Legislative Framework
Forms of Business Organization
Foreign Investors
National Court Register
Polish commercial law was largely shaped by the economic reforms initiated in 1996, pursuant to which relevant regulations were enacted and took effect on January 1 2001. These regulations are collectively known as the 'commercial law constitution' and include:
- the Commercial Companies Code of September 15 2000, superseding the Commercial Code of 1934;
- the Law on the National Court Register and the Law on Implementing the Law on the National Court Register of August 20 1997, superseding previous regulations; and
- the Law on Commercial Activity of November 19 1999, superseding the Law on Commercial Activity 1988 and the Law on Companies with Foreign Shareholdings of June 14 1991 (the latter, in particular, proved problematic for foreign investors).
Forms of Business Organization
Changes introduced by the Commercial Companies Code comprised part of a process of harmonizing Polish and EU law, and constituted an attempt to tailor domestic legal structures to those used in more economically advanced countries.
Generally, two types of corporate form are available under the Commercial Companies Code: (i) companies limited by shares (ie, corporations, joint stock companies and limited liability companies), and (ii) partnerships (ie, registered partnerships, limited partnerships, professional limited partnerships and limited joint stock partnerships).
Companies limited by shares
Joint stock and limited liability companies both have the status of a legal entity with pre-determined capital divided into shares. The liability of shareholders is limited only to the amount of their share capital investments. The popularity of such forms thus lies both in the limitation of investment risk and in the fact that shares are easily transferable.
Joint stock companies
A Polish joint stock company is used for projects involving either a relatively large capitalization or a public offering of securities. This form accommodates complex capital structures and is required in certain regulated areas such as banking and insurance.
The minimum capital for a joint stock company is PLN500,000. Incorporation is straightforward and the company is formed by one or more parties. However, a joint stock company cannot be formed by a sole shareholder that is a one-member limited liability company.
An increase in share capital can be achieved by either conditional or specified target capital, and is effected by way of subscription, which may be open, closed or private, depending on the recipients of the offer to subscribe. The legislation allows for an increase of share capital from the company's own funds, and for the management board to increase share capital within the limits set.
Corporations
A Polish corporation has three bodies:
- a general shareholders meeting;
- a management board; and
- a supervisory board.
Unless the company's charter document provides otherwise, the management board must include at least one member, to be appointed for no more than five years and dismissed by the supervisory board. It manages the company's ongoing business and represents the company in all business activities. Usually, representation requires joint action by two members of the management board or by a single member and a proxy. Resolutions of the management board are adopted by an absolute majority of votes.
The supervisory board comprises at least three members who are appointed and dismissed by the shareholders meeting. Special duties of the board include evaluating the annual management board report on the company's operations and finances, and making resolutions on the distribution of profits and losses.
For most investors, the merits of choosing a joint stock company include:
- protection for minority investors (although this may be a disadvantage for a majority shareholder);
- the mandatory annual auditing of accounts; and
- the control and supervision available to shareholders through the functions of the supervisory board as mandated by the Commercial Companies Code.
Limited liability companies
Generally, a Polish limited liability company is appropriate for entities with a small number of shareholders and low capital requirements. Most of its internal governance provisions are less restrictive than those of a joint stock company. This is consistent with the intention to make the limited liability company a more appropriate choice for closely held, private entities.
The Commercial Companies Code provides that a limited liability company may be formed for all legal purposes and not for purely economic purposes, as was previously the case. The required minimum capital is PLN 50,000 with a minimum nominal value per share of PLN500.
The management board is the only mandatory body of a limited liability company. A supervisory board or audit committee is required only in companies with more than 25 shareholders and share capital exceeding PLN500,000.
The scope of the management board's powers is wide; however, the consent of the shareholders meeting is required for
- the sale of an enterprise;
- the sale or acquisition of real estate;
- the sale of an organized part of an enterprise; and
- the sale or acquisition of a share in real property.
Significantly, shareholders' consent is required for any legal action that may result in an obligation the value of which twice exceeds the company's total share capital (unless the company's articles of association provide otherwise). This provision may invalidate transactions where failure to obtain the shareholders' consent was simply an oversight rather than an intention.
Partnerships
Under the Commercial Companies Code partnerships do not have the status of legal persons, although they may acquire rights in their own name (including the right to own real estate and other rights in rem) and incur obligations.
Unlike the shareholders of companies limited by shares, who are liable only to the extent of their share capital investments, the partners are personally liable for all of the partnership's obligations and liabilities.
