Selected issues concerning of conducting of business activityunder the Polish Company Law

YVES DERAINS

Selected issues concerning of conducting of business activity under the Polish Company Law

Marcin Lech* “A day will come when the nations of this continent, without losing their distinct qualities and glorious individuality, will form part of a broader whole, part of the European fraternity.

A day will come when there will be no fields of battle exept markets open to commerce and spirits open to ideas.”

(Victor Hugo, addressing the Third International Congress for Peace in Paris, 1849)

I. Introduction to the Polish Company Law The Polish legal system is based on the civil law system developed on the European Continent over a great many years. As with countries such as Germany and France, Poland has codified its law and, as a result, the main sources of its law are statutes, codes, ordinances, constitution and international treaties. The civil law system contrasts sharply with common law, a legal system which relies on case precedent as its main source of law and which is predominant in the United Kingdom and the United States.

In recent years, Polish legal system has undergone a through transformation. This process is widely seen for example in Polish business law, especially in company law. The Commercial Code of 1934, which had been in force for almost seventy years, partially repealed in the meantime and updated on many occassions, was at last replaced with the new Code of Commercial Companies of 2000. This new Code came into force on 1 January 2001. One of the

* Lecturer, Faculty of Law, Collegium Iuridicum, Academy of International Political and Economic Relations, Gdynia, Poland (www.wsms.edu.pl). Doctor of Law (University of Vienna, Austria), Master of Law - LL.M. (the Nicolaus Copernicus University, Toruń, Poland), Master of Political Sciences -M.A.(University of Gdańsk, Poland). Alumnus of the Diplomatic Academy of Vienna, Austria. Ordinary member of International Law Association (ILA-Polish Branch) in London. E-mail: marcin.lech2 @ wp.pl

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principal as of the new company code was to harmonize Polish law with that of the European Union. This aim was, to a great extent, achieved; still more progress in this respect was made by the first update to the Code on 15 January 2004. As a result of these amendments, Polish company law attained a high degree of compliance with European law.1 On becoming a member of the European Union on 1 May 2004, Poland already had a company law that was adapted to the new international requirements.

It should, however, be pointed out here that, unlike many Central European states, Poland had, after the II World War, carried on European law tradition in, among other areas, company law. This law regained its practical importance at the end of the 80s with the privatization of the Polish economy. This would have been impossible if commercial companies and institutions had not been able to refer to company law. This also applies to the creation of conditions to accelerate the growth of foreign investment. The peculiar renaissance of commercial companies meant that further changes had to be made in company law, especially fundamental changes to the Civil Code of 1964 and the statutory regulation of the public trading in securities in 1991.

At the beginning of 2001, the economic legal structure characteristic of the modern market economies in Europe was restored in Poland. Of, course, the above legislative changes meant that lawyers (not only Polish lawyers) faced new challenges, mainly in respect of legal advisory, where the key imperative was to safeguard client interests. Professional legal advisory is focused in the first place on the ability to use legal institutions that are rooted in long tradition. Of, course, in order to navigate safely around new legal instruments, especially those enabling recognized economic aims to be achieved, practical knowledge has to be adapted; it does not have to be obtained at ground level. Those in a better situation on the legal services market are lawyers who have considerable experience in applying commercial law subjects like for example: joint-stock company (public), limited liability company, limited partnership, which could be of interest to a foreign investor.

Presently, under Polish company law, a company is a legal entity separate and apart from the persons responsible for its creation. The company is able to acquire property and to sue and to be sued in its own name in the same manner as a neutral person. A characteristic feature of companies which distinguishes them form the status of partners in a partnership, is that shareholders are not liable for a company’s debts. Although companies may conduct non-for-profit activities. At

1 Domański, G., Understanding Modern Company Law. The Polish example, Warszawa, 2005, p. 3-4.

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this stage, it must be added that Polish Company Law is based on a two-tier structure: the management board and the supervisory board.

The principal legal act governing business activity in Poland is the Economic Freedom Act of 2 July 2004. It regulates undertaking, running and closing businesses in the territory of Poland, as well as tasks of the public administration in this respect. The Economic Freedom Act came into force on 21 August 2004 to improve the business climate in Poland by removing many restraints and uncertainties that had burdened entrepreneurs. The Act governs starting, conduct and termination of economic activity in the territory of the Republic of Poland and the tasks of public administration authorities in this respect. Accordingly to the Act, economic activity shall mean a professional profit-gaining activity in the fields of production, construction, commerce, services and in the prospecting for, exploration and extraction of minerals from deposits, as well as a professional activity carried on in an organised and uniterrupted manner2.

