When a company is being incorporated many questions arise regarding the requirements to be met for the valid incorporation of the company. One of the most important of such requirements is the share capital and the type of assets that may form it.
The simplest scenario is when the share capital is fully constituted by monetary contributions. However, in cases where the type of company requires high levels of knowledge due to its corporate purpose, which generate a high differentiating value due to their exclusivity, the company seeks to maintain and protect confidentiality, giving rise to the question as to whether it is possible to incorporate as a contribution certain intangible knowledge which forms a part of the so called “know-how”.
This question is dealt with by the General Directorate of Registries and Notaries (GDRN) in a resolution dated 4th December 2019 in which the registrar of the commercial registry rejects the registration of the incorporation of a limited liability company, to which, among other assets “know-how” was brought in as a contribution, consisting of: the technical information necessary for designing, manufacturing, employing, maintaining and marketing products or elements facilitating the accomplishment of the specific project. Said knowledge is kept secret, in the same way as the business model required for the incorporation, development and marketing of the company, as well as the totality of its knowledge, specialised expertise and acquired experience.
The problem raised by the registrar is derived from the wording of article 58 of the Spanish capital companies act, which regulates the assets, which may constitute the necessary contributions for incorporating a company, according to which:
“ 1. In capital companies only patrimonial assets and rights susceptible to economic valuation may be the object of contribution.
2. Work or services may not, under any circumstances, be the object of contribution.”
The registrar understands that “know-how” is a concept which is more in line with the concept reflected in the second point of the aforementioned article, that is to say, it is a matter, in the opinion of the registrar, of a contribution of work or services, which therefore, cannot be object of the capital contribution.
In order to clarify the concept “know-how”, on its part the GDRN turns to the judgment of the Supreme court dated 21st October 2005, where, following a series of different approaches, “know-how” is defined as knowledge or a set of technical knowledge, which is not in the public domain, and which is necessary for the manufacture or marketing of a product, for the rendering of a service or for the organisation of a business unit, so that those who command such knowledge have an advantage over competitors which they strive to preserve by avoiding disclosure.
The understanding of the GDRN is that this “know-how”, under terms similar to goodwill, is not an obligation to do something, but rather an asset, which although intangible, brings together certain characteristics which allow it under article 58 of the Spanish capital companies act, that is to say, it is susceptible to economic valuation, it has a patrimonial nature, and the ability to generate a profit.
The difficulty which may exist in the specification and determination of economic value, or the possible problems derived from intangibility for the purposes of embargo, etc. is a different matter. Thus, the systematisation and updating on the part of the lawmaker of the different legal questions concerning the ever more frequent and relevant “know-how” would contribute to greater legal security.
Jaime Madero
Vilá Abogados
For more information, please contact:
31st January 2020
