When a company is incorporated -regardless of whether it is a Limited Liability Company or a Joint-Stock Company- assets must be contributed to as its share capital. This contribution can consist of money (monetary contribution) or other goods and/or economic rights, different from money (non-monetary contribution). According to article 58 of the Spanish Corporations Law, the goods or rights consisting in a non-monetary contribution must be susceptible to economic evaluation.

What does know-how mean?

Know-how is usually defined as “secret industrial knowledge” which must, moreover, comply with certain essential elements, such as:

  • Knowledge related to the activity of the company
  • Secret information: only known by directors of the company, without being in the public domain or easily accessible.
  • Objective element (i.e. economic and business interest of such knowledge).

There is also a trend towards a more generic concept, in the sense of connecting know-how with experience -knowledge of an empirical nature (progress acquisition, resulting from experience in the performance of an industrial or commercial activity, as a result of research and experimentation)-, with the qualification of a specialist and with a lesser degree of confidentiality.

 

“Endi Enterprise, SL” case

In this context, the question arises whether know-how may be considered as a legally valid non-monetary contribution for the purpose of incorporating a company. This question was the focus of a recently published resolution by the DGRN, which is to be analyzed in the present article.

“Endi Enterprise, SL” is a technology company that offers virtual collaborative work, promotional services, marketing, advertising and business consulting. According to the Notary who signed the public deed of incorporation, the contribution of this know-how complies with all the requirements and conditions set out by the law and case-law in order to be considered as a non-monetary contribution because it is, inter alia, a contribution which will substantially increase the Company’s profits. In this particular case, “Endi Enterprise, SL”’s activity, which consists on the creation of virtual work spaces, requires the knowledge provided by the shareholder in terms of business development, management and marketing, as it is part of the corporate purpose of the Company and therefore provides income.

However, in Madrid’s Mercantile Registry, the Registrar understood that the contribution of know-how in the company might be a contribution of work or services, which is strictly prohibited in the aforementioned article of the Spanish Corporations Law, and that was the reason why the registration of “Endi Enterprise, SL” was denied. As the shareholders did not agree with the decision, they decided to lodge an appeal before the DGRN.

Dirección General de los Registros y el Notariado (DGRN)

DGRN is an institution that manages and supervises Notaries’ and Registrars’ functions regarding public faith in matters of property and commercial goods, and deals with any queries made about them and processes and resolves government appeals against their acts.

 

Last 21st January the DGRN’s resolution was published in the state government gazette (BOE). DGRN stated that the object of contribution in question (know-how) is of a patrimonial nature, it is susceptible to economic valuation, and it is suitable to produce a profit for the Company. Therefore, DGRN believes that a know-how contribution is different from work or services, which is strictly prohibited according to the aforementioned article of the Spanish Corporations Law, so the denial of the registration in the Commercial Registry has been revoked.

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