In Poland, as in the majority of countries in Europe, the equivalent of this type of commercial company is widely used in business. As a capital company, which protects its shareholders against liability for its obligations, the limited liability company owes its popularity on the one hand to the limited requirements for share capital amount and, on the other, to the flexibility of the corporate governance structure which gives individual shareholders control over the company’s affairs3. The business risk limitation for shareholders that comes with participating in a limited liability company also provides ecouragement to set up a single-member company (having only one shareholder).

The legal aspects of the functioning of a single-member company are usually of interest to most investors, regardless of which country they come from. This also relates to using a limited liability company as a form of participation in a limited partnership “with one’s self ”. Therefore, it is impossible to avoid the problems of joint-stock companies and shares as securities, especially those which are publicly traded. Before shares are introduced to public trading actions required by securities law have to be taken. These actions have to be taken by foreign companies if their shares are to be publicly offered in Poland. Thus it is not only companies that have their registered office in Poland that have to meet these Polish law requirements. Awareness of the basic legal conditions for publicly offering shares on the Warsaw stock market could provide reasons for an enterprise’s enterprise’s strategic decisions. Attaining the status of a public company under

2 Undertaking and Carrying on a Business in Poland, “Ius et administratio”, Facultas Iuridica, Universitatis Ressovienisis, Zeszyt 3, vol.11, Rzeszów 2006, p. 11-12.

3 Domański, G., Op. cit., p. 5.

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Polish law not only gives a company access to international financing sources but also brings new and often burdensome information obligations.

II. Company as a form of business organization Enterprises may operate in Poland under a variety of legal forms. On 1 January 2001, the new Polish Commercial Companies Code came into force. Unlike its British equivalent, the Polish Commercial Companies Code also includes partnerships. It recognises six forms of commercial associations, which are: 1°) General Partnerships; 2°) Limited Partnerships (similar to the United Kingdom partnership, the Limited Partner-ships Act 1907); 3°) Professional Partnerships (self-employed persons like doctors, lawyers, and accountants); 4°) Limited Joint-Stock Partnerships in which the general partners are personally liable for its debts; 5°) Joint-Stock Companies; 6°) Limited Liability Companies4.

All of these commercial associations are subject to the Polish Commercial Companies Code. The joint-stock company and the private limited liability company are treated as commercial companies irrespective of the nature of their business activities, while the European Economic Interest Grouping and European Company may also be established in Poland. Naturally, the selection of the appropriate organizational form depends on a number of individual factors, including the volume of capital, number of owners involved, the means of creation, issues of control, the liability of the owner, and the taxation of income5.

Therefore, contributing an enterprise for a example limited liability company is without doubt a very complicated process in which many legal, tax, accounting and real issues have to be taken into consideration. A useful tool for identifying issues to which special attention should be paid is due diligence. This would give the acquirer a full picture of the contributed enterprise and is a basic condition for the success of an in-kind contribution. It also enables errors to be avoided which, in the case of the contribution of an enterprise, could have unforeseeable consequences. Thus, it should be stressed that every enterprise constitutes a one-of-a-kind set of assets which need an individual approach to be taken in every case. In particular, the nature of the enterprise as a living business entity that is subject to constant change has to be taken into account, which can give rise to many additional practical problems.

Grabowska, A., Kieza, J., Młot, J., Company Law, Z. Brodecki (ed.), Polish Business Law, The Hague/ London/ New York, 2003, Kluwer Law International, p. 87-92.

5 Lewandowski, R., Polish Commwercial Law, An Introduction, Warszawa 2007, p. 23-44.

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In this context, it is important to point, that before the company registration some persons may make contracts on its behalf. The question arises if such contracts are binding on the company. The answer is dependant on the nature of a company which is in the process of setting up (has not been yet registered).

The above problem has been regulated in various ways, e.g. in Britain contracts when it is formed6. It is due to the fact that before registration the company lacks capacity to make the contract and it is not possible to contract on behalf of a principal who is not in existence. A company cannot, after registration, enforce a contract made in its name before registration, or sue for damages for breach of such a contract. As opposed to the regulation in Britain, Poland follows the rule that companies before registration do enjoy capacity to contract7. Though they are not legal persons, they are treated under the law as if they enjoyed legal personality. The consequence is that the company before registration may be a party to a contract, may be an owner of the assets contributed by the shareholders, may sue and be sued.

