Updated: 19.05.2025
Transaction documents executed in the course of mergers and acquisitions (M&A) – whether related to the sale of shares, an enterprise, or specific assets – constitute a comprehensive framework regulating the relationship between former owners and new investors. The complexity of such agreements arises from the necessity to clearly safeguard the parties’ interests while ensuring the predictability and enforceability of the entire commercial transaction.
To accurately reflect the parties’ agreement and legal assurances, M&A agreements in Poland typically include detailed and carefully negotiated clauses. Many of these are critical to the proper execution of the transaction and the future relationship between the parties hereto. Although not mandatory under Polish law, such clauses – such as the entire agreement clause, merger clause, or integration clause – form part of the market standard and are widely adopted in written agreements within the jurisdiction.
Conditional Agreements – Suspensive or Resolutive Conditions
During the negotiation phase of a commercial transaction, particularly in M&A deals, it is common for the buyer to identify a specific business risk related to the target company. Often, this risk hinges on a particular circumstance whose outcome – positive or negative – may significantly impact the investor’s decision to enter into a final agreement.
Such situations frequently involve the need to obtain an administrative decision or the resolution of a pending legal dispute involving the target. In these cases, the parties may incorporate conditional provisions into the transaction documents to enter into a written agreement while safeguarding the investor’s interests.
The two most common forms of such clauses include:
- Suspensive Condition (Condition Precedent) – the agreement between the parties is signed, but its legal effects are postponed until a specific condition is fulfilled (e.g., issuance of a required administrative decision);
- Resolutive Condition (Condition Subsequent) – the transaction is closed and the agreement takes effect, but will be terminated if a particular event occurs (e.g., an unfavorable court ruling).
These provisions, integrated within the broader framework of the entire agreement or integration clause, help ensure clarity and manage risk related to the subject matter hereof.
Price Under Control – Price Adjustment Clause
In mergers and acquisitions, the transaction price is typically determined based on specific financial indicators – such as EBITDA – as of a designated reference date indicated in the transaction documents. However, due to the passage of time and the ongoing operations of the target entity, this data may become outdated before the signing of the written contract, especially when the transaction includes the sale of assets such as real estate listed in land and mortgage registers.
To maintain the accuracy and market relevance of the valuation, the parties hereto often incorporate price adjustment clauses – mechanisms that allow for a technical increase or decrease of the final price based on agreed-upon financial metrics valid on the closing date. These provisions help preserve the complete and final agreement and protect both parties against unwarranted price inflation or reduction.
Such clauses may also apply when the parties agree to exclude certain financial flows – e.g., non-dividend cash transfers from the target to the sellers – or specific assets or liabilities from the valuation. In these cases, a predefined price correction is typically applied. This correction often constitutes a critical element of the sole and entire agreement signed by the parties and forms part of the final expression of their commercial intent.
Put and Call Options – Who Holds the Right, and Who Bears the Obligation?
Put and call option clauses are typically regulated in a separate, standalone written agreement known as an option agreement, which accompanies M&A transactions as part of the broader package of transaction documents. Occasionally, however, these option clauses are embedded directly within a shareholders’ agreement, investment agreement, or other contractual arrangements entered into by the parties hereto relating to the transaction – including co-shareholders of the target company.
A put option clause grants a specified shareholder – usually the investor – the right to sell a certain number of shares in the company. This is often exercised after a predefined period or upon fulfillment of specific conditions, enabling the investor to exit the investment. The remaining shareholders are obligated to purchase the investor’s shares under conditions stipulated in the agreement between the parties, which typically reflects their entire understanding and avoids reliance on any prior or contemporaneous agreements.
Conversely, a call option clause is the mirror image of the put option. It entitles the investor to require the other shareholders to sell to them a specified portion of their shares at an agreed-upon price. A call option strengthens the investor’s position by allowing them to increase their stake after a certain time frame or once defined triggers occur, thereby reinforcing their rights within the company structure.