Registered partnerships
Each partner in a registered partnership is liable for all of the partnership's obligations. However, a creditor may seek indemnification from a partner only when the partnership's assets are insufficient.
Limited partnerships
A limited partnership is one in which at least one partner (the general partner) has limited liability towards creditors for the obligations of the partnership, and the liability of at least one other partner (the limited partner) is limited to a sum which is specified in the partnership documents. The limited partner is also exempt from liability even with regard to the specified sum, to the extent of his or her financial contribution to the partnership.
Professional limited partnership and limited joint stock partnership
The Commercial Companies Code established the professional limited partnership and limited joint stock partnership.
The professional limited partnership is based on the US model and is intended only for freelance professions listed in the code. The reason for introducing this form of business association was to provide the freelance professions with a recognized position in the market in light of Poland's prospective accession to the European Union.
The novelty of this form is that shareholder liability for obligations arising from the activities of another shareholder or the company's employees is limited and subject to the management of another shareholder. Further, the shareholders of a professional corporation may appoint a management board to conduct the company's business and to represent it externally.
In contrast, the structure of a joint stock limited partnership is based on the combination of a capital company and partnership. At least one member is a general partner and one is a shareholder. The latter is exempt from liability for the company's obligations, but is also denied the possibility of conducting the company's business. It may represent the company only as an attorney-in-fact.
Incorporation
The incorporation of any of the aforementioned companies or partnerships requires submission of the relevant documentation in Polish and, except for registered partnerships, execution before a Polish notary. Documents are submitted to the registry court, where a judge confirms entry in the National Court Register.
Dominant company
The Commercial Companies Code defines a 'dominant' company as a commercial entity that:
- controls a majority of votes in the governing bodies of another company;
- is entitled to appoint or dismiss a majority of members of the management or supervisory board of another company (including by virtue of agreements with third parties); or
- exerts a decisive influence on the operations and activities of the dependent company (eg, by virtue of management agreements with the dependent company).
Critically, a dominant company is obliged to notify the dependent company regarding a relationship of dominance within two weeks of the date when it occurs. In cases of non-compliance, the right of the dominant company to vote on more than one-third shares of the dependent company is suspended.
The Law on Commercial Activity created new possibilities for foreign companies to establish branches and open representative offices in Poland.
Branches
Relevant regulations are based on reciprocity rules, so that a Polish company must be able to enjoy the same legal possibilities in the home country of the foreign entity seeking to set up a branch in Poland. In addition, the foreign entity may conduct its business activities in Poland only to the extent provided for in its charter documents and only after registration in the National Court Register.
The Polish branch of the foreign entity must:
- use the name by which it is known in the country where it has its registered seat, together with a Polish translation of its legal status and the words 'branch in Poland' in Polish;
- keep separate account books in Polish; and
- report any changes in its circumstances to the Polish minister for the economy within 14 days of their occurrence.
The foreign entity is liable for the obligations and liabilities contracted by its branch.
Representative offices
The opening of a representative office in Poland requires prior registration in a special register maintained by the minister for the economy. An entry is made upon review of an opinion issued by a relevant minister with regard to the nature of the foreign entity's business activities and its written application (to be submitted in Polish).
Representative offices may only conduct activities related to advertising, marketing and promotion of a foreign entity. They are treated as fully subordinate to the entity (ie, conducting its activities on behalf of and for the benefit of the entity). Hence, the foreign entity is fully liable for all obligations and liabilities undertaken by its representative office.
Neither branches nor representative offices have the status of legal entities. They are not independent with regard to proprietary rights and obligations. Moreover, they have the capacity neither to be a party to civil litigation, nor to be subject to arrangement or bankruptcy proceedings.
Pursuant to the Law on the National Court Register, the National Court Register comprises separate electronic registers for:
- enterprises, including commercial companies registered in existing registers;
- associations, social and professional organizations, and foundations (including public healthcare institutions); and
- insolvent debtors.
The National Court Register Act provides for trade security and transparency. All interested parties have access to data contained in the register and to registration files, including documents such as a company's corporate charter, amendments, specimen signatures of persons authorized to represent the company, and legal title to the premises on which a given company conducts its business activities.
For further information on this topic please contact Tomasz Dabrowski at SALANS D. Oleszczuk Kancelaria Prawnicza Sp.k. by telephone (+48 22 520 6300) or by fax (+48 22 520 6400) or by email ([email protected]).