The above has most important consequences for the liability for the obligations of the company which arose before its registration. Since the company has a capacity to contract and is the owner of its property, such a company is considered by the law as a person liable for its obligations. Other persons liable for the company obligations which arose before its registration are persons who dealt with the third parties in the name of the company (such as directors if they had been appointed or a representative appointed by the resolution of the shareholders meeting ) and shareholders. The latter may be liable for the company obligations only if they failed to make full contributions to which they were obliged under the contract. If they made contributions in part, they are liable for the company obligations only to the value of the contributions which has not been made. Summarizing, both the company and persons dealing in its name are liable up to the total value of the obligation, whilst the shareholders liability is limited8.

As regards the liability of the registered company for the obligations which arose before its registration, Article 12 Code of Commercial Partnership and Companies (CCPC) provides that on the date of registration the company becomes the subject of all rights and obligations of the company which has not been registered (company in organization). This means, that a creditor to whom

Assman, H.D., Lange, B., Sethe, R., The Law of Business Associations, (in) Introduction to German Law, 2nd Edition, 2005, Kluwer Law International, p. 143.

7 Długosz, T.J., Węzłowe zagadnienia ustawy – Prawo działalności gospodarczej, Kraków 2001, p. 100-114.

8 Podświadek, M., Spółka z ograniczoną odpowiedzialnością jako komplementariusz w spółce komandytowej, rzegląd Prawa Hadlowego”, 10/ 2001, p. 25.

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the company owed debts before registration may now sue the registered company.

Additionally, he may sue persons who dealt in the name of the company before registration as well as shareholders (provided that the preconditions of their liability are met). The liability of those persons expires in relation to the registered company on the date of ratification of their act by the shareholders meeting (in limited companies, see: Article 161 § 3 CCPC) or general meeting in joint – stock companies (see: Article 323 CCPC). Obviously, their liability does not expire in relation to the third parties (creditors)9.

It should be stressed that the company in organization may be an entrepreneur under the Polish law. This will have various consequences e.g. the company before registration should be sued before the court of commerce (sąd gospodarczy) and not an ordinary civil court. The questions might arise, however, if a dispute arising between the members of such a company is subject to the proceedings before the court of commerce. The fact that a company is not registered with the National Court Register does not imply that it may not be treated as an entrepreneur. Article 4.1 of the Law on Freedom of Business Activity provides that entities without legal personality which under the law are granted legal capacity are entrepreneurs. As mentioned above not registered companies do enjoy legal capacity though are not formally legal persons. The consequence is that they must be treated as entrepreneurs under the Code of Civil procedure: Article 479 § 1 specifies that subjects which are entrepreneurs pursuant to the provisions on business activity are treated as entrepreneurs under the Code of Civil Procedure. The company in organization, though it is similar to registered companies in some respects, shows several differences if compared to the companies after registration. Firstly, such a company may not grant a commercial power of attorney (prokura) since it is not subject to registration. Secondly, the shares in such a company are not transferable (Article 16 CCPC).

III. Representation of entrepreneurs in commercial relationships The question of representation in commercial relationships as well as before the court and other bodies is of crucial importance to the law of business. Improper representation may result in that a given contract may be considered null and void.

Moreover, not complying with the rules of representation set forth under the procedural law may lead to some negative consequences specified in the Polish Code of Civil Procedure.

9 Szumański, A., (ed.) Sołtysiński, S., Szajkowski, A., Szumański, A., Szwaja, J., Komentarz, Kodeks Spółek Handlowych, t. II, Warszawa, 2002, p. 110-433.

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A distinction is drawn between two kinds of representation, both of which are regulated in the Civil Code (hereinafter referred to as “CC”), namely: a power of attorney (pełnomocnictwo) and a commercial power of attorney (prokura). Only entrepreneurs who are subject to registration with the National Court Register may grant the commercial power of attorney. This means that the following subjects may be represented by the holder of a commercial power of attorney: general partnerships, limited partnerships, professional partnerships, limited joint stock partnerships, limited liability companies, joint stock companies, state enterprises, cooperatives, charities (provided they carry on a business)10. The commercial power of attorney may be granted only to natural persons who enjoy full contractual capacity. The person who is empowered to act on behalf of an entrepreneur is named prokurent. The commercial power of attorney must be granted in writing, otherwise it shall be null and avoid. Additionally, it must be registered with the National Court Register (NCR). The question arises whether the registration is formal requirement needed for the validity of the power of attorney.

It should be noted that no provision directly states that the prokurent is fully empowered only after he has been registered with the NCR. Consequently, it must be stressed that registration, though required under the law, is not a precondition for the validity of the commercial power of attorney11.

As far as the scope of activities of the prokurent is concerned the Civil Code directly specifies which activities may be performed by him. Article 109 § 1 CC states that he may perform the activities which are related to running the enterprise.

