Procedure for Evaluation and Contribution of Intellectual Property Objects to the Share Capital of Legal Entities

April 2024

We have recently received frequent enquiries about monetization of intellectual property (IP) when establishing companies in Central Asia and the CIS.

This is an interesting question and we prepared a short brief with the help of our partners¹ from the so-called “nearest abroad”. Unfortunately, we did not get answers from all countries; however following is what we prepared.

The most attractive regime, so to speak, the most favourable regime in our countries belongs to Kazakhstan. In Kazakhstan you can invest in the share capital (hereinafter we use the term share capital, although in other countries the term charter capital is also used) without estimation of independent evaluators 20,000 monthly calculation ratio (73,840,000 KZT or approximately US $ 164,000 - I understand some incorrectness of using US dollars, but for different CIS countries this is probably the most understandable figure now). If the value of property rights exceeds the above amount, independent evaluators are mandatory. Unfortunately, despite the large number of licenses issued for the valuation of IP rights in Kazakhstan, there are few experts, I can personally recommend, perhaps, only Gish Tatiana Anatolievna, who has practical experience of such valuations.

In Russia, like in Kazakhstan, the following property rights are subject to contribution to the share capital of a company (LLC - the analogue of the Kazakhstani LLP or JSC): exclusive rights and non-exclusive rights (under a license agreement). The monetary value of property contributed for payment of shares in the share capital of a company is approved by the decision of the general meeting of shareholders of a company, adopted by all shareholders of a company unanimously. If nominal value or increase of nominal value of share of share of shareholder of a company in the share capital of a company, paid by non-monetary means, makes more than 20, 000 Russian rubles (now approximately US $219), for the purpose of definition of cost of this property the independent evaluator should be attracted. The nominal value or increase of nominal value of a share of a shareholder of a company paid by such non-monetary means cannot exceed the amount of evaluation of the specified property determined by an independent evaluator.

Based on the results of evaluation and approval of increase in the value of the share capital the report on evaluation and other documents shall be submitted to the registering body.

Kyrgyzstan

In Kyrgyzstan LLC (the same as LLP in Kazakhstan) - there are no restrictions in valuation of the IP object. The monetary valuation of property contributed to the share capital when establishing a company is made by agreement between the founders. Although there are no restrictions on the limit value of the contributed property, in practice it is still recommended to use the services of an independent evaluator.

Monetary valuation of the property to be contributed as payment for shares at the moment of founding the Joint-Stock Company is also made by agreement between the founders. Payment for the shares of a company at its foundation is made by the founders at the price determined by the memorandum of association, but if the value of the shares of the company acquired in this way is more than 20,000 soms (about US $225), a monetary valuation by an independent evaluator of the property contributed as payment for shares and other securities of the company is required. The charter of the company may contain restrictions on the types of property that may be used to pay for shares.

After execution of the relevant certificate t on the transfer of an object of industrial property, such certificate should be registered with Kyrgyz Patent Office.

The state duty is 10,000 KGS (about US $112) and the services of an attorney are about US $200. It is interesting that for LLCs there are no restrictions on the value of contributed intangible property, but for JSCs there are. It would seem that a larger amount should be provided for JSCs than for LLCs, but no, it is not.

Uzbekistan

First of all, it should be noted that, as far as we know, there is no practice of introducing such an asset as an IP object into the share capital in Uzbekistan. At least we know that those who tried to contribute it were refused by the authorized body to increase the share capital, the legislation does not prohibit it and it is possible to increase the share capital at the expense of intangible assets. Monetary estimation of non-monetary contributions to the share capital (charter capital) of a company made by shareholders of a company and the third parties accepted into a company, is approved by the decision of the general meeting of shareholders of a company, accepted by all shareholders of a company unanimously. Further it is necessary to apply to the authorized body for registration of making such changes in the charter documents.

In addition, an IP object possessed by one of the founders or a potential new participant in the company may be contributed to its share in the share capital. In other words, in the first case, the share of one of the founders is increased or a new founder appears, whose share is the value of the IP object. In case of such changes it is also necessary to prepare the minutes of the meeting of the founders and all existing founders must agree with such changes in the shares of participants, unless otherwise established by the statutory documents. Further, it is again necessary to apply to the authorized body for registration of the changes made to the statutory documents.

