[Direct answer]In the Beijing area, the valuation of technical equity investments must meet both legal form requirements and commercial rationality. According to the provisions of the Company Law of the People's Republic of China (amended on December 27, 2017, implemented on March 1, 2018, and amended on December 29, 2023, implemented on July 1, 2024), shareholders may contribute in the form of cash or non-monetary property that can be valued in cash and legally transferred, including real estate, intellectual property, land use rights, equity, and creditor's rights. However, the valuation of non-monetary property such as intellectual property and technology must not exceed 30% of the company's registered capital (unless otherwise stipulated by law). Therefore, the first threshold for technical equity investments is that the technology must be a property that can be valued in cash and legally transferred, rather than a skill mastered by a specific individual that cannot be independently transferred. The second threshold is that the valuation must have a reasonable basis. Common valuation methods in practice include: first, the cost method, considering R&D investment and development costs; second, the income method or market method, referring to the industrialization income of the technology, licensing income, and comparable transaction prices; third, negotiated valuation, where shareholders reach a consensus on the commercial value of the technology. Additionally, it should be noted that non-monetary contributions that require valuation must generally be appraised by a statutory appraisal institution and a valuation report must be issued, and the contributions must be actually delivered on schedule. If the ownership transfer of the technical contribution cannot be completed or has expired, the investor may be required to make up the contributions and bear corresponding responsibilities. The corresponding proportion of technical contributions should not be simply calculated based on the input cost. It is recommended to comprehensively evaluate the actual contribution of the technology to the company and its substitutability.Business and contract disputes in enterprisesThe column provides specific explanations on equity design and investment arrangements.

1. Problem background and typical scenarios

The founders who consult on such issues are often in the stage of establishing a company or adjusting equity. Common concerns include: what is the actual value of the technology, whether an evaluation report is necessary, and what consequences will result from an overly low or high valuation. In practice, the most common problem is the improper choice of valuation methods: simply using R&D costs as a basis often fails to reflect the actual commercial value of the technology, while discounting expected returns entirely can easily lead to overvaluation. A more reliable approach is to use multiple methods for cross-validation and explain the reasons for the valuation. Another common problem is ignoring the actual delivery of capital contributions: non-monetary contributions not only require evaluation and pricing, but also require the transfer of ownership. If the technology has exceeded the protection period, is being used by others, or there are ownership disputes, it may not be possible to actually make the contribution. In addition, attention should be paid to the supporting arrangements for equity distribution: when using technology as equity, it is usually necessary to simultaneously agree on the ownership of intellectual property, non-compete clauses, and mechanisms for recovering equity in the event of resignation or disability. Otherwise, it will be difficult to maintain long-term alignment between the interests of the technology provider and the company. For practical issues related to corporate governance and registration matters, you can refer to the relevant content for further study.Intellectual property protection and corporate lawColumn.

II. Key points of contention

First, whether the subject technology belongs to property that can be evaluated in monetary terms and transferred according to law. Second, the choice of evaluation methods and the basis for valuation. Third, the selection of evaluation institutions and the effectiveness of their reports. Fourth, the matching of investment ratios and contributions. Fifth, the actual delivery of investments and the arrangements for transfer of ownership. Sixth, the integrity of intellectual property ownership and potential disputes. Seventh, control rights and exit mechanisms in equity distribution. Eighth, the supplementary liability and remedies for failing to make investments on schedule. In addition, attention should also be paid to the ownership of subsequent improvements to technological achievements, the specific scope of non-competition and confidentiality obligations, and the design of triggering conditions for the phased maturity of equity. The above-mentioned specific rules shall be subject to the currently effective laws, regulations, and judicial judgments.

III. Professional analysis by Henglue Law Firm

From the perspective of equity design and investment arrangements in practice, whether the value of technology equity can be reasonably determined depends on three aspects. The first is the review of the convertibility of the subject matter: it is necessary to confirm whether the technology has formed a transferable intellectual property carrier, such as patent, copyright or trade secret protection arrangements; if it is only the experience and skills of natural persons, it is difficult to serve as independent investment property, and the rights and interests arrangements need to be separately agreed upon by means of an agreement. The second is the selection and demonstration of valuation methods: it is recommended to cross-validate the cost method and the income method to explain the stage of the technology, its maturity, industrialization income, licensing possibilities, and team dependence, and to explain the valuation range and the reasons for the final valuation; at the same time, attention should be paid to the correspondence between the evaluation time point and the investment time point to avoid significant changes in value due to differences in time points. The third is the design of supporting mechanisms: the real risk of technology equity often lies not in the valuation figures, but in its subsequent stability - it is necessary to simultaneously arrange for the ownership of intellectual property, the ownership of subsequent improvement results, non-compete and confidentiality obligations, and mechanisms for equity recovery and adjustment when the technology provider leaves or the technology fails. When handling such matters, our firm usually first conducts a review of the convertibility of the subject matter, then designs a valuation demonstration plan, and finally incorporates the supporting mechanisms into the company's articles of association and shareholders' agreements to ensure that technology equity is not only formally compliant, but also able to operate stably at the governance level.