The following acts fall within the category: i) Activities performed before the court, namely: filing applications and acting before the court as representatives of an entrepreneur; ii) Activities performed out of court, particularly concluding contracts in the name of an entrepreneur.

However, the holder of an commercial power of attorney may not sell the enterprise or any part of it nor real property owned by the enterprise, unless he has been granted a specific power of attorney. There are two kinds of the commercial power of attorney: i) The one which has been granted to one person; ii) The one which has been granted to more persons12.

Domański, G., Op. cit., p. 12.

However, the so called general power of attorney must be granted in writing, otherwise it shall be null and void.

Additionally, if the power of attorney being granted is intended to empower to perform activities which require particular form and failure to use this form results in that given act is null and void, the power of attorney must be granted in the same form.

12 Representation of entrepreneurs,“Ius et administratio”, Facultas Iuridica, Universitatis Ressoviensis, zeszyt 3, Vol. 11, p. 23-25.

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The latter may take the form of a joint commercial power of attorney (prokura łączna) and separate power of attorney. The joint power of attorney means that a given act may be performed only by all representatives, otherwise it is considered not effective. It may become effective after it has been confirmed by other representatives. In the case of the separate power of attorney the acts may be undertaken by all representatives individually and separately13. It must be stressed that the entrepreneur may not be represented by the prokurent in the case of liquidation. In the situation where the liquidation has been opened the prokura expires and a new commercial power of attorney may not be granted.

IV. Professional partnership A professional partnership is a partnership formed for the purposes of practising certain liberal professions. These professions are: advocates, pharmacists, architects, expert auditors, insurance brokers, tax advisors, accountants, physicians, dental surgeons, veterinary surgeons, notaries, nurses, midwives, legal counsel, patent agents, property experts, and sworn translators.

Although Article 86 of the Code allows a professional partnership to be created for the purpose of practising more than one liberal profession, this is subject to limitation by specific statutes governing individual professions. Individual partners are not liable for the obligations of other partners in respect of their professional conduct, nor for the acts or omissions of persons employed by the partnership who are subordinate to another partner14.

The business name of a professional partnership should include a description of the liberal profession practised in the partnership and the surname of at least one partner, followed by the additional ending “and partner” (i partner), “and partners” (i partnerzy) or “professional partnership” (spółka partnerska). All matters which are not regulated by provisions applying to a professional partnership, are regulated by provisions applying to a registered partnership.

The articles of association of a professional partnership must be in the form of a notarial deed and should include: a description of the liberal profession practised by the partners who bear unlimited liability for the partnership’s obligations; the names of certain partners who, if applicable, have been designated to represent the partnership; the partnership’s business name and seat; the duration

Lewandowski, R., Op. cit., p. 27-30.

For example, the Advocates Act 1982, Journal of Laws 2002/ 123/ 1058, provides that advocates may only create professional partnerships with other advocates or legal advisors. Equally, the Expert Auditors Act 1994, Journal of Laws 2001/ 31/ 359, prohibits expert auditors from creating partnerships with other liberal professions.

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of the partnership, if applicable; and details of contributions made by each partner.

A professional partnership comes into existence upon entry into the National Court Register, and an application to register must include, in addition to the information required for a registered partnership; the names of commercial representatives or persons appointed to the management board; and documents confirming the authorisation of each partner to practise the relevant liberal profession.

Each partner has the right to represent the professional partnership individually unless the partnership’s articles of association state otherwise. A partner may be deprived of the right to represent the partnership only for important reasons by a partners’ resolution adopted by a three-quarters majority of votes, taken in the presence at least two-thirds of the total number of partners.

The articles of association may provide for even stricter requirements to adopt any such resolution15. Depriving a partner of his right to represent the partnership takes effect only upon entry into the National Court Register. The articles may alternatively provide for the management of the partnership to be conducted by a Management Board, which is required to operate according to the rules concerning management board of a limited liability company.

The liability of partners in registered partnerships is modified slightly by Article 95 of the Code in respect of professional partnerships, where partner are not liable the actions or omissions of their fellow partners or persons employed by the partnership but under the control of another partner. It is possible, however, the articles of association of a professional partnership to state that one or more partners agree to bear the same liability as a partner of a registered partnership16.

In addition to the grounds described above for dissolving a registered partnership, professional partnership may also be dissolved where all the partners lose the authorisation necessary to practise the liberal profession. When only one partner remains in the partnership, or if only one partner has the right to practise the relevant profession, the partnership must be dissolved within one year from the date on which such circumstances arose.

