On contributing know-how in capital of Russian company

Artem Sirota, partner at law firm Sirota & Mosgo, talks on what trade secret (know-how) is under Russian law and how contribute it in the share capital of a Russian company

Artem Sirota

Sirota & Mosgo Law Firm
+7 495 234 18 75

Though there is no universal definition of the term “know-how”, many jurisdictions (like, for example, Russia) adopted own statutory definitions. Under Russian law “know-how” is information which:

  • is not generally known to the public and public does not have legitimate access to this information;
  • confers economic value on its holder;
  • is subject to measures of maintaining secrecy.

In order to trigger state protection the measures of maintaining secrecy must meet the minimum requirements set by the Russian law on trade secrets. The owner must define the scope of trade secret, mark the media sources, implement access and utilization procedures, and maintain control over the persons received the access to this information.

Before contributing the knowhow in the charter (share) capital of a company, the investor must make sure that the information constituting the knowhow satisfies the requirements set by the Russian legislation. Otherwise, such contribution can be later challenged by the company. In the famous case JugraNeft v. Norex Petroleum the plaintiff (a Russian company) demanded more than $8 million paid as dividends to be returned, contending that the know-how did not conform to the main requirement – being not known to the third parties.

Contribution procedure

There are two ways to contribute know-how in the charter (share) capital: to alienate the rights to the third party (which is a rare case for obvious reasons) or to grant the rights of use (license). Below I will discuss only the second option.