Solicitor (England & Wales), Warsaw, Poland
The Commercial Code of 1934 (as amended) (‘the CC’), the respected hallmark of Poland’s pre-war legislation was not abrogated during the Communist period. As of 1 January 2001 it has been replaced by the Code on Commercial Companies (‘the Code’) which was passed by the Sejm, the lower house of Parliament, on 15 September 2000 (Official Journal of Laws of 2000, No. 94, Item 1037).
The CC has been long overdue for an overhaul to meet modern commercial conditions, but for practical reasons it was decided to draw up a new code. It has almost twice as many articles and sub-paragraphs as the CC. The legislation introduces significant changes to the present provisions on limited liability and joint stock companies (the two company types allowed for foreign investors under the CC).
New Types Of Companies
The greatest number of changes and new requirements have been made in the case of joint stock companies. The Code provides for two new types of companies which are allowed only to Polish citizens:
- partnership companies for persons authorised to practise certain professions; and
- limited joint stock companies to facilitate the expansion of small and medium-sized businesses.
In addition to expanding the legal provisions necessary for modern market conditions, the Code also adjusts Polish company law to EU standards as required by the Europe Agreement. Together with new Law on Economic Activity (Official Journal of Laws of 1999, No. 101, item 1178) and an amended Civil Code the new year sees equal legal treatment of both businesses and companies.
Initial Capital Requirements Increased
To increase the security of commercial transactions it will no longer be possible to establish a limited liability company with a minimum initial share capital of PLN 4,000 (about US$ 880) and with each share at a minimum of PLN 50, as allowed by the CC. The minimum initial capital under the new Code is much higher at PLN 50,000 (about US$ 11,111) with a minimum of PLN 500 per share. Limited liability companies registered under the CC have two phase period for meeting the new capital requirements:
- in three years to a minimum of PLN 25,000 with the value of each share to PLN 500; and
- within five years to a minimum of PLN 50,000.
The minimum initial joint stock company capital of PLN 100,000 is increased to PLN 500,000 under the Code, with a similar two phase schedule for meeting the new capital requirements:
- in three years to a minimum of PLN 250,000; and
- in five years to a minimum of PLN 500,000.
Two new methods of increasing capital
Under the Code it is possible to increase the initial capital by two new methods.
- In the case of a joint stock company, the articles of association may give the management board power to increase the initial capital (final capital amount) for a maximum period of three years, the power. This would avoid any blockage by a general meeting resolution against such an increase. However, the final amount thus increased cannot exceed three quarters of the initial capital on the day the authorisation was granted to the management board by the articles of association. This increase cannot cover authorisation for an increase of capital from the company’s own sources.
- The general meeting may pass a resolution allowing an increase in initial capital on condition that the shares be issued to:
- owners of convertible bonds or bonds with priority rights;
- employees; and
- members of the management or supervisory boards
in exchange for in-kind contributions consisting of debt to which they are entitled through rights acquired for share in profits of the company in question, or of a dependent company (a conditional increase of initial capital).
The nominal value of such a conditional increase of initial capital cannot exceed three-quarters of the initial capital at the time the resolution was passed.
Partnership Company (Spolka Partnerska)
This new type of company allows members of certain professions, such as lawyers, pharmacists, architects, auditors, insurance brokers, tax advisers, accountants, doctors, dental surgeons, veterinarians, notaries, nurses, midwifes, legal advisers, patent attorneys, appraisers and sworn translators to establish partnership companies as natural persons, in which a partner is not liable for the performance of duties by the other partners. This legal entity is modelled on the US limited liability partnership and the German partnerschaftsgesellschaft. As it does not have legal personality it is not subject to legislation on the taxation of legal persons. Each partner has the right separately to represent the company, even though there may be measures taken by the other partners to deprive him of this right arising important considerations, or based on the company statute.
Limited Joint Stock Partnership (Spolka Komandytowo – Akcyjna)
This other new type of legal entity is established for the purpose of conducting business under a business name, and is designed to facilitate Polish entrepreneurs gaining new sources of capital – a difficult matter under the CC. It will be particularly suitable for family owned, small and medium-sized business where the shareholders are active investors who would be subject to single personal taxation rather than to the regime of taxation of legal persons and then of dividends. At least one partner (komplementariusz) has unlimited liability for the obligations of the partnership. Also, at least one of the partners is a shareholder.
Its initial capital requirement is set at a minimum of PLN 50,000, with a supervisory board if the company has more than 25 shareholders. The provisions on limited partnerships contained in the Code (unless this section of the Code provides otherwise) apply to the partners in their relations with each other with third parties, while provisions on joint stock companies apply to remaining matters. A shareholder of the company may represent the company only under a relevant power of attorney.
Both in the case of these two new company types as well as in the case of other partnership companies allowed under the CC and under the Code, namely, the spolka jawna (registered partnership) and spolka komandytowa (limited partnership), which are significantly modified under the new provisions – the Code provides that the liability of the partner is subsidiary to the prior liability of the company. The liability of the company must first be exhausted before any resort to the remedy of personal liability.
Limited Liability Companies (Sp. Z O.O.)
The CC allows the establishment of a limited liability company only for commercial purposes. The Code expands the potential area of activity by providing that it may be established for any legally allowable purpose unless the Code provides otherwise.
A supervisory board or an audit board must be established if the company has an initial capital exceeding PLN 500,000 and more than 25 shareholders. Companies registered under the CC have three years to meet this requirement. All legal acts between the shareholders and the company must be performed by notarial deed.
