INTELLECTUAL PROPERTY ARTICLES

Contributing capital to enterprises with intellectual property rights

Contributing capital to enterprises with intellectual property rights
Contributing capital to enterprises with intellectual property rights

Capital is one of the most vital factors determining the formation and maintenance of businesses as well as determining the rights and obligations of owners, members and shareholders in the company. Accordingly, contributed capital can be formed from the contribution of the owner’s assets when establishing the company and receiving the additional contributed capital during the operation. Besides, the types of contributed assets are also diverse from cash, gold, and foreign currency to intangible assets such as intellectual property rights. In case the capital contribution is in cash or gold or foreign currency, determining the value and converting it into a monetary unit is very easy. However, individuals and organizations contributing injected capital with intellectual property rights must meet certain conditions to convert this property into the company’s asset. The following article will help readers learn about the conditions as well as the procedures for contributing capital to businesses with intellectual property rights.

1. Definition

Regarding the definition of capital contribution, according to the provisions of Clause 18, Article 4 of the Law on Enterprises 2020, the capital contribution is the contribution of assets to form the charter capital of the company, including capital contribution to establish the company or contributing additional charter capital to operated businesses.

Compared with Clause 1, Article 34 of this Law, contributed capital assets are Vietnamese Dong, freely convertible foreign currencies, gold, land use rights, intellectual property rights, technology, technical know-how, and other assets that can be evaluated in Vietnamese Dong. At the same time, the Enterprises Law also stipulates that only individuals and organizations that are lawful owners or have lawful use rights on the assets have the right to use such assets to contribute capital as prescribed by law.

Regarding the definition of intellectual property rights, Clause 1, Article 4 of the Law on Intellectual Property 2005 stipulates that intellectual property rights are the “rights of organizations and individuals to intellectual property, comprising copyright and copyright-related rights, industrial property rights, and rights to plant varieties”.

Thus, capital contribution with intellectual property rights means that the owner will transfer the ownership of his/her intellectual properties to the business to become the owner or co-owner of the company. However, capital contributions need to meet certain conditions.

2. Conditions for capital contribution with intellectual property rights

As mentioned, only the lawful owners have the right to use intellectual property assets to contribute to the business. Accordingly, conditions for capital contribution with intellectual property rights are as per below:

Firstly, intellectual property rights must be subject to a certificate of ownership.

Individuals and organizations who wish to prove their intellectual property rights to contribute capital must be granted papers certifying intellectual property rights by a competent authority. The Intellectual Property Law does not stipulate that all intellectual property rights must be registered for protection, to carry out capital contribution procedures, the authors, developers, or investors must register for the protection of their products at the authority to ensure the conditions prescribed by law before transferring their ownership rights to the businesses to become enterprise assets. In addition, intellectual property rights such as industrial property rights to inventions, industrial designs, layout designs, trademarks, geographical indications; and rights to plant varieties will be granted protection certificates by competent authorities. For the remaining intellectual property rights, if they are not granted a protection certificate, they will be issued papers certifying intellectual property rights by a competent authority.

Therefore, individuals and organizations need to consider whether their intellectual property rights have been certified by the competent authority or not, to apply for papers certifying intellectual property rights to ensure that the intellectual properties are not illegally used as well as to carry out procedures for transferring ownership to enterprises receiving contributed capital with intellectual property rights.

Please also note that in case there is a protection certificate, it is necessary to check the duration of the said certificate before contributing capital. If it has expired, it is necessary to carry out the renewal procedures by the provisions of the Intellectual Property Law to ensure the validity of the documents proving the ownership.

Secondly, intellectual property rights must be the owner’s assets.

The owners of the protected intellectual properties include the person whose name is on the protection certificate or the person who is identified as the lawful owner by the competent authority issuing the certificate of intellectual property rights. Therefore, only the said people can contribute capital with intellectual property rights. For geographical indications, based on Clause 4, Article 121 of the amendment and supplement Intellectual Property Law 2019, the owner of the geographical indication is the state. Accordingly, the state grants the usage and management rights to individuals and organizations; thus, these subjects have the right to use but are not concurrently the owner of intellectual property rights and are not allowed to use these rights to contribute capital to companies.