Both put and call options are commonly structured either as preliminary agreements or as binding offers to sell (in the case of a call option) or offers to acquire (in the case of a put option), submitted by the obligated shareholders. The investor exercises the option via a unilateral declaration of intent, thereby finalizing the transaction contemplated by the option and causing the share transfer to take legal effect.
The option agreement should, in particular, define the share sale price (including the method of calculation or a pricing formula), the number of shares subject to the transaction, the timeline for the exercise of the option- such as the validity period of the offer or the deadline for concluding the final share purchase agreement- as well as any specific conditions precedent for exercising the option, if agreed between the parties.
This agreement should be executed in writing signed by the parties with notarized signatures. This formal requirement allows the investor to unilaterally enforce the written contract in the event that the sellers refuse to cooperate or attempt to avoid fulfilling their obligations.
To further safeguard the parties’ agreement, the inclusion of liquidated damages clauses is common, reinforcing the enforceability of the investor’s rights. Additionally, it is not unusual for the obligated shareholders to grant the investor a written power of attorney, notarized as required, authorizing the investor to execute the share transfer agreement on behalf of both parties. This ensures the transaction can be completed in line with the entire and only agreement, even if cooperation breaks down.
Drag Along Rights – How to Enforce a Share Sale?
The drag along clause, also referred to as the come along right or bring along right, is a distinctive provision commonly included in an investment agreement or shareholders’ agreement.
It grants the eligible shareholder – typically the investor – the right to require the remaining shareholders to sell their shares to a third party designated by the investor, if such buyer expresses a desire to acquire a controlling interest that exceeds the investor’s existing shareholding. This mechanism serves the purpose of allowing the investor a smooth exit from the company, akin to a put option.
Under such provisions, the parties often agree that the terms of the sale by the other shareholders will mirror those negotiated between the investor and the prospective buyer. The clause may also establish a minimum price threshold or define the valuation method, including the selection of authorized auditing firms responsible for appraising the shares.
To ensure enforceability, the transaction documents often include a penalty clause for breach of the drag along right. Moreover, the agreement may stipulate that any shareholder failing to comply may have their shares automatically or forcibly redeemed – an action that must also be reflected in the company’s governing documents.
Tag Along Rights – How to Protect a Minority Shareholder?
The tag along clause, also known as the right of co-sale, is one of the standard provisions included in an investment agreement or shareholders’ agreement. It grants the eligible shareholder – typically the investor – the right to participate in a share sale transaction initiated by another shareholder who is disposing of their shares.
The primary purpose of this clause is to protect an investor who has committed capital to the company but lacks the experience or know-how necessary to run the business, from being left behind if another shareholder – often the founder, who holds operational knowledge and leadership – decides to exit the company and sell their shares to a third party.
At times, the tag along clause is also designed to protect shareholders (often founders) who hold such a small stake that selling their shares independently, without the support of other shareholders, would not be feasible.
Typically, the clause provides that the sale of shares by shareholders exercising their tag along right will occur on the same terms as those negotiated by the selling shareholder. The agreement should specify the timeframe during which the tag along right can be exercised, as well as any additional conditions agreed upon by the parties.
The execution of the tag along clause is typically secured by incorporating a contractual penalty in case of its breach. Additionally, the agreement may stipulate that if any shares are sold in violation of the tag along provision, those shares shall be subject to automatic or forced redemption. This enforcement mechanism should be appropriately reflected in the written contract and aligned with the provisions of the company’s articles of association.
Lock-up Period – Why Is It Worth Restricting Share Transfers?
A lock-up clause obligates a shareholder to refrain from disposing of or encumbering (e.g., through a pledge or usufruct) their shares in the company for a specified period following the signing of the investment agreement.
The primary purpose of this provision is to protect the investor from the premature exit of key shareholders essential to the company’s operations – most often founders who possess crucial know-how. Conversely, in certain cases, the clause serves to protect existing shareholders (typically founders) by preventing the investor from withdrawing from the company prematurely.
