What Tech Teams Should Confirm Before Incorporating
Author: Junanda ConsultingReviewed by: Junanda Service Team2026-09-19
The step from a few people working on projects together to a formally incorporated company is not bridged by a business licence alone. It requires a series of questions to be settled in advance across equity, assets, tax and compliance. Many disputes do not arise during the life of the business; they arise from something that was never agreed before it was set up. The items below are set out one by one, and core team members are advised to go through them before signing the articles of association and the capital contribution agreement.
Ownership of technical outputs and intellectual property
This is where tech teams most often leave a hidden problem. Three situations need to be distinguished.
- Employee inventions and non-employee inventions. Where a result was produced in the course of performing the duties of a previous employer, or mainly by using that employer's material and technical resources, it will generally be treated as an employee invention under the Patent Law, with the rights belonging to that employer. A founder who leaves and builds a business on that technology faces a risk of dispute over ownership.
- Ownership of results created after leaving. An invention or creation made within one year of leaving employment, which relates to the work or tasks undertaken with the former employer, may still be treated in law as an employee invention. The date of departure, the nature of the work and the connection to the new technical solution therefore need to be evidenced.
- Assignment of IP between founders. Where a technology was previously registered in an individual's name, or was developed by a founder personally, a written intellectual property assignment agreement should be signed at or soon after incorporation, formally transferring the rights to the company and completing the change of the recorded particulars. A purely verbal understanding that "this belongs to the company" will usually not be accepted during financing due diligence.
In practice, three things are worth doing. First, have each core member confirm in writing the source of the technology they contribute and whether it relates to work done for a former employer. Second, compile a full intellectual property schedule covering patents, software copyrights, domain names and code repositories, with the registered owner identified for each. Third, for solutions still under development, apply in the company's name from the outset rather than applying personally and transferring later, which removes one step of formal change. These steps are cheap while the team is small; once financing or a dispute is on the horizon, they usually require additional evidence to shore up.
Confirming the form of capital contribution
Under the current Company Law framework, both the form of contribution and the deadline for payment are subject to clear requirements, and need to be arranged realistically.
- Contribution in cash. This is the most straightforward route. Payment should be made in full within the period set out in the articles, and the bank credit advice retained.
- Contribution in technology or intellectual property. This is a contribution of non-monetary property and must satisfy the requirement that it can be valued in monetary terms and transferred in accordance with the law. It generally requires a valuation and the completion of a change of ownership registration.
- Verification and payment. The great majority of companies now operate under a subscribed capital regime without mandatory capital verification. However, non-monetary contributions, businesses in certain regulated industries, and businesses bidding for tenders will often still need a valuation report or a capital verification certificate as supporting evidence. Where a contribution is not made properly, the shareholder is liable to make up the shortfall.
- Do not take "technology equity" on an oral valuation. The contribution ratio should be written into the articles and the shareholders' agreement, together with the valuation basis on which it rests. Otherwise, disputes over future capital increases and exits become almost inevitable.
Equity structure and the option pool
- Equity proportions. Structures in which three founders each hold one third, leaving no effective centre of decision-making, are best avoided. Note that voting rights and dividend rights may lawfully be agreed on different bases.
- The option pool. Where financing or senior recruitment is planned, it is worth reserving an employee shareholding or option pool early, usually held by the founders on behalf of employees or through a shareholding platform, with the dilution mechanism for the pool agreed at the same time.
- Adjustment over time and exit. For founders who do not actually take up their role or who leave early, clauses providing for share buy-back or vesting should be agreed, so that a person does not remain a shareholder long after departing.
- Nominee holdings and restricted shares. Where a nominee arrangement exists, a written nominee agreement should be put in place, with attention to the risks to its effectiveness. Where vesting over time is agreed, for example gradual vesting by years of service, the vesting conditions, the method of calculating the buy-back price and the triggering circumstances should be set out in the shareholders' agreement.
Equity arrangements ultimately answer two questions: who decides, and what happens when someone leaves. Writing the answers down at the formation stage is far more reliable than relying on goodwill later on.
Company type and tax status
- Company type. A limited liability company and a joint stock limited company differ in governance structure, the ease of transferring shares and suitability for financing. Most early-stage technology businesses commonly start as a limited liability company.
- Taxpayer status. A small-scale VAT taxpayer and a general VAT taxpayer differ markedly in invoicing capability, input tax deduction and customer expectations. Where customers are mainly large enterprises requiring special VAT invoices, an early assessment should be made of whether to register as a general taxpayer.
- Other considerations affecting status. Whether the business exports, and whether it is eligible for measures such as the immediate refund of VAT on software products, are matters to be brought into consideration at the formation stage (subject to the latest official versions).
Collecting R&D expenses and building auxiliary ledgers early
This is the groundwork for later applications for small and medium-sized technology enterprise status and high-tech enterprise status, and for benefiting from the super deduction for research and development expenses. The super deduction generally requires auxiliary ledgers to be kept by research and development project, together with the related documentation. Where this is left until the filing year, the records of hours worked and material requisitions are usually missing and the expenses cannot be collected.
From the first month of operation, it is worth establishing:
- a catalogue of research and development projects with project numbers;
- timesheets and schedules allocating staff costs;
- source documents for materials requisitioned, equipment used and research commissioned externally;
- auxiliary ledgers for research and development expenditure, together with summary schedules.
Industry qualifications and compliance awareness
- Qualification matters. Software copyright registration, evaluations relevant to software enterprises, and the licence for value-added telecommunications services. (An ICP filing and an ICP or EDI licence are not the same thing.) Which of these are needed depends on the actual business.
- Data and algorithm compliance. Where a business involves the collection of personal information, algorithmic recommendation or generated content, the requirements relating to personal information protection and data security need attention.
- Employment and non-compete. Core members should sign confidentiality and non-compete agreements, with attention to the categories of staff to which non-compete obligations apply and to the compensation agreed.
- Place of registration and social insurance. Where a team is spread across several locations, the choice of registration place affects the tax collection authority, the place of social insurance contributions and the policies that apply. It is worth checking the position with the local competent authority before incorporation.
Self-Check Checklist
This article is general business information prepared by Junanda Consulting. Specific policy positions, tax rates, deadlines and procedural requirements are subject to the latest official versions issued by the competent authorities. To understand how these requirements apply to your business, please contact Junanda Consulting for further information and support.