V. Limited liability company or a joint-stock company as a general partner in a limited partnership A limited partnership is a commercial partnership. A commercial partnership has the features of a commercial partnership, e.g. lack of legal personality and no Jacyszyn, J., Krześ, S., Marszałkowska-Krześ, E., Kodeks Spółek Handlowych, Komentarz, Orzecznictwo, Warszawa, 2001, articles 92-100, p. 159-171.

16 Ibid., p. 141-190.

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separete managing or supervisory authorities. An important feature of a limited partnership is also the fact that it is not subject to corporate uncome tax.

Article 8 of the Code of Commercial Companies leaves no doubt that a limited partnership, although it does not have legal personality, has legal capacity. This means that it is limited partnership, not its partners, that has the rights to the assets contributed to the partnership or obtained during the course of its business. In court proceedings, the limited partnership acts on its own behalf as a party to or participant in the proceedings. A limited partnership differs from the other commercial law partnerships in that it has two types of partners: a partner who is liable for the partnership’s obligations without any limitations (the general partner) and a partner whose liability may be limited to the amount specified in the deed of limited partnership (the limited partner).

A limited partnership should have at least two partners, including at least one general partner and at least one limited partner. Therefore, a limited partnership cannot be a sole-member partnership but there are no restrictions on the maximum number of limited or general partners.

Describing a limited partnership with the participation of a capital company, the Code of civil companies contains no restrictions on entities which may become a partner in a limited partnership. Therefore, any capital company (i.e. a joint-stock or a limited liability company) may become a partner17.

From the perspective of an entrepreneur who chooses the form in which his business activity will be carried out, setting up a limited partnership with the participation of a capital company as general partner is recommended. The same persons can simultaneously be: i) Shareholders in a capital company (i.e. in a company which is a general partner in a limited partnership); ii) Limited partners in a limited partnership18.

The appropriate structure for the relations between the capital company as general partner, the limited partnership and the shareholders and partners in these companies and partnerships, assuming that the business activity is conducted by the limited partnership, allows the basic virtues of a capital company and a limited partnership to be combined: lack of personal liability of the shareholders of the capital company and of the limited partners in the limited partnership for obligations related to the business activity carried out and no corporate income tax for the limited partnership in respect of the business.

A limited partnership with the participation of a capital company as general partner exist in the following configurations: i) A capital company is the only

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This is to be contrasted with the position in German law, where joint-stock partnerships also have legal personality.

Allerhand, M., Kodeks handlowy. Komentarz,, Bielsko-Biała, 1996.

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general partner in the limited partnership and the shareholders in the capital company are the same as the limited partners in the limited partnership. A special type of this configuration may be a limited partnership with the participation of a capital company as general partner, in which the sole shareholder of the capital company and the sole limited partner is the same person; ii) The limited partner in the limited partnership is a capital company but the shareholders in the capital company and the limited partners are different (e.g. as a result of persons who are not shareholders in the capital company being admitted to the limited partnership as general partners); ii) Persons other than a capital company are the general partners in the limited partnership19.

VI. Broad understanding of a right of shareholders in a limited liability company and joint-stock companies to individually inspect the company’s affairs The right of individual inspection provided for in Article 212 of the Code of Commercial Companies and which is vested in the shareholder of a limited liability company raises numerous concerns. From the company’s standpoint, the obligation to share information with the shareholders entails the risk of the information being used improperly by a shareholder or person authorized by a shareholder, thus exposing the company to the risk of serious damages. The company is, however, able to protect itself against inquiring shareholders suspected of using information against company’s interests and thus causing damage to the company. In such cases, the Management Board may refuse a shareholder, access to documents and information. From the shareholders’ point of view, access to information about the company is necessary in order to protect themselves against abuse by the company and properly exercise their rights as shareholders20.

The shareholders’ right of individual inspection would above all appear to be an appropriate means of inspecting the operations of the Management Board at medium-size limited liability companies which have a small number of shareholders who know each other, i.e. at companies where the personal element is particularly strong. If there is a large number of shareholders and company

Sołtysiński, S., (ed.), Sołtysiński, S., Szajkowski, A., Szumański, A., Szwaja, J., Komentarz KSH, t. I, Warszawa, 2001, p. 283.

20 Supreme Court ruling of 7 May 2002, ref. No. I CKN 842/00, OSNC 7-8/ 2003, item. 106.

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whilst, on the other hand, doubts begin to arise as to just how effective the shareholder’s individual inspection is. For this reason, at larger companies that have a greater number of shareholders, the appointment of an audit committee or a supervisory board is necessary. The legislator anticipated this need by imposing an obligation to establish supervisory or inspection authorities at companies with a share capital of more than PLN 500 000 and which have more than twenty-five shareholders21.

