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.