Corporate / M&A

Poland: Proposed Amendments Concerning Limited Liability Companies

The author highlights proposed amendments concerning limited liability companies in Poland (Amendments), which are to be implemented in early 2015. In the current shape, the proposed solutions go in the right direction. However, from a business perspective, they will not revolutionise how limited liability companies in Poland function.

Ownership structure in limited liability companies

The new reg­u­la­tion of lim­it­ed lia­bil­i­ty com­pa­nies intro­duces more flex­i­bil­i­ty, par­tic­u­lar­ly with regard to own­er­ship struc­ture.

Shares with no spec­i­fied nom­i­nal val­ue

Cur­rent­ly, in lim­it­ed lia­bil­i­ty com­pa­nies the nom­i­nal val­ue of shares may not be below PLN 50. To achieve more flex­i­bil­i­ty in own­er­ship struc­tures and ensure more free­dom in invest­ing in lim­it­ed lia­bil­i­ty com­pa­nies, a new con­struc­tion of shares with no spec­i­fied nom­i­nal val­ue will be imple­ment­ed under the Amend­ments, as an alter­na­tive to the cur­rent tra­di­tion­al mod­el of reg­is­tered cap­i­tal divid­ed into shares with a spec­i­fied nom­i­nal val­ue.

Non-nom­i­nal shares are not being divid­ed into a nom­i­nal val­ue, and share­hold­ers will decide on the amount of non-nom­i­nal cap­i­tal and the terms of vest­ing non-nom­i­nal shares. The price for these shares will be deter­mined in the arti­cles of asso­ci­a­tion of the lim­it­ed lia­bil­i­ty com­pa­ny.

Note that rights and oblig­a­tions aris­ing from both types of shares will be equal to share­hold­ers of a lim­it­ed lia­bil­i­ty com­pa­ny, irre­spec­tive of whether share­hold­ers own tra­di­tion­al or non-nom­i­nal shares.

Cap­i­tal

With respect to the insti­tu­tion of cap­i­tal of a lim­it­ed lia­bil­i­ty com­pa­ny, it is being con­sid­ered to intro­duce new solu­tions and types of cap­i­tal.

First, reg­is­tered cap­i­tal in a lim­it­ed lia­bil­i­ty com­pa­ny will not be oblig­a­tory. If, how­ev­er, share­hold­ers decid­ed to form reg­is­tered cap­i­tal, under the Amend­ments the min­i­mum reg­is­tered cap­i­tal of the lim­it­ed lia­bil­i­ty com­pa­ny will be low­ered from PLN 5,000 to PLN 1.

Sec­ond, share­hold­ers of lim­it­ed lia­bil­i­ty com­pa­nies will be allowed to con­duct busi­ness activ­i­ties on the basis of one of the fol­low­ing mod­els: (i) tra­di­tion­al reg­is­tered cap­i­tal with a min­i­mum amount of PLN 1, (ii) alter­na­tive share cap­i­tal (based on shares with no spec­i­fied nom­i­nal val­ue) or (iii) mixed mod­el (ie, both tra­di­tion­al reg­is­tered shares and shares with no spec­i­fied nom­i­nal val­ue).

From a prac­ti­cal per­spec­tive, the mixed mod­el of cap­i­tal is effec­tive for exist­ing lim­it­ed lia­bil­i­ty com­pa­nies; share­hold­ers would need to amend the arti­cles of asso­ci­a­tion to enable issuance of non-nom­i­nal shares.

Protection of creditors: Truth or myth?

Sol­ven­cy test

The Amend­ments pro­vide for a sol­ven­cy test, applic­a­ble also for exist­ing lim­it­ed lia­bil­i­ty com­pa­nies. Each time before pay­ing out div­i­dends to share­hold­ers, the man­age­ment board of a lim­it­ed lia­bil­i­ty com­pa­ny must con­firm by way of res­o­lu­tion that pay­ing div­i­dends would not, with­in a year from mak­ing the pay­ment, influ­ence the lim­it­ed lia­bil­i­ty company’s abil­i­ty to ful­fill its oblig­a­tions. Such res­o­lu­tion must be filed with a reg­istry court with­in sev­en days from its adop­tion.

From a legal per­spec­tive, the sol­ven­cy test is only a dec­la­ra­tion of the will of the man­age­ment board; from a busi­ness per­spec­tive, it is a fore­cast by the man­age­ment board. Tak­ing the above into con­sid­er­a­tion, a sol­ven­cy test can­not be regard­ed as a direct guar­an­tee for cred­i­tors, affil­i­at­ed enti­ties or third par­ties who are not share­hold­ers. There­fore, the prac­ti­cal impor­tance of this oblig­a­tion is doubt­ful for cred­i­tors of lim­it­ed lia­bil­i­ty com­pa­nies.

Sup­ple­men­tary cap­i­tal

Also, lim­it­ed lia­bil­i­ty com­pa­nies, con­trary to cur­rent reg­u­la­tions, would be oblig­ed to cre­ate sup­ple­men­tary cap­i­tal, of which a cer­tain amount would have to be trans­ferred annu­al­ly from the prof­its. The amount of the sup­ple­men­tary cap­i­tal is pro­posed at a lev­el of 5% from a total lim­it­ed lia­bil­i­ty company’s oblig­a­tions, but not low­er than PLN 50,000.

The above oblig­a­tion would apply only to lim­it­ed lia­bil­i­ty com­pa­nies that gen­er­ate prof­its, so lim­it­ed lia­bil­i­ty com­pa­nies that do not show a prof­it need not cre­ate sup­ple­men­tary cap­i­tal.

Also, under the Amend­ments, the method of cov­er­ing future loss­es from the sup­ple­men­tary cap­i­tal will be put in a hier­ar­chy. In the first place, a lim­it­ed lia­bil­i­ty com­pa­ny must use so-called free mea­sures (prof­it for the last finan­cial year, non-divid­ed prof­its from pre­vi­ous years), then the free part of sup­ple­men­tary cap­i­tal and final­ly mea­sures from shares or reg­is­tered cap­i­tal.

Oblig­a­tory sup­ple­men­tary cap­i­tal in lim­it­ed lia­bil­i­ty com­pa­nies is a step in the right direc­tion. But the Amend­ments do not pro­vide direct legal mea­sures for sit­u­a­tions where sup­ple­men­tary cap­i­tal is not cre­at­ed.

From a legal perspective, the solvency test is only a declaration of the will of the management board; from a business perspective, it is a forecast by the management board.