Technical Shares, Technical Contribution, Labor Contribution: The Three Things Founders Most Often Conflate

Before you read: This is general educational information and a practical orientation, not legal, accounting, tax, or investment advice. Taiwan's laws and tax treatment apply case by case; for any real decision, consult a Taiwan-qualified accountant or lawyer. The mechanisms and red flags below are here to help you ask the right questions, not to substitute for professional opinion.

"We'll give him technical shares." In an early startup, that is one of the most lightly tossed-off promises — and one of the most likely to detonate two or three years later. It sounds like it describes a clear thing. In fact "technical shares" (技術股) is a casual catch-all phrase, and beneath it sit three legally distinct mechanisms, each with different rights and obligations, different tax timing, and different requirements under the Company Act (公司法). Talking about all three as if they were one means you simultaneously take on three debts — paperwork, tax, and technology ownership (IP, meaning intellectual property: copyrights, patents, trade secrets, and so on) — and those three debts usually come due at the same moment: when someone wants to invest in you and starts their pre-investment due diligence (盡職調查, the investor's comprehensive review of a company's legal, financial, and technical standing before formally investing).

Three terms, actually three different mechanisms

Start by pulling the terms apart, because the confusion begins right here. A founder first has to be clear on what the other person is giving the company: a finished technical result already completed, future labor still to be contributed, or a mix of both. The answer determines which tool and which documents you should use.

The first is technical contribution (技術出資) — treating technology as property and using it to pay in the share capital you were otherwise supposed to deliver in cash. The moment you "use technology as money," two questions follow. First, how much the technology is worth cannot just be filled in arbitrarily — this valuation (作價, assigning a monetary figure to non-cash property as the consideration for a contribution) directly affects whether the company's stated capital is real, and it affects other shareholders' interests, so it needs a defensible basis, not a number the insiders simply agreed on. Second, the instant technology is exchanged for shares, the tax authorities may treat it as income realized at that point; how the timing and amount of any tax are determined is exactly where an accountant has to step in (Taiwan's case-by-case determinations vary widely, so this is a flag to evaluate, not an assertion that tax is certain). And one consequence is easily overlooked: once a technical contribution is complete, the rights to that technology belong to the company — meaning the contributor can no longer take the same technology and use it somewhere else.

The second is labor contribution (勞務出資) — exchanging "future work" for equity. In Taiwan this door opens only a crack: an ordinary Company Limited by Shares (股份有限公司) and a Limited Company (有限公司) cannot do it, and only a Close Company Limited by Shares (閉鎖性股份有限公司, a company form with a cap on the number of shareholders, restrictions on share transfers, and more flexible articles-of-incorporation design) can — and even then it must be stated in the articles of incorporation, be subject to a ratio cap, and be disclosed on issuance. What it solves is a perfectly legitimate need: a technical co-founder has no cash on hand, but you need them to keep contributing. The hard parts are how to value the labor, and how to design the exit for "what if they leave before finishing" — both far more complex than a cash contribution.

The third is not really a legal term at all, but the thing everyone actually says out loud: "technical shares" (技術股) itself. When someone says they want technical shares, the correct response is not to nod but to translate first. Do they mean something already built that needs to be transferred to the company (that is a technical contribution, or an IP assignment)? Do they mean they will keep developing going forward (that is a labor contribution, or an equity incentive with vesting attached)? Or both? Vesting (股權分期成熟機制, equity that vests gradually over time or by milestone, with the unvested portion clawed back if the person leaves early) shows up here precisely because "ongoing future effort" must be tied to conditions — otherwise the person takes the shares but does not finish the work, and the company is stuck. Until you have translated a promise into a definite mechanism, do not say it out loud.

If you want to take in all three forks at a glance, the table below is the one place in this article worth a table — because what it has to align is three columns ("what the other person provides," "which mechanism it maps to," and "what is most easily missed"), and laying them side by side is clearer than spelling each out in prose:

What the other person provides	Mapped mechanism	Most easily missed
Completed technology, code, patents	Technical contribution (技術出資) or IP assignment + consideration	Valuation basis, tax timing, rights-transfer documents
Ongoing future development labor	Labor contribution (勞務出資, Close Company only) or equity incentive	Ratio cap, vesting, handling an early departure
A mix of both	Split them and handle separately	Talk about them as one bundle and the paperwork will never be clear

Why one verbal promise becomes three debts

To explain this fully, go back to "what does a single 'we'll give you technical shares' actually owe?" On the surface you only promised shares; in reality you simultaneously touched three independent domains, each with its own due date.