The Code also clears up the controversy as to when a limited liability company is created. The Code states that its organisational form is created when the statute of the company is concluded but that it is only transformed into a company with legal personality on registration.
Joint Stock Companies (S.A.)
The most extensive changes are in the case of joint stock companies. It is possible for one person to establish a joint stock company as well as on the basis of particular laws but the CC allows this only in the case of the State Treasury. For the first time there are ‘mute’ shares which carry the right to dividends but not voting rights. Joint stock companies are no longer be permitted to grant loans, guarantees and similar instruments for the purchase of its shares.
Limited liability and joint stock companies (capital companies) registered under the CCode have three years from the date the Code comes into force to adjust their company articles, foundation acts or company statutes to the requirements of the Code. However, the rights of shareholders that were acquired before the Code came into force are maintained. The transitional provisions allow that for statutes of joint stock companies in which the State Treasury is a shareholder and which are concluded during the period to 31 December 2004, the State Treasury shares may have a privileged position of up to five votes for each share. The Code allows only two votes for each share in a joint stock company. This privileged position of the State Treasury will end, at the latest, when Poland becomes an EU member. It was argued that the elimination of such a privileged position would have hampered privatisation and the State Treasury would have lost control over some companies. Special provisions which differ from the CC and the new Code are maintained without limitation for such joint stock companies such as national investment funds, banks, brokerage houses, insurance companies, investment funds, etc.
Until now, a company of the limited liability type could be transformed into a joint stock type and vice versa. A registered partnership (spolka jawna) could also be transformed into a limited partnership (spolka komandytowa). Now, under the Code, every possible configuration is possible including the transformation of capital companies into ‘personal’ companies (spolka jawna, spolka partnerska, spolka komandytowa, spolka komandytowo-akcyjna ) and vice versa. A civil partnership (spolka cywilna) can also be transformed into a capital company without the need first to liquidate the former. The date of transformation is the day of registration and there is continuation of the activity of the entity being transformed by the new entity into which it has been transformed.
Transformations, Splits, Mergers And Acquisitions
Mergers and acquisition provisions as well as provisions on transformations were, in the CC often insufficient to protect the rights of shareholders, particularly minority shareholders, and sometimes led to faulty transformations and mergers. The provisions in the new Code are based on the requirements of EU directives. In line with the provisions of the EU Directive 6, company splits are now facilitated without the need for employee dismissals and liquidation proceedings. Each company (limited liability and joint stock types) can be split into two or more companies. The process is similar to a reverse merger. A joint stock company cannot be split if its initial capital has not been paid up in its entirety. ‘Personal’ companies cannot be split, and neither can companies that are undergoing liquidation, that have commenced an assets division or are bankrupt. It is possible to proceed with a split whilst guaranteeing legal continuity.
Varieties Of Company May Merge
One of the most important changes in the new Code eliminates the restriction limiting mergers to companies of the same legal type. Joint stock companies may be merged with limited liability companies and capital companies may be merged with the ‘personal’, with the latter also being able to merge between themselves as long as a new company is formed. This new flexibility will help companies find new capital and assist weaker ones to avoid liquidation. However, merging will not be possible for a company already undergoing liquidation or that has started dividing its assets or has been declared bankrupt.
In addition to shares in the new, merged company, the owners of the entity now merged into it or shareholders of companies being merged may receive cash payments not exceeding a combined ten per cent of balance sheet value of those shares allotted to shareholders in the bidding company, or in the new merged company.
Rights And Obligations
The new Code requires that the bidding company or the new merged company assume all the rights and obligations of the target company, or of the companies being merged, before the new merged company is established. This includes permits, licences and tax abatement or relief unless the law or decision that granted these rights provides otherwise. This provision does not, however, apply to permits and licenses granted to a company that is a financial institution, where the organ that granted the permit or licence has given notice of opposition to such transfer within three weeks of its being notified of the merger plan. One of the merging companies should notify the relevant organ not later than in the course of two weeks from the date of announcement of the merger plan.
In contrast with the CC, the Code requires the preparation of a merger plan in case of a merger of capital companies which must be submitted to the relevant court registry. This must not be later than six weeks before the date of the first resolution of shareholders (or the general meeting of each of the merging companies) that is undertaken with a majority of three-quarters of the votes cast and that represents at least half the initial capital – unless the company articles have stricter requirements. Where publicly listed companies merge, the votes of the general meeting of each of the merging companies must constitute a majority of two-thirds of the votes cast, without any requirements as to the amount of capital such votes must represent. Here, too, the articles of the company may have stricter requirements.
A merger is deemed to take place on the day it is recorded in the register of the registry court of jurisdiction for the seat of the bidding company or of the new company. There is a special requirement where the seats of the companies are in different places. The registry court of jurisdiction of the bidding company or the new company must, without delay, notify the registry court of jurisdiction of the target company or of the companies merged of its decision to record the merger, before the new company has been established. The registry court thus notified makes the appropriate deletion from its register.
The new Commercial Companies Code is a comprehensive piece of legislation that in large measure draws on European company experience and requirements of EU directives. Issues that were inadequately dealt with under the 1934 Commercial Code, or those that required court resolution, are now handled with clarity and precision. This is particularly true of company transformations, splits and mergers and acquisitions. The addition of two new types of ‘personal’ companies and the expansion and modernisation of provisions regarding limited liability and joint stock companies will facilitate and stimulate further business and commercial activity in a country which has now had a decade of successful transformation into a modern market economy.
First published in Eastern European Newsletter, Issue 35, November 2000, CCH New Law, UK
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.