In the case of such companies, as the personal element is of secondary importance, it is often advisable to exclude or significantly restrict the right of individual inspection, which constitutes a personal element, in order to restrict the inconveniences and risks that may arise for the company in connection with this right. Even the shareholders decide to retain the right of individual inspection, in many instances it is advisable to introduce additional provisions to the articles of association in order to accurately regulate or supplement the provisions of the Code. This will make it possible to avoid doubts and disputes during company operations and inspection.

However, the problem of inspection must be seen in a broad context. First of all in both companies: a limited liability company and joint-stock company, the Management Board is obliged to keep a proper share register. However, in the joint-stock company, this obligation only concerns registered shares and temporary certificates. The share register contains shareholder’s details, such as name, address, the number and nominal value of shares held by the individual shareholder (in a limited liability company only) or payments made (in a joint-stock company only)22.

Existing shareholders also have priority in subscribing for new shares. This right may be executed if the share capital of the company is increased. The existing shareholders have priority in subscribing for new shares in proportion to their existing shareholding. They have to exercise this right fully or in part within a month of the date of the announcement by the Management Board. If not all the new shares are subscribed for, the Management Board may offer them to other entities. The company’s articles of association may modify this general rule to exclude this right totally or in regard to certain shareholders, or give certain shareholders (or even third parties) preferences in this respect. Any deviation from the priority rule which is not contained in the articles of association should be adopted by a majority of two-thirds of votes cast. Additionally, shareholders whose 21

See, Article 213 § 2 of the Code of Commercial Companies.

This kind of intervention may take the form of, e.g. refusing to consent to certain actions being taken but not giving the company’s Management Board binding instructions on specific issues. Although regulations concerning a limited liability company do not contain an express prohibition corresponding to Article 375(1) of the Code of Commercial Companies, one should also assume that in a limited liability company neither the supervisory authority nor the shareholders can give binding instructions to the Management Board on how to conduct the company’s affairs.

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rights are limited by such a resolution should agree to the change. A limited liability company shareholders also have the right to receive back the share in part or in full. This right is exercised when the share capital of the company is reduced, where shares are redeemed at the shareholder’s request and where the shareholder does not wish to participate in the company after transformation.

Shareholders have the right to bring an action on behalf of the company (actio pro socio) where the company suffers damage and, within one year of the day of the damage, the company does not bring any action for a redress23. Where shares are held by a legal person, another shareholder also has the right to obtain information from this shareholder as to whether it remains in a relation of dominance or dependence with respect to a particular shareholder of the same company. Any such request must be in writing. Until the reply is provided, the shareholding company may not exercise its share rights in the other company. The shareholder has as many votes as shares, unless the shares are privileged in respect of voting rights, or the statute limits the right to vote of shareholders holding larger amounts of shares. Preference shares may carry a maximum of two votes. In respect of bringing actions on behalf of the company (actio pro socio), the same rules as in a limited liability companies are applying. However, in respect of the right of inspection, shareholders in joint-stock company cannot individually inspect the activity of the company. This right was given to the company’s bodies: the Supervisory Board and, to a certain extent, the General Shareholder’s Meeting. The joint-stock company shareholders, however, have the right to access information concerning the company’s activity: financial statements, auditor’s reports, Supervisory Board’s reports etc. Furthermore, they may ask questions at the General Shareholders’ Meeting. The company is obliged to answer such questions if this is necessary for a matter included on the agenda to be considered. Taking into the consideration the interest of the company, the Management Board may refuse to answer the question. Finally, a joint-stock shareholders are equally eligible to be appointed to the Management Board and Supervisory Board of the company.

VII. Application of Article 189 of the Code of Commercial Companies, or the lawfulness of disbursements to shareholders of a limited liability company Management Boards and financial staff of companies should be aware of the problem of the legitimacy of payments made to shareholders of a limited liability

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Grabowska, A., Kieza, J., Młot, J., Op. cit., p. 89.

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company which is in a bad financial situation, pursuant to Article 189 of the CCC24. In particular, it is not easy to understand the essence of this legal regulation which enables contributions made to the company to be returned but precludes the possibility of payments being made from company assets which are required to cover the share capital fully. The Polish legislator has set up this system, the aim of which is to reconcile the interests and rights of shareholders with those of the company'’ creditors, by giving the creditors a chance at least to satisfy maybe only part of their claims on the one hand, and by „engaging”only part of the company’s assets on the other25. This is one of the elements of a system which introduces order to the transfer of funds from a company to its shareholder. From a different perspective, Article 189 of the CCC directs one to carefully consider the type and size of an investment in a company and enforces continuous follow-up of the company’s balance sheet situation. The peculiar structure of the payment prohibition referring to terms which are notdefined by the law may render the monitoring and evaluation of the situation difficult. Due to discrepancies in interpretation, these issues must be carefully considered and a customized approach taken by both accountants and lawyers to each company and to the evaluation of this situation26.

