Tips for Share Contribution with Copyright in China

By Luo Yanjie

Recently, Shanghai Laofengxiang Gift Company finished registration at Huangpu branch of industrial and commercial administration. The company is established by Shanghai Laofengxiang Company and ARTURO UGO DI MODICA , the designer of ” Wall Street financial bull”,” the Bund financial bull”. ARTURO UGO DI MODICA invests the company by the copyright of “the Bund financial bull” which is evaluated 4100000 yuan. This is the first foreign company invested by copyright inShanghai.

As the enhancement of intellectual property protection consciousness, the values of intellectual property rights are higher and higher in China. The first copyright invested company inShanghaiwill sweep the traditional concept of capital which has the significance of innovation. Now we would like to share with the readers about the issue of copyright investment:

I. Copyright Investment is Legal in China

In the past “company law”, the law limited “the way of investment as money, material objects, industrial property rights, non-patented technology, land use right”. After revision in 2006, “Company Law” provides ” Except for assets forbidden to be used as contribution by laws and administrative regulations, a shareholder may make its capital contributions to a company in currency or by contributing such non-currency property as material objects, intellectual property rights and land-use rights that can be evaluated in the form of currency and transferred in accordance with the law.”, which greatly expanded the scope of “non-monetary capital”. Copyright, not entirely belongs to the “industrial property” but an important part of “intellectual property”, becomes a way of investment. Therefore, Copyright investment is completely legal inChina.

II. If The Personal Rights of Author Will Effect the Control of Works by the Company

According to Company law,“Where a shareholder makes its capital contribution in the form of non-currency property, the property rights therein shall be transferred in accordance with legally prescribed procedures.” Therefore, If a copyright owner become a shareholder, he shall transfer the copyright to the company. But according to “copyright law“, the personal right of copyright may not be transferred. If there is disputes between the owner and the company, will the personal rights of author effect the control of works by the company? We would like to try to analyze as follows:

1, the right of publication

This right is most dangerous to the company. Let’s take a computer software as an example. At the beginning of the company, if a shareholder invest by copyright of software, the software usually is unpublished in most cases. Once the shareholder and the company have disputes, the shareholder can stop the software publishing. If not published, the copyright worth nothing for the company.

2, The right of authorship

In general, the right of authorship will not affect the interests of the company. Even if the copyright has been transferred to the company, the company also should name the work by original author.

3,The right of revision and the right of protecting works integrity

Right of revision is used to make works better. The right of protecting works integrity refers to “protecting work from distortion, tampering”. After the investment, the company shall have the control of two rights above. Otherwise, it is difficult to revise the work or use part of the work

In conclusion, under the circumstances of copyright investment, if the personal right of copyright is still dominated entirely by the author, there must be risks for company. On the other hand, because rights above may not be transferred or authorized, the company is in a very passive position. In this case, the author suggested that the company and the shareholder should sign a relevant agreement, make the shareholder exercise these rights when the company asks. But the agreement can not make the right transfer or make the company itself has the right. When the shareholder declines to exercise, besides pursuing the liability for breach of contracts, there seems to be no other countermeasures.

III. Instability of Copyright Evaluation

According to “company law”, the non-currency property to be contributed as capital shall undergo an asset valuation and verification, and shall not be overvalued or undervalued.

For copyright, because of its “art characteristic”, it is difficult to evaluate objectively. Such as the “the Bund financial bull” sculpture in the news, nobody is able to judge whether “410” million is too high or not. Each appraiser may has opposite views. Otherwise, the copyright work’s value has great “instability”, the price may go high or down in a short period, which will affect the stability of company’s capital.

If what mentioned above happens, does the company have an obligation to do corresponding “decreasing capital” or “increasing capital”? Does the company’s ownership structure need to change? Unfortunately, there are no clear legal provisions in the case of this situation. The author suggests that the all shareholders make a specific agreement about in the shareholders’ meeting at the very beginning so as to avoid future disputes.

Lawyer Contacts

You Yunting

86-21-52134918

youyunting@debund.com, yytbest@gmail.com

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