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Structure and process, legal regulation and consents


How are acquisitions and disposals of privately owned companies, businesses or assets structured in your jurisdiction? What might a typical transaction process involve and how long does it usually take?

To dispose of privately owned companies (which, in Poland, generally means a limited liability company or a joint-stock company), businesses or assets, a sale and purchase agreement is usually executed between the relevant parties. The entire transaction process may be broken down into the following stages:

  • concluding of a letter of intent or a framework agreement;
  • due diligence;
  • negotiations and drafting of transaction documentation;
  • closing (conclusion of the sale and purchase agreement or any ancillary agreements, or both); and
  • post-closing actions.

A frequently encountered model in Poland is to sign a framework or conditional agreement that defines the conditions that must be fulfilled before signing of the final agreement transferring ownership, such as, for example, obtaining permission for a concentration from the Polish competition watchdog or for an acquisition of real estate by a foreigner. After closing, the buyer is required to pay taxes due and, in order to disclose the changes made by the transaction, file the relevant motions with, inter alia, the National Court Register (NCR) and the Land and Mortgage Register. Additionally, following a share deal and acquisition of the shares, under the Commercial Companies Code, the buyer is obliged to notify the company of any change of shareholder and, if applicable, of the establishment of control by the buyer over the company. The length of the process of acquiring a privately owned company, business or assets depends on the complexity of the issues and the number of parties involved. From our experience, owing to competitive pressure between the parties involved, transactions based on an auction process with multiple potential buyers are usually more effective and shorter.

Legal regulation

Which laws regulate private acquisitions and disposals in your jurisdiction? Must the acquisition of shares in a company, a business or assets be governed by local law?

Private acquisitions and disposals are mainly regulated by:

  • the Civil Code;
  • the Commercial Companies Code;
  • the Act on Competition and Consumer Protection;
  • the Act on Commercialisation and Certain Employee Rights;
  • the Labour Code;
  • the Act on Trade Unions;
  • the Act on Information and Consultation of Employees;
  • the Act on Acquisition of Real Estate by Foreigners; and
  • the Act on the National Court Register.

Under Polish law, the acquisition of shares in a company, a business or assets may be governed by any law chosen by the parties. However, there is some doubt among legal professionals and commentators whether this freedom in choice of law negates the effect of the mandatory provision of the Commercial Companies Code that provides that the disposal of shares in a Polish limited liability company must be made in written form with notarised signatures. A similar issue arises with respect to a transfer of shares of a Polish private joint-stock company (which are different depending on whether the company has registered or bearer shares). A transfer of registered shares must be made in writing by making a declaration on a share certificate or in a separate document, and requires delivery of the share certificate. The transfer of bearer shares does not require any specific form, and the shares are transferred by delivery of the share certificates. In asset deals, the sale of an enterprise must be made in written form with notarised signatures, but if the enterprise includes real estate located in Poland, the agreement must be made in the form of a notarial deed, regardless of the chosen law.

Legal title

What legal title to shares in a company, a business or assets does a buyer acquire? Is this legal title prescribed by law or can the level of assurance be negotiated by a buyer? Does legal title to shares in a company, a business or assets transfer automatically by operation of law? Is there a difference between legal and beneficial title?

Polish law does not distinguish between legal and beneficial title: a buyer may acquire only full legal title to shares or assets. Thus, it is not possible for the buyer to negotiate a level of assurance. It is crucial for the buyer to determine if the seller has legal title to shares in a company, a business or assets before entering into the transaction. A seller who has no legal title to shares cannot successfully transfer the shares to the buyer. Such legal defects occur, for example, when the shares being sold are encumbered by a right of pre-emption, the previous sale and purchase agreement failed to meet the legal form requirements (see question 2) or if the shares were created through a capital increase not entered in the NCR before the date of sale. It is also essential for the buyer to examine the pledge register to verify whether the shares or assets are subject to a registered pledge. If a registered pledge has been established and the pledge agreement prohibits the sale, the sale will be invalid unless the buyer did not know and could not have known of the prohibition. In the case of a transfer of real estate, a buyer can rely on the Land and Mortgage Register, according to which if the seller of the real estate is entered in the Land and Mortgage Register as the rightful owner, the seller may effectively transfer title to the real estate to a good-faith buyer, even if the seller is not in fact the rightful owner.

Multiple sellers

Specifically in relation to the acquisition or disposal of shares in a company, where there are multiple sellers, must everyone agree to sell for the buyer to acquire all shares? If not, how can minority sellers that refuse to sell be squeezed out or dragged along by a buyer?

Minority shareholders of limited liability companies may not be squeezed out. However, the articles of association of a limited liability company may provide for the possibility of a forced buy-back of shares in certain situations. In addition, shareholders holding more than half of the share capital may apply to the court for the expulsion of a minority shareholder (or shareholders, if allowed by the articles of association) with good cause. The shares of the expelled shareholder are taken over by the remaining shareholders or third parties for a fair market price as determined by the court.