The paperwork debt is the most direct. Shares with no consideration document leave it forever unclear whether they were an incentive, a contribution, or a gift — and those three have completely different tax and legal effects. A common misconception is "technical shares are just a thank-you, sending a few shares his way." The problem is that "sending" is itself a taxable event, and once the document is missing, the origin of those shares can never be explained again. Every share should have a traceable origin. That is not formalism; it is the only basis anyone will ever have for understanding the cap table later.

The tax debt is the most invisible, because it does not pop up at the time to remind you. Exchanging technology for shares, or "gifting" shares to someone, can both trigger tax in specific circumstances; the fact that no one calculated or reported it at the time does not make the tax disappear — it just defers it into a problem no one can later explain. This is why "the valuation is whatever the insiders agree on" is a dangerous idea: valuation (作價) does not just affect things between the two of you. It affects whether the company's stated capital is real, it affects tax, and it affects whether a later-arriving investor trusts the whole cap table — a number agreed among insiders will not survive outside due diligence.

The technology-ownership debt is the one most often assumed already solved. Many founders think "he built it for the company, so of course it belongs to the company." But unless the copyright or patent has been formally assigned to the company in black and white, the law may well leave that result in the individual's hands. When an investor's due diligence discovers that the company's core technology — the thing it lives on — is not actually held in the company's name, that single cell is enough to stall an entire round.

There is one more misconception worth pulling out on its own: "using labor contribution means you do not have to pay a salary." This conflates two things. Labor contribution (勞務出資) settles the matter of "exchanging future labor for equity consideration." It does not replace the employment relationship — whether someone is an employee of the company, and whether they get a salary and labor and health insurance, is a labor-law question, on a separate track from how much equity they exchanged labor for. Bundle the two together and you tend to get labor-law and tax problems surfacing at the same time.

How investors spot the flaw in due diligence

Switch to the investor's point of view, and how this arrangement gets examined is actually quite consistent. In due diligence, they broadly ask only three things: whether the technology rights are already fully assigned to the company, whether the consideration for acquiring the equity has matching documents, and how a contributor's equity and technology licensing would be handled if they ever left.

The sharpest red flag is "shareholding percentage that does not match the contribution record." That is, someone holds, on paper, more shares than their actual cash contribution or verifiable consideration would justify — and if the explanation for that excess is technical shares, but they cannot produce a valuation basis or an assignment document, the investor puts a question mark on two things at once: whether the equity structure is clean, and whether the company's IP is actually in the company's hands. A single arrangement that cannot be explained detonates both the equity risk and the technology risk — which is exactly why arrangements like this, sitting at the intersection of equity and technology, law and tax, are especially prone to blowing up in investor due diligence.

It is worth stressing that there is no universal hard threshold here — no "technical shares cannot exceed X percent" rule to copy. Whether a ratio is reasonable depends on the technology's actual contribution to the company, the valuation basis, and whether the other shareholders accept it, all of which vary case by case. What an investor is really looking at is not a particular number, but whether there is defensible paperwork and logic standing behind that number.

The judgment to take away

If this article leaves you with one thing, let it be this: before you say "we'll give you technical shares," stop and classify. Lay out every "non-cash for equity" arrangement in the company and write it down — what the person gave, how much they took, whether there is a document, whether the IP was transferred. Where a document is missing, fill it in early; where the mechanism is unclear, first translate it into one of technical contribution (技術出資), labor contribution (勞務出資), or a conditional equity incentive, then have a lawyer and accountant confirm the valuation, the tax, and the articles-of-incorporation requirements.

Conversely, the thing most worth avoiding is verbally promising "we'll give you a few percent in technical shares" before you have thought the mechanism through. A verbal promise gets remembered — and everyone remembers a different version. By the time it has to become a document, or an investor asks about it, that vague early goodwill is often the hardest knot to untie. Translate first, then sign: the little extra time you spend now is what buys you out of spending ten times the effort later explaining a cap table that does not add up.

For more equity fundamentals, read on with How to read a cap table, and why investors care (a cap table is the capitalization table recording who holds how many shares and options).

Sources

• Company Act (Laws & Regulations Database, Republic of China / Taiwan)
• Close Company Limited by Shares section (Department of Commerce, Ministry of Economic Affairs)

This article cites external material for general educational reference; Taiwan's laws and tax treatment apply case by case, and formal arrangements should be confirmed separately with a qualified professional.

Further Reading

• Founder learning path
• Company & Equity Basics
• How to read a cap table, and why investors care
• Investment decisions and terms