The promulgation of the revised "Company Law" (effective from July 1, 2024, and collectively referred to as the "New Company Law") has brought about significant changes in the registration and operation of enterprises. One of the key amendments in this law is the introduction of a five-year capital contribution requirement, which has become a major highlight of this revision.

As per Article 47, Paragraph 1 of the new Company Law:

"The registered capital of a limited liability company is the subscribed capital contributed by all shareholders registered with the company registration authority. The subscribed capital contributed by all shareholders shall be paid up by the shareholders within five years from the date of the company's establishment, in accordance with the provisions of the company's articles of association."

With the implementation of this five-year capital contribution system, and the State Administration for Market Regulation's interpretation (new companies must pay up within 5 years, and existing companies must gradually pay up within 3 years), many businesses are adjusting to meet these new regulations regarding registered capital. Some companies have begun paying in capital, while others are opting to reduce their capital. However, several enterprises still face constraints due to industry regulations or rigid capital requirements tied to bidding qualifications, making capital reduction impossible.

In reality, cash contributions are burdensome for businesses with high registered capital. Fortunately, the Company Law allows shareholders to contribute not only in cash but also in intellectual property and other non-monetary assets that can be legally transferred and valued in currency, such as:

• Intellectual property rights

• Land use rights

• Equity and debts

More and more enterprise shareholders are turning to intellectual property contributions as a solution. Below are the main benefits of such contributions:

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1. Risk Mitigation

Contributing intellectual property can help shareholders avoid unlimited joint liability, particularly during times of company bankruptcy or liquidation. It alleviates shareholders' cash responsibilities, reducing financial exposure.

2. Tax Benefits

Intellectual properties like invention patents, utility model patents, software copyrights, and integrated circuit layouts can enjoy deferred tax policies, offering significant savings in tax costs for both individual shareholders and the company.

3. Alleviating Cash Pressure

By contributing intellectual property, companies can alleviate cash shortages, freeing up cash for daily operations and accelerating business development.

4. Enhancing Technological Strength

Intellectual property contributions raise a company's technological profile, increasing its market competitiveness and ability to innovate.

5. Optimizing Financial Structure

Contributing intellectual property can boost a company’s asset value, lower its debt-to-asset ratio, and improve its overall financial structure.

6. Enhancing Corporate Reputation

Intellectual property contributions improve a company's reputation, building customer trust, establishing a strong market image, and increasing loyalty.

7. Boosting Bidding Competitiveness

By contributing intellectual property, a company can enhance its qualifications and net asset value, increasing its chances in competitive bidding and unlocking more cooperation opportunities.

8. Attracting Investment

Leveraging intellectual property fully increases the company’s valuation, attracting more investors, securing financing opportunities, and supporting sustainable growth.

9. Joint Ventures & Cooperation

Companies lacking funds but owning valuable intellectual property can contribute their IP to joint ventures, transforming their intellectual assets into marketable, profitable ventures.

10. Tax Advantages

Intellectual property contributions can offer tax advantages, such as VAT exemptions, deferred income taxes, and amortization tax benefits.

With the introduction of the New Company Law, companies are increasingly focusing on accumulating intangible assets, especially intellectual property. Intellectual property contributions not only provide financial relief and competitive advantages but also pave the way for future growth and long-term sustainability.

At Gomax, we specialize in intellectual property services and business solutions. Contact us today for more details on how we can help your company navigate these changes and leverage intellectual property for maximum benefit.