Unless the articles of association provide more stringent requirements, minority shareholders of private joint-stock companies may be squeezed out if they hold no more than 5 per cent of the shares, the majority shareholders hold at least 95 per cent of the shares and there are no more than five majority shareholders each holding not less than 5 per cent of the shares. The milestone steps of this squeeze-out procedure are:

  • adoption of a squeeze-out resolution at a general shareholders’ meeting by a qualified majority of 95 per cent of the votes (one share, one vote principle): the general shareholders’ meeting may be held at any time subject to three weeks’ notice (two weeks’ notice if all issued shares are registered shares and the meeting may be called by registered mail or courier);
  • announcement of the squeeze-out resolution together with a call to deposit the share certificates of the squeezed-out shares with the company or a brokerage house;
  • valuation of the squeezed-out shares either by an expert appointed by the general shareholders’ meeting or the court (within the time period agreed with the company or set by the court) and announcement of the squeeze-out price;
  • deposit of the share certificates by the squeezed-out shareholders with the company or a brokerage house (within one month of the announcement of the squeeze-out resolution for those not present at the meeting);
  • payment of the squeeze-out price by the majority shareholders to the company within three weeks of the announcement of the squeeze-out price; and
  • transfer of share ownership and possession of the deposited share certificates to the majority shareholders and release by the company of the squeeze-out price to the minority shareholders: after the company receives the full purchase price (if the minority shareholders do not deposit all share certificates relating to the squeezed-out shares, the management board may cancel these share certificates and issue new ones in their place).

Exclusion of assets or liabilities

Specifically in relation to the acquisition or disposal of a business, are there any assets or liabilities that cannot be excluded from the transaction by agreement between the parties? Are there any consents commonly required to be obtained or notifications to be made in order to effect the transfer of assets or liabilities in a business transfer?

According to Polish contract law, a buyer may generally choose which assets or liabilities should be subject to the transaction. Nevertheless, if an asset deal entails a transfer of a work establishment, or an organised part of it, the employees assigned to the transferred assets are automatically transferred to the acquirer (article 23(1) of the Labour Code). A transferred employee may not refuse to work for the new employer, but has a right to terminate his or her employment agreement within two months of the transfer upon seven days’ advance notification. Moreover, unlike the buyer of specific assets who does not assume liability relating to the transferred assets, the buyer of an enterprise (the Polish Civil Code defines an enterprise as a set of tangible and intangible assets dedicated to a business activity) is subject to joint and several liability for the past operations of the enterprise unless the buyer was not aware of these obligations despite having exercised due care. This liability is subject to a statutory cap of the value of the acquired enterprise. Although it is standard practice to allocate liability differently in the sale and purchase agreement, such agreement is binding only between the parties and third parties continue to have recourse to both the seller and the buyer.

In transactions involving the transfer of assets or liabilities, it is necessary to obtain various types of approvals or permits, the lack of which may cause the entire transaction to be invalid. These include corporate approvals in the form of resolutions from specific corporate authorities (such as the shareholders’ meeting or the supervisory board), third-party consents to the transfer of obligations and approvals from relevant government authorities (eg, the Minister of the Interior and Administration or the Competition Authority; see question 6).


Are there any legal, regulatory or governmental restrictions on the transfer of shares in a company, a business or assets in your jurisdiction? Do transactions in particular industries require consent from specific regulators or a governmental body? Are transactions commonly subject to any public or national interest considerations?

Generally, the direct or indirect acquisition of real estate in Poland by foreigners (individuals, companies and partnerships), except those from the European Economic Area, requires a permit issued by the Minister of the Interior and Administration. A transaction is null and void if the required permit is not obtained prior to closing. The unrestricted transfer of agricultural land is allowed only to individual farmers or certain public entities. Transfer of such land to other entities is limited and requires a permit issued by the President of the Agricultural Property Agency. In the case of a share deal, the Agricultural Property Agency has a pre-emptive right over shares in companies that are owners of agricultural land, excluding shares admitted to trading on a regulated market and shares disposed of by the State Treasury.

Moreover, business combinations such as mergers, takeovers of direct or indirect control, joint-venture formations or acquisitions of assets that generate a turnover exceeding €10 million in Poland in any of the two financial years preceding the notification may be subject to notification and approval of the President of the Office of Competition and Consumer Protection (Competition Authority). A notification to the Competition Authority is compulsory only if at least one of the following conditions (subject to certain exceptions) is met:

  • the combined worldwide turnover of the capital groups of both parties to the transaction in the financial year preceding the year in which the notification is made exceeded €1 billion; or
  • the combined turnover of the capital groups of both parties to the transaction in Poland in the financial year preceding the year in which the notification is made exceeded €50 million.

Transaction completion prior to clearance or lack of notification, if it is required, may result in a fine of up to 10 per cent of the turnover in the financial year preceding the year in which the penalty is imposed.

In addition, new legislation aimed at protecting strategic Polish companies from hostile takeovers was introduced by the Polish parliament in the form of the Act on Controlling Specific Investments, dated 24 July 2015. The need for such regulations was recognised in 2012, after the Russian company Acron bid for the Polish chemicals conglomerate, Grupa Azoty. The Act obliges investors to notify Poland’s Minister of Energy or Prime Minister of their intention to buy shares in a strategic company. The relevant authority then has 90 days to either allow or block the deal. The list of strategic companies has been determined by the Council of Ministers with an ordinance dated 13 January 2017, and includes 30 Polish companies in the energy, oil, gas, fuel and chemical sectors.

Are any other third-party consents commonly required?

Apart from mandatory provisions of law and approvals from relevant government authorities, the articles of association of a company may impose additional restrictions on transactions such as requirements for shareholder approval for share transfers or asset transactions above a certain value. Transactions carried out in breach of the articles of association are valid, but the management board members may be held liable for such breach.

It should be also kept in mind that transfer of an enterprise does not entail a universal succession of rights and liabilities related to the enterprise, therefore contractual liabilities connected with the transferred enterprise do not automatically transfer. As a result, if a transaction involving an enterprise includes contracts, effective transfer of the obligations arising under those contracts requires the consent of the other party under each contract.

