Intangible Assets as Equity Stake

Under current legislation, intangible assets may be contributed to the charter capital of a legal entity. Only freely transferrable, i.e., alienable intellectual property rights may be contributed to the charter capital. Contributions of intangible assets to the charter capital are made both when incorporating a legal entity and when its assets are incremented.

According to paragraph 1 of Article 66.1 of the Civil code of the Russian Federation (hereinafter referred to as the Civil code of the Russian Federation): “Contribution of a participant of an economic partnership or a society to its property may be money, things, shares (stocks) in the authorized (share) capital of other economic partnerships and companies, state and municipal bonds. Such contribution may also be exclusive and other intellectual property rights subject to appraisal and rights under licensing agreements, unless otherwise established by law”.

According to paragraph 2 of Article 15 of the Federal Law of February, 8, 1998 No. 14-FZ on Limited Liability Companies (hereinafter referred to as the Law on LLC): “Appraised monetary value of the property used for payment of shares in authorized capital of a society shall be approved by the decision of general meeting of participants of a company, made by all participants of company unanimously. If a nominal value or increase of nominal value of share of shareholder of a company in authorized capital of a company, paid by non-monetary assets, makes more than twenty thousand rubles, an independent appraiser should be involved for the purpose of calculation of cost of this property, provided that otherwise is not provided by the federal law. The nominal value or increase in the nominal value of a share of a participant of a company, paid by such non-monetary assets, cannot exceed the amount of evaluation of the said property, determined by an independent appraiser”.

The Federal Law of December 26, 1995 No. 208-FZ on Joint Stock Companies (hereinafter referred to as the JSC Law) contains similar provisions (Article 34, paragraph 3): “Monetary value of the property contributed as equity stake when incorporating a company shall be determined by agreement between the founders. When paying additional shares by non-monetary assets, the monetary valuation of property is made by board of directors (supervisory board) of a company according to article 77 hereof. Where payment for shares is made by non-monetary assets, an appraiser must be engaged to calculate the market value of such property, unless otherwise established by federal law. The value of property calculated by founders of a company and approved by the board of directors (supervisory board) of a company cannot exceed the value calculated by the appraiser”.

Since exclusive rights to the results of the intellectual activity are referred to intangible assets, one must also keep in mind the requirements to such rights, which are reflected in the Order of the Ministry of Finance of Russia of December, 27 2007 No. 153н on Approval of the Accounting Reles “Accounting of Intangible assets” (Accounting Rules 14/2007)”. Under paragraph 3 of the mentioned Order: “in order to accept an object for accounting as an intangible asset, the following conditions must be met at a time:

a) The object is capable of bringing economic benefits to the organization in the future, in particular, the object is intended for use in the manufacture of products, the performance of work or rendering of services, for the managerial needs of the organization or for use in activities aimed at achieving the goals of the non-profit organization (including in entrepreneurial activities carried out in accordance with the legislation of the Russian Federation);

b) The organization is authorized to receive economic benefits that this object can bring in the future (specifically, the organization has duly executed documents confirming the existence of the asset itself and the rights of the organization to the result of intellectual activity or visual identity, including patents, certificates, other protective documents, the agreement on the disposal of the exclusive right to the result of intellectual activity or visual identity, or documents confirming the transfer of exclusive rights;

c) The possibility of separating (identifying) the object from other assets;

d) The object is intended to be used for a long time, i.e., a useful life of more than 12 months or a normal operating cycle, if it exceeds 12 months;

e) The organization does not expect to sell the object within 12 months or the normal operating cycle, if it exceeds 12 months;

f) The actual (original) value of the object can be calculated reliably;

g) The object has no tangible physical form”.

Under paragraph 11 of the Order of the Ministry of Finance of Russia of December 27, 12.2007 No. 15н: “The actual (original) cost of an intangible asset contributed to the charter (share) capital (including in case of contribution of state or municipal property as a contribution to the charter capital of open joint stock companies), the authorized fund, a share fund of the organization, is its cash value, agreed by the founders (participants) of the organization, unless otherwise provided for by the legislation’ of the Russian Federation.

According to the Order of the Ministry of Economic Development of Russia of June 22, 2015 No. 385 on Approval of the Federal Standard of Appraisal “Appraisal of Intangible Assets and Intellectual Property (ФСО No. 11), hereinafter referred to as Order No. 385, there are three approaches to appraisal: 1) income approach; 2) cost approach; 3) comparative approach.

In accordance with paragraph 12 of Order No. 385: “The income approach involves discounting cash flows (future economic benefits) generated by the evaluated object, or capitalization of the annual net income (benefits, effects) from the evaluated object, including income from possible compensation to others for access to economic benefits from using the evaluated object”.

According to the current court practice (decision of the Arbitration Court of the Tyumen Region of August 3, 2020 in case No. A70-18226/2018): “the income approach to appraisal of intangible assets is based on the principle of expectation of income from their use and provides for the valuation by calculating the present value of expected income (benefits, effects) from the use of intangible assets in business. The income generated by the evaluated intangible asset may be obtained at the expense of reduced costs, operating costs, additional profit, excess income, etc., which in fact or hypothetically may be obtained by the right holder of the evaluated asset”.

In accordance with paragraph 16 of the Order of the Ministry of Economic Development of Russia of May 20, 2015 No. 297 on Approval of the Federal Appraisal Standard “General Concepts of Appraisal, Approaches and Requirements for Appraisal (ФСО No. 1, hereinafter referred to as Order No. 297: “The income approach is recommended for use when there is reliable information allowing to predict the future income that the object of appraisal is able to bring, as well as costs associated with the object of appraisal”.

According to the paragraph 18 of Order No. 297: “The cost approach is a set of methods for assessing the value of the object of appraisal based on determining the costs necessary to acquire, reproduce or replace the object of appraisal, taking into account wear and tear and obsolescence.

According to the paragraph 12 of Order No. 297: “Comparative approach is a set of appraisal methods based on obtaining the value of the appraised object by comparing the evaluated object with similar ones”.

In accordance with paragraph 45 of the Resolution of the Plenum of the Supreme Court of the Russian Federation of April 23, 2019 No. 10 on the Application of Part Four of the Civil Code of the Russian Federation" (hereinafter referred to as Resolution No. 10): “In the case of making an exclusive right, other intellectual right (for example, the right to obtain a patent) or a right under a licensing agreement subject to monetary appraisal as a contribution to the authorized (share) capital of an economic partnership or society (paragraph 1 of Article 66. 1 of the Civil Code of the Russian Federation), provided that such indication is mentioned in the decision on establishment (the decision on contribution of the property into the authorized (share) capital or the agreement on establishment of the partnership or the company), as well as provided that such decision contains all essential conditions, which shall be respectively included into the contract on alienation of an exclusive right or the license contract, no separate contract on alienation of an exclusive right or the license contract complying with the requirements of Part 4 of the Civil Code of the Russian Federation is concluded (clause 1 of Article 1233) is required. In this case, state registration of the alienation of the exclusive right to the intellectual activity result or visual identity subject to state registration, as well as the right to use such result or means may also be carried out by the request of the founder, provided that the decision on the incorporation of a partnership or a company (in the relevant part) is submitted.

Previously, according to the explanations of the Plenum of the Supreme Court of the Russian Federation and the Plenum of the Supreme Arbitration Court of the Russian Federation dated March 26, 2009 No. 5/29, in case of contributing exclusive rights to the charter capital, it was necessary to conclude a separate agreement on the disposal of an exclusive right or a license agreement in addition to mentioning it in the deed of incorporation.