Highlight: The contribution of capital in IPR or domain name is permitted by China Company Law, though there regulates the proportion limitation on it. Bridge IP Commentary will introduce you the regulations of the investment in IPR.

Recently, a Company registered in Shanghai made its contribution of the 70% of the total registered capital of the company with domain name, which has been evaluated to be RMB 10 million yuan, and it has been the first company which made its capital contribution in domain name.

Although the capital contribution made in domain name is common, as it has been affirmed by the Company Law of People’s Republic of China entering into force in 1^st, July, 1994(hereinafter referred to the 1994 Company Law), it stirred the public opinions for the evaluated value could up to be RMB 10 million yuan. After the capital increase, the IPR occupies the 69.8% of the registered capital and near to 70% of the total. And that’s also unprecedented in the most developed Shanghai. Therefore, we would like to discuss over legal regulations concerning the IPR contribution and domain name contribution.

I. Regulations concerning the capital contribution in IPR 

For it has been an important intangible asset in modern society, IPR was first affirmed as the legal contribution in the 1994 Company Law that shareholders may make their capital contribution in cash, kind, industrial property rights, non-patented technology or land use rights. However, the amount of capital contribution in industrial property rights or non-patented technology shall be less than 20% of the registered capital of the company. The Company Law revised in 2005 and entering into force in 1^st January 2006 (hereinafter referred to the 2006 Company Law) provides that a shareholder may make capital contributions in cash, kind, IPR, land use right or other non-currency properties that may be evaluated in currency and transferable by law; except those properties could not be contributed as capital investment by laws or administrative regulations. However, the amount of capital contribution in currency shall be no less than 30% of the registered capital of the company. The Measures for Registration of the Capital Contribution in IPR issued by the Shanghai Administration for Industry and Commerce in 2006, has definitely provides that the amount of capital contribution in IPR can be up to 70% of the registered capital of the company.

The aforesaid regulations show that:

1. According to the 2006 Company Law, only those intellectual property rights could be evaluated and transferred by law can be invested as the capital contribution.
2. The shareholder contributing the IPR shall be entitled to the property transfer, and the administrative transfer procedures shall be handled, otherwise the shareholder shall take liability to those who have made full contribution on time to the company.
3. The contribution made in non-currency shall be evaluated and verified, with any over-valued or under-valued prohibited;
4. The amount of capital contribution in IPR shall be no more than 70% of the registered capital of a company.

II. The proportion limitation on IPR contribution. 

In the aforesaid case, the Company has been approved for its capital increase to RMB 16.66 million yuan in total by the Changning Branch of Shanghai Administration of Industry & Commerce, in which the capital contribution in domain name was assessed to be RMB 11.63 million yuan, and that is actually up to 69.8% and nearly 70% of the total.

In fact, the contribution limitation on IPR of no more than 20% was first regulated in the 1994 Company Law, which was later increased by the 2006 Company Law to 3.5 times of the original amount with the provision of 70% at maximum.

III. The Confirmation of the Capital Contribution in Domain Name 

The registered capital of a company shall be certain, however, in the case of IPR contribution, it may be influenced by the property ownership, overvaluation, devaluation or other elements. The investment of domain name evaluated to be more than RMB 10 million yuan could bring great risk to the company. First, the ownership of the domain name relies on the root password, and the stealing of which may lead to the risk of insufficient contribution to the company.

Moreover, the domain name may be undervalued and it could result in the liability of delayed payment of the contribution. According to the 2006 Company Law, after the incorporation of the company, when it is discovered that the value of the non-currency contribution is notably less than the value stated in the articles of the association, the shareholder shall make up the deficiency, and the rest shareholders shall bear the joint liability hereby. Therefore, it shall be taken into the consideration of the administration of the company registration the possible damages, mainly to the legal interests of the oblige, resulted from the easy-transfer of the domain name.

Copyright reserved by Mr. You Yunting
Founder & Editor-in-Chief of Bridge IP Commentary
Partner & Attorney-at-law of Shanghai DeBund Law Offices
Email: Bridge@chinaiplawyer.com, Tel: 8621-5213-4900,
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