Moreover, in the case of transactions involving individuals, if a party to the transaction (either the seller or the buyer) is married, the subject of the transaction or the funds applied to the purchase price are part of the joint marital assets of the party and his or her spouse, it is advisable to obtain consent from the spouse. Otherwise, in the case of an asset deal involving an enterprise or real estate property, under the Polish Family and Guardianship Code, the lack of spousal consent may result in the invalidity of the transaction, and, in a share deal, may impede or prevent satisfying claims out of the joint assets of spouses.

Regulatory filings

Must regulatory filings be made or registration fees paid to acquire shares in a company, a business or assets in your jurisdiction?

Share purchases of private companies as well as mergers and divisions of companies should be registered in the NCR. Mergers and divisions become effective upon registration, whereas share transfers are effective irrespective of registration. In the case of an asset deal involving real estate, changes in real estate ownership and perpetual usufruct are subject to registration in the Land and Mortgage Register. The transfer of real estate ownership occurs when a notarial deed is signed, whereas the transfer of perpetual usufruct occurs upon the registration of the transfer in the Land and Mortgage Register. Registrations are subject to court and registration fees of usually nominal amounts.

Advisers, negotiation and documentation

Appointed advisers

In addition to external lawyers, which advisers might a buyer or a seller customarily appoint to assist with a transaction? Are there any typical terms of appointment of such advisers?

The parties usually appoint financial advisers when it comes to the valuation of assets or a business. Accountants and tax advisers assist with the accounting aspects of the transaction and advise on the tax diligence and structure. Although there are no typical terms of appointment of such advisers, in large value transactions it is a market standard to have a clause on the appointment of an expert auditor from one of the leading big four firms in the accounting and consulting industry in the case of any appraisal-related dispute.

In the case of a sale of a privately owned medium or large business, the owners often appoint transaction advisers who, for a percentage of the final purchase price, undertake to prepare the company for sale, coordinate the transaction process and provide as many bidders as possible. The fee of transaction advisers often depends on the size of the contemplated transaction.

Duty of good faith

Is there a duty to negotiate in good faith? Are the parties subject to any other duties when negotiating a transaction?

Although in Poland business negotiations are subject to conditions agreed to by the parties, Polish law does impose a general duty to negotiate in good faith. In accordance with the provisions of the Civil Code, the party that started or carried on negotiations infringing good customs, particularly without an intention to conclude a contract, will be obligated to redress the damage that the other party suffered due to the fact that such party was counting on the contract being executed. Moreover, under the Commercial Companies Code, in the performance of their duties, board members must ‘exercise due diligence proper for the professional nature of their actions’.


What documentation do buyers and sellers customarily enter into when acquiring shares or a business or assets? Are there differences between the documents used for acquiring shares as opposed to a business or assets?

The sale of shares in capital companies is not, in principle, a complex process. It is associated with a price establishment by the parties, the conclusion of a contract and a corresponding entry in the NCR. However, in large value transactions or transactions where taking over the whole company is concerned, the transaction process itself and the preparation for it are more complex. Prior to the transaction, the parties may want to first negotiate and conclude documents that procure confidentiality or define the most important aspects of the transaction structure, or both, such as confidentiality agreements, non-disclosure agreements, letters of intent and term sheets. The document setting out the terms of a transaction - namely, the sale and purchase agreement - will not be substantially different whether shares, a business or assets will be acquired, with the exception of the legal form. The sale and purchase agreement of a Polish company’s shares must be made in written form with notarised signatures, and in an asset deal, where real estate is transferred, the sale and purchase agreement must be made in the form of a notarial deed. Moreover, in the case of a transfer of registered shares of a private joint-stock company, documents to transfer the title to shares will be involved. The transfer of registered shares must be made in writing, by making a declaration on a share certificate or in a separate document, and requires delivery of the share certificate. The transfer of bearer shares does not require any additional documents: the shares are transferred by delivery of the share certificates. Often, the sale and purchase agreement will be accompanied by conclusion of an agreement governing the future cooperation of the parties, for example, a transition services agreement or shareholders’ agreement.

Are there formalities for executing documents? Are digital signatures enforceable?

Formalities for executing documents apply in the case of a sale of business that includes real estate (the sale and purchase agreement must be made in the form of a notarial deed) and in the case of a share deal for shares in a Polish company (the share sale and purchase agreement must be made in written form with notarised signatures).

Digital signatures that are in compliance with Polish law provisions (meaning declarations of intent provided with a qualified electronic signature) are equivalent to a handwritten signature. Therefore, digital signatures are valid only in the case of agreements that must be made in writing but where there is no requirement of a special form of a given document (like the execution of a notarial deed or of a document with notarised signatures).

Electronic signatures are in Poland valid under Regulation (EU) No. 910/2014 of the European Parliament and of the Council of 23 July 2014 on electronic identification and trust services for electronic transactions in the internal market (eIDAS Regulation). The implementation of the eIDAS Regulation was carried out through the repealing of the Act on the Electronic Signature of 18 September 2001 and the introduction of the Act on Trust Services and Electronic Identification of 5 September 2016, which determines the national trust infrastructure, the activity of trust service providers, methods of notification to the national electronic identification system and supervision over trust service providers.

Due diligence and disclosure

Scope of due diligence

What is the typical scope of due diligence in your jurisdiction? Do sellers usually provide due diligence reports to prospective buyers? Can buyers usually rely on due diligence reports produced for the seller?