Thirdly, intellectual property rights must be priced in Vietnamese Dong before the capital contribution.

According to the provisions of the Enterprises Law 2020, assets that are not Vietnamese Dong must be priced. Therefore, intellectual property rights must be priced by founding members, shareholders, or appraisal organizations.

Finally, intellectual property rights are not restricted from being transferred.

According to the provisions of the Intellectual Property Law, copyright includes moral rights and economic rights. Accordingly, copyright holders are only allowed to transfer economic rights and one of the moral rights which is the right to publish the work. Therefore, please note that intellectual property rights for capital contributions must be transferable so that the owners can transfer their ownership to the company after capital contributions. For intellectual property rights that are copyright, the rights that can be registered for capital contribution include the right to make derivative works; display the work in public; copy the work; distribute or import originals or copies of works; communicate the work to the public using wireline, radio, electronic communication network or any other technical means; rental of originals or copies of cinematographic works, computer programs and the right to publish the work.

3. Procedures for capital contribution with intellectual property rights

Procedures for capital contribution with intellectual property rights to an enterprise as per below:

Step 1: Pricing the property

As mentioned, intellectual property rights must be priced in Vietnamese Dong. Assets contributed as capital upon the establishment of an enterprise must be priced by founding members and shareholders on the principle of consensus or by a price appraisal organization. In case a price appraisal organization prices, the value of assets contributed as capital must be approved by more than 50% of the members and founding shareholders.

In case a contributed asset is priced at a value higher than its actual value at contribution time (overvalued), the members/partners/founding shareholders shall jointly contribute an amount equal to the difference and are jointly responsible for the damage caused by the overvaluation.

For capital contributions during operation, the subject of pricing includes Owners, the Board of Members for limited liability companies and partnerships; The Board of Directors for joint-stock companies, and capital contributors agree on pricing; price appraisal organizations. In case assets are priced by a price appraisal organization, the value of assets contributed as capital must be approved by the capital contributors and owners, the Members’ Council, or the Board of Directors.

In case a contributed asset is overvalued, the contributor, the owner, and members of the Board of Members/Partners/Director shall jointly contribute an amount equal to the difference and are jointly responsible for the damage caused by the overvaluation.

Step 2: Preparing for capital contribution contract

The contract of capital contribution with intellectual property rights should ensure the basic contents such as information about the capital contributor and the capital contribution recipient; specific information on intellectual property rights (type of property and information on certificates and papers certifying the ownership); the value of intellectual property rights; capital contribution duration; capital contribution purposes; capital contribution registration process and fee payment; commitment of the parties,…

Step 3: Transferring ownership to the company

According to the provisions of the Enterprises Law, intellectual property rights must be transferred to the company receiving the contributed capital. Therefore, individuals and organizations transfer intellectual property rights through the change of owners for such intellectual property rights at a competent authority.

According to the provisions of the Intellectual Property Law, industrial property rights including inventions, industrial designs, semiconductor integrated circuit layout designs, trademarks, trade names, business secrets, and rights to plant varieties, it is required to make in the written contract when transferring their ownership.

In addition, please note that no procedure to transfer ownership to the enterprise is supposed to be carried on for assets used in the business activities of private business owners. The payment for all activities of buying, selling, transferring shares and contributed capital, and receiving dividends from foreign investors must be made through the investor’s capital account opened at a bank in Vietnam, except for the case of payment by property.

In conclusion, it is possible to contribute capital with intellectual property rights. However, organizations and individuals need to meet requirements on proving their ownership before contributing capital as well as comply with the procedures for capital contribution and valuation for this intangible asset.

The article is based on applicable law at the time noted as above and may no longer be appropriate at the time the reader approaches this article as the applicable law has changed and the specific case that the reader wishes to apply. Therefore, the article is only for reference.