For modern business, intellectual property (IP) has long ceased to be merely a legal tool for protection against copying.
Today it is real capital: intellectual property can create additional sources of income, competitive advantages and a positive company image. Trademarks, software, patents or industrial designs can sometimes be worth more than a company's real estate or equipment. That is why intellectual property rights are a full-fledged financial asset that can be used to capitalise a business, in particular as a contribution to the authorised capital.
The law classifies as objects of intellectual property rights literary and artistic works, computer programs, compilations of data (databases), performances, phonograms, videograms, broadcasts, discoveries, inventions and utility models, industrial designs, layouts of semiconductor products, rationalisation proposals, plant varieties, animal breeds, commercial (trade) names, trademarks (marks for goods and services), geographical indications and trade secrets.
Economic intellectual property rights are property within the meaning of Article 190 of the Civil Code of Ukraine, under which property as a special object includes a separate thing, a set of things, as well as property rights and obligations. Under part 3 of Article 424 of the Civil Code of Ukraine, economic intellectual property rights may be in civil circulation and used in contractual and other civil relations. The law clearly provides that economic intellectual property rights may be transferred to another person in whole or in part in accordance with the law.
Of particular importance is the possibility of using economic intellectual property rights as a contribution to the authorised capital of a legal entity. This mechanism makes it possible to bring into business intangible assets that have independent economic value, can generate income and at the same time give the company certain competitive advantages. Unlike traditional cash contributions, economic IP rights require a special approach to determining their value and to documenting their transfer.
Under Article 13 of the Law of Ukraine «On Limited and Additional Liability Companies», a member's contribution may be money, securities or other property, unless otherwise provided by law. A non-cash contribution must have a monetary valuation approved by a unanimous decision of the general meeting attended by all members of the company. When the company is set up, the valuation is determined by the founders' decision to establish the company. Additional contributions to the authorised capital may also be made in non-cash form. In that case, the general meeting decides which members or third parties contribute property and what its monetary valuation is. The law therefore clearly allows intangible assets, such as economic IP rights, to be contributed to a company's authorised capital.
At the same time, contributing such rights to the authorised capital raises a number of practical and legal issues. First of all, these are the proper identification of the IP object, confirmation of the rights of the person making the contribution, determining the scope of the economic rights transferred to the legal entity, and their monetary valuation. The soundness of the valuation is especially important, as it directly affects the size of the member's contribution to the authorised capital and, accordingly, the scope of the member's corporate rights.
The legal framework for valuing property and property rights and for professional valuation activity in Ukraine, its state and public regulation, and the creation of a system of independent property valuation to protect the legitimate interests of the state and other parties in matters of valuation and the use of its results is set out in Law of Ukraine No. 2658-III of 12 July 2001 «On Valuation of Property, Property Rights and Professional Valuation Activity in Ukraine».
An independent valuation of property is a valuation carried out by a valuation entity, i.e. an authorised business entity holding a valuation entity certificate. The valuation procedures and approaches to determining value are established by property valuation regulations.
Property is valued in the cases provided for by the law of Ukraine and international agreements, under a contract, and at the request of one of the parties to a transaction with the consent of the parties. A valuation is mandatory, in particular, for the taxation of property under the law and, in our case, for contributing economic rights to IP objects to a company's authorised capital.
Article 3 of that law provides that the property rights that may be valued include any rights related to property other than ownership, including rights that are components of ownership (possession, disposal, use), a special property right to an object under construction, a future real estate object, other specific rights (the right to conduct activities, to use natural resources, etc.) and the right of claim.
The independent valuation results in a property valuation report. It is the report on the value of the IP that serves as the basis for determining the amount of the contribution to the authorised capital.
The owner of the IP objects contributes the economic rights to them to the authorised capital at their appraised value in exchange for corporate rights. As regards the tax aspects of such transactions, the specifics of their taxation should be taken into account. The taxpayer keeps records of the overall financial result of transactions with investment assets independently and separately from other income and expenses. For the purposes of taxing investment profit, the reporting period is the calendar year, for which the taxpayer must file an annual tax return showing the overall financial result (investment profit or investment loss) received during that year. Investment profit is calculated as the positive difference between the income the taxpayer received from selling a particular investment asset, taking into account exchange rate differences (if any), and its value, determined from the amount of documented expenses for acquiring the asset. The expenses incurred by an individual to acquire an investment asset (corporate rights) must be confirmed by documents certifying the transfer of property as a contribution to the company's authorised capital, in particular an acceptance certificate, provided it contains all the details required by Law of Ukraine of 16 July 1999 «On Accounting and Financial Reporting in Ukraine», the valuation report (valuation certificate), the general meeting's decision approving the monetary valuation of the contribution, and other primary accounting documents.
The amount of a taxpayer's property and non-property contribution to the authorised capital of a legal entity issuing corporate rights, made in exchange for those corporate rights, is not included in the individual's total monthly (annual) taxable income, as provided for by sub-item 165.1.44 of item 165.1 of Article 165 of the Tax Code of Ukraine.
Particular attention should be paid to formalising the transfer and, if necessary, the state registration of economic rights to the IP object after it has been contributed to the company's authorised capital. The mere fact that an IP object is designated as a contribution to the authorised capital does not automatically change the information about the right holder in the relevant state register. Whether registration is needed and how it is carried out depends on the type of IP object. For example, if a registered trademark is contributed to the authorised capital, the company must apply to the National Intellectual Property Authority - the Ukrainian National Office for Intellectual Property and Innovations (UANIPIO) - for state registration of the IP rights in the name of the new right holder and for the relevant entry in the register.
Economic intellectual property rights can be a valuable asset of a company and give it additional opportunities for doing business and making a profit. At the same time, using them effectively requires proper legal documentation of the transfer of rights when they are contributed to the authorised capital, and systematic corporate control, which makes it possible to identify the main risks and propose effective legal and economic solutions.