VIII. Legal acts in a single-member company (application of Article 173 of the Code of Commercial Companies) from a foreign investor’s perspective The form requirements under Article 173 of the Code of Commercial Companies (CCC) for a sole shareholder’s declaration of intent without doubt give rise to major difficulties in handling legal matters in single-member limited liability companies (and in companies whose entire capital is held by the company and one shareholder). The simplest and most widely used method of avoiding the requirements of Article 173 is for an additional shareholder (from the same group)

24 This discussion and this case does not seem to have ended, see eg. Opalski, A., Kapitał Zakładowy. Zysk.Umorzenie, Warszawa, 2002, Oplustil, K., Pożyczki wspólników udzielane spółkom kapiałowym, where an analysis of Articles 14 § 3 and 189 § 2 is presented of the Code of Commercial Companies, Kraków, 2001.

25 The court may decide not to declare the company bankrupt if the payment delay does not exceed 3 months and total unpaid liabilities do not exceed 10 % of the balance sheet value of the enterprise. One should bear in mind that an intended repayment of some of the creditors to the detriment of others is an offense.

26 The obligation for the supervisory board to act with due care requires the board to control payments made to shareholders or to demand that the management board request the shareholder to return prohibited payments.

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to be introduced to the company. Thus the company would cease to be a single-member company and the requirements of Article 173 of the CCC would no longer apply. It is undeniable that, in view of the specifies of the relations between a single-market company and its sole shareholder, the regulation of Article 173 must be seen as warranted.

Irrespective of the aim of Article 173, it should be noted that, from the perspective of a foreign investor which is also the sole shareholder in a Polish limited liability company, although the requirements of Article 173 make handling legal matters difficult, these difficulties are not insurmountable. To ensure that a sole shareholder’s declarations of intent comply with Article 173 provisions, and thus to ensure the validity of these declarations, an analysis of the contents of every declaration and of the resulting legal effects should be made, taking into account the specific situation of the company to which the declaration is addressed27.

It should firstly be determined whether a declaration to be made by a sole shareholder to a company does indeed constitute a declaration of intent in the legal sense. The main criterion, in this case, is the legal nature of the declaration. Secondly, it must be decided whether the declaration of intent relates to matters outside the normal scope of the company’s business. If the declaration does not fall into this category, it can be made in written form28. However, if the declaration does concern matters outside normal company business, it is necessary, when assessing the legal nature of the declaration, to be guided by criteria that are characteristic of the activity of that company. It is essential to remember, that the written form with notarially certified signatures requirements do not transgress the wider form requirements set out for in other provisions.

From a foreign investor’s perspective, there are three ways of adhering to the requirements of Article 173 of the CCC: i) By the sole shareholder making the declaration of intent in person in the presence of a notary, who certifies the signature; ii) By the sole shareholder’s attorney making a declaration of intent within the scope of his authorization before a Polish notary in written form with notarially certified signature; iii) By the sole shareholder making the declaration of intent in written form before a foreign notary, who certifies the sole shareholder’s signature; the signature is then legalized by an official at a Polish consulate abroad29.

For a foreign investor and sole shareholder in a Polish single-member limited liability company, the best solutions are indisputably options two and three. Under these options, the foreign shareholder does not have to appear in person before a Polish notary, but can arrange for his signature (either on the declaration of

Safian, M., Prawo wspólnot Europejskich a prawo polskie. Prawo gospodarcze, Warszawa, 2002, s. 246.

Karolak, A., Składanie oświadczeń woli w spółce z o.o. przez jedynego wspólnika, “Prawo spółek”, N° 7-8, 2003, p. 57.

29 Sołtysiński, S., Prawo właściwe dla spółek prawa handlowego, “Rejent”, July-August 2001, N° 7-8, (123-124), p. 16.

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to be certified by a foreign notary, then legalized at the Polish consulate. It seems, that the practice in legal dealings, shaped to a great extent by common court and Supreme Court rulings, is heading more and more in the direction of widespread sanctioning of legal acts carried out by foreign notaries30.

