The Polish Commercial Companies Code has been recently subject to several amendments. For instance, the recent reforms provided for internet registration of a limited liability company (LLC) as well as enabled transformation of individual commercial activity into LLC (Polish: spółka z ograniczoną odpowiedzialnością) or a joint stock company (Polish: spółka akcyjna). Share capital reform During 2011, there was a lot of discussion about another reform of Polish corporate law. The Polish Civil Law Codifying Commission is working on a project that aims to enable formation of new shareholding models in Polish LLCs. The proposed amendments provide for a number of regulations derived mainly from common law (e.g. the USA or the UK), but also from regulations present in several civil law states e.g. in the Netherlands. If the new law is adopted there will be three models in which LLC could be formed:
- LLC as it currently is, in which shares have nominal value (minimum share capital amount will be decreased to PLN 1);
- LLC with shares having no nominal value (no share capital exists); and
- Mixed model allowing both types of shares.
In the proposed new model of “LLC” (point “2” above), no minimum share capital amount is required to form a company. The shares have no nominal value and there is no minimum price for which such shares may be subscribed for. The contributions invested in the company are accumulated as a separate balance sheet item and may be repaid as part of dividends. The absence of a share capital in the new LLC model will help avoiding a number of formalities currently required when restructuring the share capital structure of LLC (e.g. announcement summoning LLC’s creditors for lodging their objections to the share capital decrease, etc.). As a result, the company’s shareholders will have greater flexibility in retrieving the funds they have invested in the company. The project also contemplates greater protections for the creditors of such a company, e.g.:
- an obligation to form reserves from profit for covering future losses (currently it is required only in a joint stock company); and
- the so called “solvency test” (prior to paying a dividend, the company’s Management Board will need to confirm that the payment will not lead to the company’s insolvency in the coming financial year).
It is worth noting that the project does not require current LLCs to make any adjustments to their share capital structure. It is thus neutral from the perspective of the companies already formed. Lots of criticism against the project – is it justified? The project has been widely criticized. Apart from making many detailed comments, the critics of the project made a general claim that the reform will blur the differences between partnerships and capital companies. It was also argued that the introduction of the new type of LLC would create the opportunity to “buy” limited liability for virtually nothing. In my opinion, although certain arguments criticizing details of the project seem reasonable, the argument mentioned above is not correct. The minimum share capital of an LLC is currently set at a very low level of PLN 5,000 (slightly over EUR 1,190) and, on its own, does not currently provide any actual guarantee for the company’s future creditors. Also, apart from the minimum share capital, there are other significant differences between Polish partnerships and capital companies. For example, a partner in a partnership bears liability for the partnership’s debts and cannot sell a portion of his interest in such an entity (only the entire rights and obligations of a partner may be transferred), not to mention important tax differences. As mentioned above, the project is not flawless, but it does not ruin the foundations of the Polish corporate legal system, which some of the critics seem to suggest. At the same time, the project provides for many interesting changes that could improve current regulations. What’s the reform status? Although it seemed that due to the criticism the works on the project slowed down, we have found out that it will most likely be delivered to the Minister of Justice in May 2012. Andrzej Tropaczyński is a qualified attorney with over ten years of experience advising business clients in Poland (including almost nine years at Linklaters Warsaw). Andrzej specialises in corporate law, M&A, contracts and commercial litigation. You will find more details about Andrzej at www.atlegal.pl.