Due diligence provides the buyer with the opportunity to verify the legal, tax and financial position of a company, business or assets, and to evaluate the risks associated with a planned acquisition. Typically, due diligence in Poland is conducted by the buyer, but due diligence reports prepared by the seller (‘vendor’s due diligence reports’) are becoming increasingly common on the Polish market. In the case of a share deal, the following areas are usually covered in the due diligence process:

  • legal structure;
  • title to shares;
  • corporate governance and compliance;
  • finances;
  • material contracts and their transferability;
  • tangible and intangible assets;
  • intellectual property rights, pending and closed court proceedings;
  • tax issues;
  • employment arrangements; and
  • regulatory matters.

In asset deals, corporate matters are not scrutinised in such detail, as the legal title to the company’s shares is not the subject of the transaction. Moreover, in the case of real estate being the subject of transfer, the buyer can rely on the Land and Mortgage Register, according to which an unauthorised person who is entered into the Land and Mortgage Register can effectively transfer the title to the property to a buyer acting in a good faith, even if the seller is not in fact the rightful owner.

Liability for statements

Can a seller be liable for pre-contractual or misleading statements? Can any such liability be excluded by agreement between the parties?

Polish law imposes a general duty to negotiate in good faith (see question 10). Moreover, if, after the transaction, the buyer finds out that some of the pre-contractual seller’s statements are not true, this may constitute grounds for claiming that an agreement is voidable for defects of will provided for in the Civil Code that are a basis for withdrawal from agreements. Nevertheless, with exception to fraudulent misrepresentation, it is very common to exclude a seller’s liability for pre-contractual statements in sale and purchase agreements.

Publicly available information

What information is publicly available on private companies and their assets? What searches of such information might a buyer customarily carry out before entering into an agreement?

The corporate files of companies, including the articles of association, are kept in the NCR of the district court where the company has its registered office. As the NCR was established to provide the public with information concerning the legal situation of the registered entities, anyone has access to the registered entities’ corporate files and can obtain legalised extracts concerning data entered in the register. For limited liability and joint-stock companies, the NCR provides online information on the name, seat, management board, supervisory board, representation rules, value, and total number of shares and paid-in share capital of the company. For a limited liability company, the NCR also provides information on shareholders with a shareholding of over 10 per cent and, for joint-stock companies, information on the sole shareholder (if applicable). The legal status of a print-out electronic extract with the above-mentioned information has the same legal force as a sealed document obtained at the NCR. Details of the ownership of real property, mortgages and other encumbrances are available in the Land and Mortgage Register, which may also be reviewed online. Prior to a transaction, the buyer should file motions to the Polish Pledge Register and Central Register of Tax Liens in order to receive information about whether the shares or assets are subject to a pledge. Details of registered intellectual property can be obtained from the Polish Patent Office, which is Poland’s sole office for granting of patents for inventions, utility models, designs, registering of trademarks, topographies of integrated circuits and geographical indications.

From a tax perspective, both the local value added tax (VAT) number as well as the European VAT number (PL VAT) can be verified electronically so that the active VAT taxpayer status of the target can be checked.

Also, as of June 2018, the Polish Ministry of Finance has been publishing a list of the biggest taxpayers. Should the target company be on this list, information on its revenues, costs, income, tax base and tax due are publicly known.

On 13 July 2018, the Polish Anti-Money Laundering and Anti-Terrorist Financing Act (AML Act), dated 1 March 2018, came in to force and implemented Directive (EU) 2015/849 on the prevention of the use of the financial system for purposes of money laundering or terrorist financing. The AML Act introduces the Central Ultimate Beneficial Owner Register, which will be operational in Poland from 13 October 2019. Companies will need to provide to the register information on their ultimate beneficial owners within seven days from the moment of entering the company into the NCR or applying changes thereto. An ultimate beneficial owner under the AML Act is considered a natural or legal person, who directly or indirectly controls a company by holding rights that allows influence over the company. This means, in particular, a person: holding at least 25 per cent of shares; exercising at least 25 per cent of the votes in the managing body; and exercising control over a legal person or persons, who hold over 25 per cent of shares or votes. The register will be non-confidential and publicly accessible.

Impact of deemed or actual knowledge

What impact might a buyer’s actual or deemed knowledge have on claims it may seek to bring against a seller relating to a transaction?

Under Polish warranty law, the seller is liable to the buyer if an object being sold has a physical or legal defect. The buyer’s knowledge about the object of transaction when entering into a sale and purchase agreement is crucial in terms of any potential warranty claims against a seller. If the buyer knew about the defect in question, the seller is released from liability for a defect covered by a statutory warranty. It is assumed that the buyer agreed to buy the object for an agreed price based on knowledge gained prior to entering into agreement: for example, knowing that it is defective. It is important to note that this does not relate to what the buyer should have known or noticed, as a buyer is not obliged to examine the object sold, but to the buyer’s actual knowledge. The burden to prove the buyer’s knowledge lies on the seller. The parties may extend, limit or exclude the liability under a warranty; however, the exclusion or limitation of the liability under a warranty is ineffective if the seller fraudulently concealed the defect from the buyer.

Pricing, consideration and financing

Determing pricing

How is pricing customarily determined? Is the use of closing accounts or a locked-box structure more common?

There are no specific rules for determining a price; it is generally set by the contracting parties in accordance with the principle of freedom of contract. However, the purchase price should correspond with the market price of the shares or assets being sold, otherwise the parties risk a potential dispute with the tax authorities. Closing accounts and locked-boxes are most common in small and medium M&A transactions. Purchase price adjustment mechanisms are sometimes used in transactions where specific business factors may have an impact on the purchase price between the period of signing and closing.

Form of consideration

What form does consideration normally take? Is there any overriding obligation to pay multiple sellers the same consideration?