The prohibition on transfer or encumbrance introduced by the lock-up clause must be clearly defined in terms of duration and should not be excessively long. Otherwise, its enforceability may be challenged in court.
It is generally recommended that lock-up periods last several years. Compliance with the lock-up clause is typically secured through a contractual penalty or automatic redemption of shares transferred in breach of the clause. Such enforcement provisions should be explicitly incorporated into the written contract and the articles of association.
Right of First Refusal and preemptive right – Who Buys First?
The right of first refusal grants an eligible shareholder the right to acquire shares in the company with priority over other shareholders or third parties, in the event that a shareholder intends to sell their shares.
A shareholder entitled to exercise the right of fist refusal may purchase the offered shares under the same terms agreed upon between the selling shareholder and the prospective buyer. In practice, the parties to the transaction typically first enter into a conditional settlement agreement (first refusal agreement), which is then communicated to the company’s shareholders, allowing them to exercise their right of first refusal accordingly.
The preemptive right serves the same purpose and yields the same effect as the right of first refusal, but differs in that it is generally exercised before the signing of any written contract between the selling and purchasing parties.
The preemptive right is most commonly found in investment agreements and the company’s articles of association. When a shareholder decides to sell their shares, they are required to submit a declaration to the eligible shareholders outlining the essential terms of the planned sale with using the preemptive right.
Those shareholders, entitled under the preemptive right, may then act within a specified timeframe to accept the terms and proceed with the purchase, waive their rights explicitly, or remain passive. In the latter case, the right will expire upon lapse of the defined period.
Both the right of first refusal and preemptive right aim to give preferred shareholders control over the composition of the company, allowing them to block the entry of a third party as a new shareholder.
Anti-Dilution Protection – How Not to Lose Control of the Company?
The anti-dilution clause is designed to protect the investor from losing control over the company or from dilution of their equity, which may occur when new shareholders are admitted through an increase in the company’s share capital.
This protective regulation typically includes an obligation for shareholders to refrain from actions that would result in a decrease of the investor’s ownership percentage. In particular, it commonly prohibits the adoption of a resolution to increase the share capital without the investor’s consent. If such an increase is approved, it requires that a new package of shares be offered to the investor to preserve their ownership ratio.
The anti-dilution clause is not intended to protect all shareholders, but rather one or a select few – depending on the company’s capital structure – since its application inherently dilutes the stakes of those shareholders not covered by the clause.
Violation of anti-dilution provisions typically results in an obligation to pay a contractual penalty, clearly stated within the written contract. These provisions must be precisely detailed in the transaction documents to ensure they are enforceable and form part of the subject matter contained in the complete agreement between the parties.
Good Leaver vs. Bad Leaver – A Clean vs. Costly Exit from the Investment
When an investor joins the target company as a shareholder alongside its existing owners, it becomes crucial to secure the parties’ business and corporate arrangements. Good Leaver and Bad Leaver clauses provide a mechanism to appropriately protect the interests of all involved.
In the sale agreement or supplementary other agreements such as the shareholders’ agreement (SHA), the parties typically define a detailed set of business and corporate obligations applicable to the current shareholders and the investor. These clauses often introduce a time horizon for a potential exit by the original shareholders.
Such terms specify that if all conditions agreed upon for the original shareholders are met, they may exit the investment at a predetermined price – referred to as the Good Leaver scenario. Conversely, if these conditions are not satisfied, the exit must occur at a significantly lower valuation – defined as a Bad Leaver outcome.
Earn-Out Clause – Linking Future Profits to the Purchase Price
M&A transactions typically involve multiple sources of financing. One common mechanism is linking part of the payment to the future profits of the target. This structure helps safeguard the buyer’s interest in the ongoing economic performance of the target and incentivizes the continued involvement of the existing shareholders by tying their financial returns to the company’s future results.
It is customary for the parties to designate a specific portion of the purchase price to be paid to the sellers at a future date. These provisions are tied to the target’s financial performance over a defined period and are calculated using a pre-agreed formula. In some cases, the parties include terms where a fixed amount or a certain percentage of a benchmark sum is added to the purchase price once the target achieves defined milestones.