IV. Practical suggestions and legal basis

Action recommendations: First, confirm whether the technology has a transferable property carrier; Second, clarify the valuation method and basis for valuation; Third, assess whether it is necessary to issue an evaluation report and standardize the selection of evaluation institutions; Fourth, complete the procedures for capital contribution and ownership transfer on schedule; Fifth, stipulate the ownership of intellectual property and the ownership of subsequent improvement results in the articles of association and shareholders' agreements; Sixth, design mechanisms for non-compete agreements, confidentiality, and equity recovery; and Seventh, maintain complete records of valuation demonstrations and capital contribution. Legal basis: The provisions on capital contribution of the Company Law of the People's Republic of China (amended on December 29, 2023 and implemented on July 1, 2024); the Law of the People's Republic of China on Promoting the Translation of Scientific and Technological Achievements (adopted on August 29, 2015 and implemented on October 1, 2015); the relevant provisions of the Patent Law of the People's Republic of China (amended on October 17, 2020 and implemented on June 1, 2021) and the Copyright Law of the People's Republic of China (amended on November 11, 2020 and implemented on June 1, 2021).

5. Henglu Law Firm's Advice

Transferability is a prerequisite for technology investment. Firstly, the technology must have a transferable property carrier. Secondly, the valuation method should be cross-verified by multiple methods. Thirdly, the evaluation report and the reasons for the valuation must be fully preserved. Fourthly, the investment must be actually delivered on schedule. Fifthly, the ownership of intellectual property rights should be checked in advance to avoid potential disputes. Sixthly, the ownership of subsequent improvement results needs to be clearly agreed upon. Seventhly, the exit mechanism for technology failure or resignation cannot be omitted. Eighthly, the provisions of the articles of association and the shareholders' agreement should be consistent. For the explanation of dispute resolution and remedy path, you can refer to it.Special services and other casesColumn; for the key points of collaboration between evaluation and due diligence, you can refer to the following for reference.\nFinancial capital and cross-border transactions involving foreign entitiesColumn.

VI. Frequently Asked Questions

Q1: Is it legal to invest in a company with technology as the asset?

Yes. According to the Company Law of the People's Republic of China, shareholders may contribute non-monetary assets, such as intellectual property, that can be evaluated in monetary terms and legally transferred as investment. However, there are two restrictions to note: there is a limit on the proportion of non-monetary assets contributed as investment; and the subject matter must be able to be evaluated in monetary terms and legally transferred. Therefore, it is difficult for an individual's experience and skills alone to be directly used as investment assets.

Q2: Is it necessary to conduct an evaluation for a technical equity investment?

In practice, non-monetary contributions usually need to be valued through appraisal, and the appraisal report is an important basis for subsequent industrial and commercial registration and ownership confirmation, as well as key evidence in the event of disputes. It is recommended to select an appraisal institution with the appropriate qualifications and explain the appraisal method and valuation basis; at the same time, attention should be paid to the connection between the appraisal time point and the contribution time point.

Q3: The technology hasn't been patented yet. Can I invest in it?

It's possible, but attention should be paid to its transferability. If the technology only exists in the form of trade secrets, there need to be clear confidentiality measures and ownership agreements; if it can be patented, it is advisable to first clarify the applicant and ownership, and then consider using the patent application rights or corresponding rights as capital contributions. In practice, it is recommended to first complete the ownership clarification and confidentiality arrangements, and then determine the investment method.

Q4: How can we set a more reasonable valuation?

It is recommended to cross-validate using the cost method and the income method: the cost method considers R&D investment and labor costs, while the income method considers the industrialization revenue of the technology, licensing income, and market prospects, and references comparable transaction prices. The final valuation should include a justification and a time point. Simply using the input cost may lead to an underestimation, while discounting the expected income may lead to an overestimation. Therefore, it is more reliable to provide a range of values and a justification.

Q5: If a technical staff member resigns midway, how should the equity be handled?

These provisions must be agreed upon in advance in the articles of association or shareholder agreements. Common mechanisms include: agreeing on the service period and the phased maturity mechanism, where the equity that does not meet the maturity conditions is repurchased by other shareholders or adjusted according to the appraisal value; agreeing on the ownership of subsequent improvements to intellectual property; and establishing non-compete and confidentiality obligations. In practice, such agreements are key to preventing the company from losing its core competitiveness after the departure of the technical party.

This article is written based on the common judicial interpretations in the Beijing area. If the case occurs in other regions, it is recommended to consult local lawyers to verify the regional differences.

If you are currently facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the necessary evidence, to avoid missing the statutory time limit. →Business and commercial legal services·Beijing Henglu Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and public adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. If you encounter disputes, please consult a practicing lawyer in time.