In the majority of Polish M&A transactions, cash is the most common form of consideration. Consideration for shares in companies may be paid not only by cash, but also via contributions in-kind or even property rights other than cash. In-kind contributions may consist of property rights that are transferable and that may be included in the balance sheet as assets. Unless as a part of the squeeze-out mechanism (see question 4), there is no obligation to pay multiple sellers the same consideration.

Earn-outs, deposits and escrows

Are earn-outs, deposits and escrows used?

The agreed-upon price by the parties is not always fixed; for example, it can also be calculated on the basis of specific financial mechanisms such as earn-outs. Earn-outs are used in Poland mostly in private equity transactions, in particular when, for an agreed period of time, the seller continues to manage the target company after closing. In contrast to escrow accounts, deposits are not common in Poland.

Escrows are used as protection against risks in an M&A transaction or litigation: funds are usually held in an escrow account and released after a contracted period and under contracted terms.

However, it has to be noted that Polish authorities have recently introduced legislation (Fraud Act) and digital systems allowing tax authorities to analyse banking systems, search for potential fraud, and block suspicious bank accounts. Effective as of 30 April 2018, the new rules may have an adverse effect on escrow accounts in Poland. The Fraud Act introduced a computerised clearing house system (the System) under which banks and credit unions are obliged to report information regarding the accounts they maintain (eg, openings, changes, and transactions) to the System on daily basis. Using algorithms that take into account risk criteria (eg, economic, geographical, behavioral, and business connections), the System calculates a risk ratio for each entity and passes that information on to the Head of the National Revenue Administration (the Head of the NRA), who may block a bank account if the analysis indicates that there is a risk that the account holder has committed or is about to commit fiscal fraud. A bank account can be blocked for a period of no longer than 72 hours from delivery of the Head of the NRA’s decision to the bank. The initial 72-hour blockage may be extended to three months should the Head of the NRA identify there is a risk that existing or future tax obligations of the account holder will not be performed. Although the decision is discretionary, it should be justified by past tax performance of the account holder, and, based on such performance, an assumption that the account holder may use the account for fraud-related purposes, and that the blockage of the account is necessary to counteract fraud. In order to mitigate the risk of blockage of the escrow account, companies should conduct a tax due diligence on the buyer (the escrow account holder) or insist the buyer to be a newly created company without any outstanding tax liabilities.


How are acquisitions financed? How is assurance provided that financing will be available?

In Poland, private M&A transactions are predominantly financed by banks and, to a lesser extent, by an investor’s equity. In most cases an establishment of security packages is required to arrange financing. Security over shares and assets is granted as security over property (in rem). Common security instruments include:

  • registered pledges;
  • financial pledges (which can be established only over cash or financial instruments);
  • mortgages;
  • civil law pledges (which can be established with respect to property and transferable rights such as shares, receivables and intellectual property rights);
  • assignments of receivables;
  • subordinations (giving a bank the priority of its claims; ineffective in the case of bankruptcy); and
  • voluntary submission to enforcement and assignment of receivables.

Limitations on financing structure

Are there any limitations that impact the financing structure? Is a seller restricted from giving financial assistance to a buyer in connection with a transaction?

Prior to an amendment in 2008, the Commercial Companies Code generally prohibited a joint-stock company from providing financial assistance for the acquisition of or subscription for its own shares. Under current law, joint-stock companies are allowed to, directly or indirectly (eg, through subsidiaries), finance the acquisition of or subscription for their own shares, in particular by making loans, providing advance payments or creating security, provided that certain requirements are met. First and foremost, the financing has to be extended on market terms (in particular with regard to interest received by the company), and can be provided only if the debtor’s solvency is checked and confirmed. The financing is provided up to the limit of the company’s distributable reserves created for that purpose from the company’s net profit. Additionally, it is required, on pain of invalidity, for the financial assistance to be authorised in advance by a resolution of the company’s general shareholders’ meeting, after analysis of the report of the management board, which should set out:

  • the reasons for or the purpose of the financing;
  • the company’s interest in the financing;
  • the financing conditions;
  • the influence of financing on the risk for the company’s financial liquidity; and
  • the price at which the third party is to acquire or subscribe for the shares (together with a justification that it is a fair price).

To further secure the interests of the company’s creditors, the management board report has to be filed with the registry court and also made public. The above requirements do not apply, however, to the financial assistance made as part of the ordinary business of financial institutions or rendered to the employees of the joint-stock company that are aimed at facilitating acquisition of or subscription for its shares. In the case of a limited liability company, the limitations on financial assistance provided by the company are not that extensive, and are practically limited to one prohibition under the Commercial Companies Code, which does not allow the company to provide financing to shareholders out of funds necessary to cover its share capital.

Please also note that there are certain restrictions as to tax deductibility of interest that depend on the individual situation of a taxpayer. Therefore, it is possible that some part of interest due on acquisition loans or credits may not be tax deductible, whether or not it comes from a related or unrelated party.

Conditions, pre-closing covenants and termination rights

Closing conditions

Are transactions normally subject to closing conditions? Describe those closing conditions that are customarily acceptable to a seller and any other conditions a buyer may seek to include in the agreement.

Although signing and closing of a transaction can occur simultaneously (in cases where there are no regulatory obligations to satisfy beforehand), complex transactions are usually subject to closing conditions. In local transactions, closing conditions often include, among others:

  • the holding of all necessary corporate assemblies to validate the transaction;
  • delivery of all corporate and governmental and regulatory consents and permits for the transaction;
  • providing the buyer with all necessary current registry excerpts and tax certificates confirming that the seller has no tax arrears;
  • providing the buyer with financial statements, licences and permits to conduct the acquired business;
  • assigning to the buyer contracts of the seller and any intellectual property rights required to properly conduct the acquired business; and
  • the execution of additional transactional documents and agreements, such as a transitional services agreement.

