Purchase of the Company Shares in Poland: Process and Documents to Check
Acquisition of companies, especially popular technological startups in recent years, can yield significant profits relatively quickly. On the flip side, purchasing shares can also be costly for a new partner in an LLC if they haven't checked several key issues before acquiring the shares. How to purchase shares in a company be it a shelf company in Poland or a a company that has conducted business without making mistakes?
Below is a brief guide on what to pay attention to before purchasing a company in Poland (LLC shares to be exact since it’s the popular entity type), as well as what actions to take after acquiring a share.
Check the Registry Data in the National Court Register Prior to LLC Company Shares Purchase
Despite people becoming more aware of legal matters, there are still cases where someone buying shares in an LLC doesn't thoroughly check the company's registration details in the National Court Register (KRS). This can lead to serious consequences. For example, shares may have been issued from increased share capital that wasn't properly registered, making them invalid. It's wise to avoid such problems by checking everything carefully beforehand. The KRS records are deemed to be complete and the entry of company detials are made upon a company formation in Poland, later most of the changes including changes to articles of association or chnages not requiring changes to the articles shall be entered.
What to pay particular attention to when purchasing company’s shares
In principle, there are no data in the KRS that can simply be "skipped" and considered irrelevant. However, the buyer of shares should pay particular attention to the "Shareholders' Data" section to verify whether the person from whom they intend to buy shares is the actual owner. They should also verify the number of shares allocated to each shareholder and the amount of share capital. Mentions of filed documentation are also important, especially information about the submission of financial statements.
The KRS business register is widely available online at www.ems.ms.gov.pl. However Economic Department of the District Court keeps the company's files. These files will contain documents forming the basis of entry, especially the company's articles of association and adopted resolutions.
Checking the Company's Accounting Records and Reports for the Last Few Years
Every LLC must keep "full accounting records." This means that every penny spent in the company must be thoroughly documented. In the company's registry documents in the KRS, we will find, among other things, the company's financial report for the previous year (if it has been filed). Such a report consists of a balance sheet, a profit and loss account, and additional information, which includes an introduction to the financial report and additional information and explanations.
Pay attention to the flow of money in the company, determine the value of the company's assets. Above all, check if the value of the shares being acquired corresponds to the real value of the company and expected revenues. Of course, most startups will not generate significant revenues at the beginning. In such cases, it is also worth checking what contracts the company has signed recently if you are not buying a shelf company which has no operations.
The current content of the LLC articles of association shall be checked
Extremely important for the effectiveness of purchasing company shares is to check whether the current partner of the LLC can freely trade their shares. In accordance with the provisions of Article 182 of the Polish Commercial Companies Code, the sale of shares, their parts, or fractional parts, and the establishment of a pledge on shares may depend on the company's consent or be otherwise limited. If the company’s articles of association does not provide for other solutions, the consent is given by the management in writing. In cases where consent is denied, the commercial court may allow the sale of shares if there are valid reasons.
The company’s articles of association may also limit or completely exclude the entry of the deceased partner's heirs into the company. This is particularly important if the buyer of shares—i.e., the prospective partner—wants to protect the legal status of their potential heirs.
It is also worth paying attention to provisions regarding dividend payments and whether any shares in the company have been privileged.
Determine if the consideration due to the company for the sold share has been fulfilled by the previous partner
This is particularly important because the buyer of the share or part of the share in the LLC bears joint and several liability with the seller of the share for unfulfilled obligations due to the company from the sold share or sold part of the share. This mainly concerns non-monetary benefits or contributions paid by the shareholders to the company pursuant to Article 177 of the Commercial Companies Code.
The register of pledges needs to be checked in order to see if the purchased company shares are subject to a pledge
The share in an LLC may be subject to a pledge as a transferable right. Such a pledge is made based on the Registered Pledge Act and entered in the Register of Pledges—then it is a registered pledge. It is also possible to make an ordinary pledge under the Civil Code.
The essence of a pledge is to enable the creditor to satisfy themselves from the subject of the pledge, regardless of who owns it. Therefore, if the purchaser of the share acquires a share that is the subject of a registered pledge, they risk losing that share to the creditor entitled to the pledge.
What is important for the buyer is that from the moment the pledge is entered in the register of pledges, two presumptions arise—presumption of knowledge of the data contained in the register and presumption of the truth of this data. As a rule, a registered pledge on shares should be disclosed in the KRS. In practice, however, it may happen that the data was not disclosed in the KRS. However, if the pledge has been disclosed in the register of pledges, it is effective. Therefore, the purchaser of the pledge cannot defend themselves against the creditor that they did not know about the pledge—consequently, the acquired share may be lost to the creditor of the previous partner, who is entitled to the pledge.
The share transfer agreement of a limited liability company should be proofread
Correct identification of the parties is essential, precise identification of the share and the subject company, transaction amounts, appropriate statements from both parties.
An agreement for the sale of a limited liability company shares must be concluded in writing with notarially certified signatures of it’s equivalent certification if a signature by the Polish Consular. Such a transaction cannot take place without the services of a notary. Hence if the party is represented by an attorney-in-fact the power of attorney shall be issued in the same form.
Tax on civil law transactions shall be paid
Acquiring shares in a limited liability company will most often result in the obligation to pay tax on civil law transactions. The obligation to pay the tax will fall on the buyer. Its rate is 1%. The tax should be paid within 14 days from the date of the tax liability arises and a declaration should be submitted.
Informing the company about the acquisition of shares.
According to Article 187 § 1 informing the company about the transaction as quickly as possible because the transfer of the share, its part, or fractional part, as well as the establishment of a pledge or usufruct, is effective against the company from the moment the company receives notification of this along with evidence of the transaction from one of the interested parties. The "evidence of the transaction" will most often be a copy of the agreement, a deed of gift of the share, or another document confirming the transaction.
