ssu@lushenglawyers.com
Irene Lin, Consultant, Lusheng Law Firm, ilin@lushenglawyers.com