What typical obligations are placed on a buyer or a seller to satisfy closing conditions? Does the strength of these obligations customarily vary depending on the subject matter of the condition?

The obligation of the party to consummate the transaction and enter into the final agreement is usually subject to fulfilment, prior to or upon completion, of the closing conditions, any one or more of which may be waived in whole or in part by the other party. It is a market standard to include a provision on undertaking ‘reasonable efforts’ by the party to ensure the satisfaction of the closing conditions. However, as the Competition Authority may issue a decision prohibiting the concentration of the businesses, parties to a transaction that is subject to a notification procedure must refrain from carrying out the transaction until issuance of an antitrust approval.

Pre-closing covenants

Are pre-closing covenants normally agreed by parties? If so, what is the usual scope of those covenants and the remedy for any breach?

Pre-closing covenants are increasingly common in Poland. They are used by parties to determine the obligations that must be satisfied before the transaction can be completed in order to ensure the smooth transition of the business. Among the pre-closing covenants the following can be distinguished:

  • granting the buyer access to information, books and company records;
  • not to decrease the share capital of the company or grant payments to shareholders;
  • not to encumber or in any way dispose of shares and assets;
  • not to make any changes in methods of financial accounting;
  • conducting business in a normal way, using reasonable best efforts;
  • not to terminate or modify, assign or waive specific agreements;
  • delivery of certain regulatory confirmations and certificates;
  • notification to the buyer of any matters that could have a material adverse effect on the transaction or cause any closing condition to be unfulfilled;
  • collection of third-party consents to the transfer of certain agreements, permits or decisions;
  • non-solicitation obligations;
  • non-competition obligations;
  • exclusivity obligations, and not entering into any discussions or negotiations concerning a possible acquisition proposal; and
  • confidentiality obligations.

A breach of pre-closing covenants may be a reason for a general claim for breach of contract or, if the parties decide so in the agreement, relevant reduction of the purchase price or even refusal to complete the transaction.

Termination rights

Can the parties typically terminate the transaction after signing? If so, in what circumstances?

Under Polish law, there is no typical distinction between signing and closing. A share or asset acquisition agreement can either be preliminary in nature and require the execution of a second final agreement transferring the shares or assets, or be final in nature and subject only to the fulfilment of conditions precedent (if any). In the first case, where there are two agreements, the conclusion of the first preliminary agreement may be referred to as the ‘signing’, and the conclusion of the second final agreement as ‘closing’. The preliminary agreement must specify the essential provisions of the final agreement and the period of time in which the final agreement shall be concluded. In preliminary agreements, the parties may freely decide on the circumstances under which it is possible to terminate a transaction after ‘signing’.

Are break-up fees and reverse break-up fees common in your jurisdiction? If so, what are the typical terms? Are there any applicable restrictions on paying break-up fees?

Break-up and reverse break-up fees are not common in Poland, but they are permissible as long as they are not excessive and do not breach generally applicable legal principles such as the principle of social co-existence. A break-up fee may be reduced by a court if it is found to be grossly excessive. In practice, the management board of the target company is unlikely to agree to pay a transactional break-up fee because it would be difficult for it to justify that this is in the best interests of the target.

Representations, warranties, indemnities and post-closing covenants

Scope of representations, warranties and indemnities

Does a seller typically give representations, warranties and indemnities to a buyer? If so, what is the usual scope of those representations, warranties and indemnities? Are there legal distinctions between representations, warranties and indemnities?

Representations and warranties are institutions of common law that are increasingly used in Polish transactional practice. However, as such clauses are not regulated in Polish law, employing such clauses may lead to some interpretational problems when it comes to determining their legal consequences. According to the prevailing opinion of professionals and commentators, the consequences of a breach of any representation or warranty is restricted to a claim for damages unless this is not expressly set out to the contrary in the agreement.

The usual scope of representations and warranties is generally unrestricted, as they can cover anything that is crucial for the transaction. In practice, the more limited the scope of the target’s due diligence, the more extensive is the list of representations and warranties.

Representations and warranties that are typically addressed include the following:

  • a seller’s capacity to enter into the purchase agreement;
  • no infringement of any provisions of law;
  • validity of contracts and administrative decisions by which the seller is bound in relation to the execution of the transaction;
  • title to the shares of the company and capability to dispose of them;
  • financial statements of the target;
  • no bankruptcy proceedings;
  • receivables and liabilities of the company;
  • real estate and key movables of the company and limited real rights;
  • legal title to assets, lack of encumbrances;
  • pending court proceedings against the target;
  • legal and administrative relations, including permits, licences, necessary consents required, intellectual property rights;
  • environmental aspects of the activity of the target, no breach of any provisions in reference to environment protection;
  • employment matters (pensions, social security contributions); and
  • taxation and no tax evasion.

In terms of indemnities, the seller is liable for any loss incurred by the buyer as a result of false representations and warranties; however, in transactional practice, there are situations when a party’s liability for submitted representations and warranties is limited (see question 28).

Limitations on liability

What are the customary limitations on a seller’s liability under a sale and purchase agreement?