The certifying by a foreign notary of signatures on declarations of intent made by A sole shareholder, which has previously been a technical action that has not required a detailed analysis of the law provisions applicable to the declaration, appears to have become admissible practice in the international functioning of a single-member company’s legal affairs. In one of its most recent rulings, the Supreme Court upheld the validity of an agreement transferring the ownership of real property located in Poland which was drawn up by a notary in Pretoria. The Supreme Court’s stance appears to confirm the growing support for the validity of acts out by foreign notaries31.

In addition to the Economic Freedom Act of 2 July 2004, the business activities in Poland of small companies having their registered seat abroad; foreign citizens; Polish citizens with their permanent residence abroad; and companies with a registered seat in Poland created and owned only by the above entities, are regulated separately and are required to obtain a permit for their activities from the local authority (starosta) and to register their activities in the National Court Register32. In addition to the standard forms of business activity which may be conducted by Poles or foreigners alike, described above, certain additional business options are only available to foreign investors. These are branch offices and representation offices.

IX. Introducing a company to public trading – formal requirements and protection of investors Listing a company is always a big challenge, especially form an organizational perspective, for its authorities and existing shareholders. In most cases, it leads to significant changes in the issuer’s operations, as it is a good occassion to adopt new internal regulations and procedures, and management aid systems. It often leads to the company becoming internationally known by making contact with international investors and their advisors possible. By placing heavy requirements for operating

OSN 1937, N° 9, item 318 (C III 1167/ 35), also Bieniek, G., Podejmowanie przez przediębiorców zagranicznych działalności gospodarczej w Polsce (wybrane zagadnienia), “Rejent”, July-August 2001, N° 7-8, (123-124), p. 288.

31 W. Klyta, Czynności notarialne w polskim międzynarodowym prawie spółek, “Rejent”, July-August 2001, nr 7-8 (123-124), s. 131.

32 Pazdan, M., Prawo Prywatne Międzynarodowe, Warszawa, 2000, p. 96-111.

30

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standards on the company, it favours the propagation of best practices which ensure uniform corporate governance in these entities. It obliges companies to be open in their business dealings and relations with current and potential shareholders, and also to cultivate a good image not only among capital market analysts but also in the mass media. This helps to raise capital. Attaining the status of public company does not, of course, guarantee business success, but it does give a significant advantage in influencing market position and achieving aims in competitive conditions.

X. Conclusion Company law is more stable than other areas of business life, though even here we can find changes brought about mainly by the need for the law to be harmonized in view of market, also capital market, globalization requirements.

The authorities of the European Union are not strangers to the idea of a uniform commercial company law for all member states.

Under the Polish legal system, commercial law pertains only to entrepreneurs. The definition of entrepreneur is provided in various bodies of law, including the Polish Civil Code (CC), the Freedom of Business Activity Act or Insolvency and Reorganisation Law. The area of application of commercial law is, therefore, based on subjective distinction (Polish commercial law case). In order to draw such a distinction, an examination of the persons involved in a transaction is necessary and should one of the parties be deemed to be an entrepreneur, the transaction automatically comes under the framework of commercial law. In contrast, objective distinction defines commercial law in relation to the nature of a particular transaction. As a result of this distinction, commercial law may also be defined as being an area of commercial transaction.

Poland’s Association Agreement with the European Union, signed in 1991, guarantees entrepreneurs from the EU freedom to establish subsidiaries in Poland. The reverse also applies to Polish entrepreneurs wishing to establish subsidiaries within the EU. Given this agreement, the Committee on European Integration (a Polish ministerial committee which opinions on the Conformity of new Polish legislation with EU law) has argued that the requirement of reciprocity is contrary to the provisions of the Association Agreement and should not apply to entrepreneurs from the EU, nor should reciprocity be required by the Registration Court.

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The challenging question therefore arises as to which areas of law may be thought of as belonging to commercial law. Given that commercial law is the law regulating relations between entrepreneurs is sometimes called a commercial law in narrow terms. This phrasem covers bodies of law which establish the terminological framework of commercial law-related matters. This framework is partially contained in the Freedom of Business Activity Act, which specifically provides the definition of an entrepreneur. Further supplementing the Business Act with respect to commercial matters is the Civil Code, which includes a volume of provisions applicable to entrepreneurs. Therefore, the Freedom of Business Activity Act and the Civil Code refer to commercial issues.

It is questionable as to whether the Polish Commercial Companies Code belongs to commercial law in narrow terms. I believe that the answer to the conundrum should be yes, as the Commercial Companies Code specifically deals with forms of business organisations and is, therefore, directly related to the definition of an entrepreneur provided in the Freedom of Business Activity Act.

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