The general principle is straightforward: the better the target performs financially, the higher the potential payout to the seller.
What Else Should Be Included in an Investment Agreement?
The clauses described above reflect the most important and characteristic provisions found in investment agreements and other transaction documents concluded within M&A deals. However, it is essential to note that parties often regulate additional mutual obligations and rights.
Particularly, the agreement may include a non-compete clause, intended to protect the investor from the risk that the selling party might engage in competitive activity following the sale of shares—especially by leveraging the client base or know-how constituting part of the sold company’s assets.
A similar function is served by the non-solicitation clause, designed to prevent the selling party from enticing employees or clients of the company to migrate to another business and continue working together, to the detriment of the company acquired by the investor.
A crucial component of investment agreements includes the representations and warranties issued by the seller regarding the economic, legal, and factual condition of the target company and its business operations. These declarations are usually intended to confirm the company’s status as verified during the due diligence process.
The seller’s liability for the accuracy of such written statements and such representations is often backed by contractual penalties, which also commonly secure the performance of other obligations, including those arising from the non-compete, non-solicitation, and other clauses mentioned previously.
A contractual penalty constitutes an obligation to pay a fixed sum as compensation for damage resulting from the non-performance or improper performance of a non-monetary obligation. However, a party required to perform or abstain from a specific action (e.g., compliance with a non-compete or confidentiality undertaking) cannot release itself from such obligations merely by paying the penalty, unless the other party consents.
The advantage of a contractual penalty is that it is generally enforceable in the amount agreed upon in the written contract, regardless of the actual damage incurred, thus sparing the injured party the complex process of quantifying damage. Still, it must be noted that claiming damages beyond the agreed penalty is not permitted unless the agreement constitutes otherwise.
Finally, attention should be given to provisions addressing governing law and court jurisdiction. These are especially relevant where the investor is a foreign entity, i.e., with its registered seat outside the Republic of Poland. By selecting the applicable law and court jurisdiction in advance, the parties avoid future disputes regarding legal competence and enforcement.
FAQ – M&A Clauses in Poland
Do prior agreements or oral promises affect the enforceability of M&A written contracts?
No. M&A contracts typically contain clauses confirming that prior agreements, prior employment agreements, oral agreements, and even oral or written promises have no legal force unless incorporated into the written contract. This ensures the transaction documents constitute the full and final expression of the parties’ prior and current understandings.
What is the significance of the 'entire agreement’ or 'exclusive statement’ clause?
This clause affirms that the agreement is the sole and entire agreement between the parties as of the date hereof. It excludes reliance on previous agreements, prior written matter, oral and written statements, and prior or contemporaneous agreements.
How are representations, warranties, and disclosure schedules used to protect buyers?
Such representations by the seller concerning the target’s status are typically confirmed in written statements, supported by disclosure schedules, and verified by legal counsel. These form part of the subject matter contained in the agreement and are legally binding under the written or oral agreements excluded clause.
What happens if a party breaches a non-compete or non-solicitation merger clause?
A contractual penalty is imposed, often detailed within the other agreements forming part of the M&A deal. However, the breaching party cannot unilaterally avoid obligations – such as refraining from soliciting staff covered by employment contracts – by paying a penalty, unless the agreement has expressly referred to such an option and it has been voluntarily accepted by the other party.
Why do M&A agreements specifically exclude prior negotiations and amendments?
To enforce clarity, the transaction documents constitute the complete agreement, nullifying reliance on prior written, prior oral, or contemporaneous written communications. Only such amendments that are formally agreed upon in the final document are enforceable.
How are informal understandings or other agreements terms treated in M&A contracts?
They are not enforceable. M&A agreements exclude prior and contemporaneous understandings, oral statements, and previous negotiations unless expressly set in writing. Matters like lease agreements, loan agreements, or severance benefits must be included in the final document. Parties represent that all binding assurances related to such subject matter are confirmed as of such date, with review by respective attorneys.