The parties may agree that, regardless of the number of infringements of representations and warranties, the amount that the party will have to pay will not exceed a certain cap (eg, purchase price). Another possible limitation of the seller’s liability is a time limitation. The parties may agree that the claim for any infringements or false representations and warranties may be brought only within the time specified by the parties. However, representations in reference to taxes and title to shares remain in force until the lapse of the statute of limitations. Parties may also decide to limit their liability to their actual knowledge, for instance in relation to circumstances that the other party may have been aware of in the course of its legal audit.

Transaction insurance

Is transaction insurance in respect of representation, warranty and indemnity claims common in your jurisdiction? If so, does a buyer or a seller customarily put the insurance in place and what are the customary terms?

In general, transaction insurance products are uncommon in Poland - they have only recently started to be used in high-volume transactions. Transaction insurance, which is intended to cover losses suffered by the policyholder in the case of a successful claim for breach of certain representations of the seller, is usually put in place by the buyer, who can deduct the cost of the insurance from the purchase price. Pricing amounts to between 1 per cent and 2 per cent against the policy limit, and is influenced by the transaction value, jurisdiction, the business sector of the parties to the transaction, the complexity of the transaction, the insurance limit and its coverage, the policy period and structure, retention amount and level of precision of the due diligence conducted prior to the transaction. Typically, the insurance policy corresponds with the survival periods in the relevant share purchase agreement, but can be extended by seven to 10 years.

Post-closing covenants

Do parties typically agree to post-closing covenants? If so, what is the usual scope of such covenants?

Post-closing covenants are usually used by parties to a transaction, as the parties’ obligations will often not end at the closing period: they vary depending on the conditions of each transaction. Post-closing covenants usually refer to non-competition obligations, non-solicitation of employees, necessary corporate filings, cooperation with the tax authorities, non-disclosure obligations and the smooth transition of business operations. Importantly, in the case of non-competition clauses towards former employees, a non-competition agreement must be concluded between the employer and employee in writing, specifying the period of prohibition of competition and the compensation due to the employee. Such compensation may not be lower than 25 per cent of the remuneration received by the employee prior to cessation of the employment relationship for a period corresponding to the period of validity of the non-competition clause. Non-disclosure covenants are usually agreed for a period from one to five years. It is also possible to agree such covenant for an unlimited period of time, especially in the case of protecting business secrets. According to Polish law, a business secret is any technical, technological, organisational or other information of economic value concerning an enterprise and not disclosed to the public, with regard to which an entrepreneur has taken appropriate measures to preserve its confidentiality.


Transfer taxes

Are transfer taxes payable on the transfers of shares in a company, a business or assets? If so, what is the rate of such transfer tax and which party customarily bears the cost?

The transfer of the shares in a company, a business or assets generates the duty to pay a tax on civil law transactions determined by the Tax on Civil Law Transactions Act. Share disposals are burdened by the tax on civil law transactions at a rate of 1 per cent of the market value of the shares. The sale of a business or an organised part of a business gives rise to tax on civil law transactions at a rate of 1 per cent or 2 per cent of the market value of the asset, depending on the type of asset transferred. In principle, value added tax (VAT) arises on the sale of assets; however, where the sale of assets is outside the scope of VAT, it is subject to 1 per cent or 2 per cent of the tax on civil law transactions (depending on the type of asset). The civil law transaction tax is payable by the buyer.

Corporate and other taxes

Are corporate taxes or other taxes payable on transactions involving the transfers of shares in a company, a business or assets? If so, what is the rate of such transfer tax and which party customarily bears the cost?

Income resulting from corporate capital gains of the seller generated from the sale of the shares in a company, a business or assets is subject to a corporate income tax (CIT) at a rate of 19 per cent (a lower 15 per cent CIT rate applies in certain circumstances). Income from capital gain resulting from a sale of shares in a company obtained by an individual is subject to a tax rate of 19 per cent of personal income tax. In principle, the sale of assets is subject to VAT at the standard rate of 23 per cent, unless a reduced VAT rate or VAT exemption is available in the specific instance. The sale of a business or an organised part of a business is outside the scope of VAT and should be subject to the tax on civil law transactions (see question 31).

Employees, pensions and benefits

Transfer of employees

Are the employees of a target company automatically transferred when a buyer acquires the shares in the target company? Is the same true when a buyer acquires a business or assets from the target company?

In the case of a share deal, employment contracts entered into by the target with its employees remain unaffected by the transaction. However, a prospective buyer may be affected by a change of control clauses in the target’s contracts with its key employees or senior executives. Where an asset deal is concerned, the transfer may trigger the automatic transfer of a work establishment or its part. Although the Labour Code does not define a work establishment or a part thereof, this concept has been developed by legal doctrine and jurisprudence. The meaning of work establishment generally corresponds to the civil law meaning of an enterprise, subject to a few caveats. For example, a group of assets may constitute a work establishment or part thereof even if they are not dedicated to a business activity (ie, they are dedicated to a charitable activity). In practice, a safe assumption is that the transfer of an enterprise or organised part triggers the automatic transfer of a work establishment or its part. However, an automatic transfer of work establishment may also occur (albeit less commonly) upon a transfer of specific assets. From a labour law perspective, different aspects of the transaction may be key in determining whether the transfer causes an automatic transfer of a work establishment or a part thereof. In general, the decisive factor depends on the nature of the activities performed (eg, labour-intensive or capital-intensive activities). If a transfer triggers the automatic transfer of a work establishment or its part, this means that by operation of law the former employer (seller) is replaced by the new employer (buyer) at closing (see question 5).

Notification and consultation of employees

Are there obligations to notify or consult with employees or employee representatives in connection with an acquisition of shares in a company, a business or assets?