The value of the object should also be indicated in such minutes, however the issue of IP valuation is quite complicated and it is better to consult evaluators. When an IP object is taken on the balance sheet, as a rule, all costs associated with the registration of rights to it are simply assessed, but, of course, such an object has its own value. For example, for a trademark, it is its reputation.

Belarus

Intellectual property objects may be contributed to the share capital of a business company (analogue of LLP or JSC in Kazakhstan), however, the share capital of a business company may not be formed entirely by non-monetary contribution in the form of property rights.

At the same time, the value of property rights made as a contribution to the share capital of a business company may not exceed 50% of the share capital.

The charter of a business company may determine the types of property that may not be a contribution to the share capital of that company.

Estimation of the value of non-monetary contributions made to the share capital of a business company shall be carried out by evaluators.

The procedure for making a non-monetary contribution to the share capital of an LLC (limited liability company) has its own features, primarily related to the type of property (including property rights) being contributed.

Only non-monetary contributions with an estimate of value can be made to the share capital of an LLC (limited liability company). In other words, it is necessary to assess its value before making such a contribution to the share capital.

 In general, intellectual property rights can be made as a non-monetary contribution to the share capital of an LLC. For example, the right to use an invention, utility model or industrial design.

The assignment of property rights is recorded by an act of acceptance of intangible assets.

Turkmenistan

There are no special instructions on the procedure for contributing IP objects to the share capital of a company in the legislative acts of Turkmenistan known to us. The share capital of a company is formed from the amount of contributions of its founders (founder) by means of the founders’ contribution of money, as well as property, property and other rights having monetary value.

Contributions to property may be monetary funds in manat and (or) foreign currency, securities, other things, property rights or other rights having monetary value. The property contributed to the share capital shall be the property of the founder (participant) and their description shall be specified. The valuation of the property contributions to be made must be agreed upon by the founders (participants) prior to the conclusion of the foundation agreement, while property rights to intellectual property objects are subject to mandatory valuation by an independent evaluator regardless of their value. A joint venture may also be established on the basis of an agreement concluded between its founders. Interestingly, the share of each founder in the share capital must be at least ten (10) percent of the total value of the property.

Azerbaijan

Intellectual property objects are contributed to the share capital of a company in accordance with the company’s charter. The founders themselves may determine, or order the valuation of such objects by appropriate specialists, and further approve the value by licensed auditors.

In Azerbaijan there is no legislative act providing procedure on the contribution of IP objects to the share capital, and there is no legislative act on the independent valuation of non-property rights when contributing them to the share capital.

Tajikistan

Monetary estimation of non-monetary contributions to the share capital of a company made by shareholders of a company and the third parties accepted in a company shall be approved by decision of General meeting of shareholders of a company accepted by all shareholders of a company unanimously.

If nominal value (increase of nominal value) of share of shareholder of a company in the share capital of a company shall be paid by non-monetary contribution, such contribution shall be estimated by independent expert.

The nominal value (increase of nominal value) of share of shareholder of a company paid by such non-monetary contribution may not exceed the amount of evaluation of the said contribution determined by an independent expert. In case of making non-monetary contributions to the charter capital of a company, shareholders of a company and an independent expert within three years from the moment of state registration of a company or making corresponding changes to the charter of a company shall bear joint subsidiary liability for its obligations in the amount of overestimation of cost of non-monetary contributions in case of insufficiency of property of a company.

The charter of a company may establish types of property which cannot be contributed to the share capital of a company.

Armenia

Money value of non-monetary contributions made by founders (shareholders) of a company or the third parties accepted to a company shall be approved by the General meeting unanimously. If the nominal value (increase of nominal value) of a share of a shareholder of a company, paid by non-monetary contribution is more than 500-fold of the minimum wage (about US $92, 364), established at the moment of filing of documents for state registration of a company, such contribution shall be evaluated by an independent evaluator (auditor).

Consequently in terms of the value of IP assets, currently Kazakhstan is the most attractive, and we would be happy to assist in attracting such assets to our country, with their estimation and further registration and use.