The acquisition of shares in a company does not constitute an obligation to notify the employees, as after the share transfer the employees are still employed by the same employer. However, if the share deal results in changes to the employer’s business operation, the employer might face requirements to notify a works council as specified in the Act on Information and Consultation of Employees. A works council is established in work establishments with 50 or more employees. Pursuant to the Act on Information and Consultation of Employees, an employer should provide the works council with information with regard to:

(i) his or her business activity and economic situation;

(ii) the situation and structure of employment; or

(iii) his or her work organisation or basis of employment if the transaction results in material changes in this respect.

In addition, at the written request of the works council, an employer is obligated to provide the works council with information in the case of anticipated changes or planned activities. In the case of anticipated changes to points (ii) and (iii) above, the employer is obligated to conduct consultations with the works council within a dead-lined period, in a form and scope that enables the employer to undertake measures with respect to the matters covered by the consultations.

In circumstances in which an asset deal includes the transfer of a work establishment, or an organised part thereof, and if there are no active trade unions within the seller and buyer, the seller and the buyer must inform the transferred employees, in writing, about:

  • the expected date of transfer of the work establishment to the buyer;
  • the reasons for the transfer;
  • the legal, economic and social consequences of the transfer for the concerned employees; and
  • any anticipated measures relating to the employment conditions of employees, in particular concerning work, remuneration and re-qualification conditions.

This information must be presented to the employees at least 30 calendar days prior to the expected date of transfer of the part of the work establishment to the buyer.

If trade union organisations are in place at the seller or buyer, or both, these should be informed about the transfer pursuant to article 261 of the Act on Trade Unions. The scope of information is the same as that described above. This information must be presented at least 30 calendar days before the expected date of the transfer of the work establishment to the buyer.

Additionally, the works council operating at the seller or buyer (if such a body is in place) has to be informed about the planned transfer if such transaction influences the seller’s or buyer’s activity and economic situation; the situation and structure of employment at the seller or buyer; or the work organisation or basis of employment at the seller or buyer if the transaction results in material changes in this respect.

The new employer may not terminate the employment relationship as a result of a transfer. For a period of one year after a transfer, the new employer is obliged to follow the provisions of the collective labour agreement with regard to taken-over employees who were covered by it prior to the transfer. After the elapse of this period, and at any time when no collective agreement is in place, the new employer can change the conditions of employment for a good reason, with observance of the notice period.

Within two months of the date of transfer, the transferred employees may, without notice, but with seven days’ prior notification, terminate their employment relationships. The termination of an employment relationship in accordance with this procedure has the same effects on the employee as those provided for in the provisions of the Labour Code in relation to the termination of an employment relationship with notice by an employer.

Transfer of pensions and benefits

Do pensions and other benefits automatically transfer with the employees of a target company? Must filings be made or consent obtained relating to employee benefits where there is the acquisition of a company or business?

In cases where an asset deal includes the transfer of a work establishment, or an organised part of it, pensions and other employee benefits automatically transfer with the employees, as the employment contracts of the transferred employees remain unchanged. The employees retain all their employment-related rights accrued prior to the transfer, including those connected with continuous employment.

If a company social benefits fund has been set up at the seller, and a part of a work establishment is being transferred, a proportional part of the seller’s social benefit fund has to be transferred to the buyer. The seller and the buyer shall conclude an agreement regarding the allocation of funds that constitute the equivalent of the basic deduction financed by the seller and related to the year in which the transfer of the part of the work establishment takes place. Furthermore, the seller and the buyer shall stipulate the date of the transfer of the funds.

The seller has to transfer the personnel files of the transferred employees to the buyer. After the transfer, the seller should de-register the transferred employees at the Polish social security institution (ZUS), and the buyer has to register the taken-over employees at ZUS.

Update and trends

Key developments

What are the most significant legal, regulatory and market practice developments and trends in private M&A transactions during the past 12 months in your jurisdiction?

Since the beginning of 2018, deal values in Poland have been growing steadily despite a minor decrease in the number of deals occurring. In the corresponding period last year, three more deals were recorded. Among the deals this year, small and medium transactions prevailed. The largest Polish M&A transaction in the first quarter of 2018 was the acquisition by an entity related to Goldman Sachs of the Warsaw-based real estate developer Robyg for €277 million.

Recent developments in Polish law, particularly tax-related, may have a significant impact on M&A activity and further strengthen the need for cooperation between tax and legal advisers in M&A transactions. As a part of the government’s efforts of tracking CIT fraud by way of an amendment to the CIT law that entered into force at the beginning of 2018, a contribution of business or of an organised part of a business should have a valid business purpose, otherwise such transaction will be taxed. Similarly, if mergers or divisions of companies do not have a valid business purpose, the fiscal authorities may impose a punitive income tax both on a company and on its shareholders. Moreover, to counteract tax evasion, Polish authorities have recently introduced legislation and digital systems allowing tax authorities to analyse banking systems, search for potential fraud, and block suspicious bank accounts (please see question 19).

Notwithstanding the above, the nomination of Mateusz Morawiecki, a former banker, as the prime minister indicates that fiscal policy and economic growth is a priority for the current government. Supported by stronger investment and consumption, Poland’s economic growth is expected to accelerate to 4.2 per cent in 2018, compared to 3.3 per cent in 2017. Despite the Polish government’s conflict with the European Union over democratic values that erupted after its attempt to gain greater control over the appointment of the judges, it is rather unlikely that Poland’s growth and business environment will be significantly affected. Nevertheless, should the situation remain unsolved, it may cause foreign investors to be more hesitant about investments and to change their investment strategies.