Share Purchase in Poland
- M&A in Poland
- Merger control in Poland
- Due Diligence
- Taxation of share (stock) transactions
- Share Purchase in Poland
- Share Sale in Poland
Share purchase of Polish Company – regulation
Share purchase in Poland is governed in particular by the following acts of Polish Law:
- Polish Commercial Companies Code of September 15th, 2000,
- Polish Civil Code of April 23rd, 1964,
- Polish Civil Procedure Code of November 17th, 1964.
Particular share transactions may be captured by separate regulations establishing additional restrictions (e.g. in case the target company owns agricultural property, or in case of control acquisition by the foreigner from outside of EU over company owning property at the territory of Poland).
M&A transactions of higher values may be captured merger regulation and may required merger clearance, i.e. permit of Polish Merger Authority.
Purchase of shares in Polish LLC in nutshell
Basic purchase of shares in limited liability company in Poland may be completed in seven steps:
- completing corporate requirements (e.g. consents of corporate bodies, preemption right),
- obtaining statutory permits (if required),
- executing share purchase agreement in writing with notarial certification of signature,
- notifying share purchase to the company,
- updating of the share register by the company,
- reporting changes to Polish Company Register (KRS),
- reporting and paying transaction tax.
More about the restrictions and requirements may be found in section share purchase in LLC.
Purchase of stock in Polish JSC in nutshell
The process of purchase of stock in private joint stock company is very similar to the process related to LLC shares, nevertheless, there are certain distinctions that need to be preserved for transaction effectiveness. The stock deal on Polish private JSC may also be competed in seven steps:
- completing corporate requirements (e.g. consents of corporate bodies, preemption right),
- obtaining statutory permits (if required),
- executing stock purchase agreement in the form agreed with the brokerage house,
- notifying stock purchase to the brokerage house running company’s stockholders (shareholders) register,
- updating of the shareholders (stockholders) register by the brokerage house,
- reporting changes to Polish Company Register (KRS) (if required),
- reporting and paying transaction tax.
More about the restrictions and requirements may be found in section stock purchase in JSC.
Trades with stock in public JSC are governed separate by rules of Capital Markets Law in Poland.
Is there a tax on share (stock) transfer in Poland ?
Yes, purchase / sale of shares Polish company triggers 1 % transfer tax in Poland (tax on civil transaction). The tax is payable within 14 days by the buyer of the shares. Sale of stock in joint stock company is subject to the transaction tax, with exception of capital market transaction on public companies stocks.
It shall be remembered that sale of shares (stock) may trigger capital gain tax in Poland. More transaction related tax obligations may be read in section tax on share (stock) transfer in Poland.
Share purchase vs stock purchase and rights purchase
In general, spoken language the terms “share purchase” is used in reference to any transaction on shares, stock or rights within the company. Nonetheless, it should be noted that in Polish legal language we distinguish three different terms that refer to transactions on different types of companies:
- share purchase refers to only purchase of shares in limited liability company,
- stock purchase refers to only purchase of stock in joint stock company,
- rights purchase refers to only purchase of rights in partnerships.
Each of above listed transaction is slightly distinct due to different legal features of each company.
Share purchase and due diligence
Regardless, whether you are interested in purchasing shares, stock or rights, it is always recommend to run due diligence prior to acquisition. Lists of risks associated with share deals in M&A transactions are always extensive. In addition to typical risks related to capital loss, defects of shares or assets composition, additional risks of may appear – criminal liability for Since the list of risk associated with share purchase is extensive, the transaction itself, as any other share deal, shall be preceded by a thorough due diligence investigation.
Shares acquisition in Limited Liability Company in Poland – corporate requirements
Prior to the transaction of share purchase in Polish LLC, a prospective shareholder shall engage M&A Law Firm to examine what are the corporate requirements within the target company (i.e. company whose shares are about to be purchased). These requirements must be met in order to ensure that the acquisition is successful and the transfer of shares to the buyer is valid and effective.
Company’s consent for the M&A transaction
M&A practice shows that most common restriction regarding shares transferability in LLC‘s is the requirement to obtain the company’s consent for shares acquisition.
Consent required by Articles of Association
In Poland LLC’s articles of association very often include legal provisions that regulate the procedure of obtaining the company’s consent for the sale of its shares.
- Firstly, the investor should check which governing body is competent to give the consent – is it the management board, the general meeting (shareholders meeting), the supervisory board or the audit committee? If the decision-making body is made up of more than one member, the consent is given in legal form of a resolution. If this is the case, it is necessary to establish if the adoption of the resolution requires a quorum or a specific majority of votes.
- Secondly, the investor should verify whether the company’s articles of association provide for any specific procedure of obtaining the company’s consent for the sale of shares. Usually, the procedure of obtaining the consent requires the seller to notify the company’s management board or its other shareholders of the intention to sell shares to a third party. This notice should contain details of the key terms of the transaction, including the number and price of shares, the payment due date and the buyer’s details. This information is necessary so that the competent governing body of the company can make an informed decision on whether or not the consent for the share purchase transaction should be given.
Polish case law underlines that the company’s articles of association should set forth solutions in the event that the company refuses to give the consent for acquisition, because each shareholder should have an option to exit from the company. In practice – one of the most commonly used clauses is one where the company is required, within a prescribed deadline, to present a buyer who will buy the shares from the seller. If the company does not indicate a buyer, the seller will have the right to sell the shares to a buyer of his own choice.
Statutory consent – implied regulation of Polish Company Code
Where the LLC’s articles of association set forth only a general obligation to obtain the company’s consent for the sale of shares, without specifying in detail the procedure of obtaining such consent, the Polish Law steps in and applies. In accordance with the implied rules of Code of Companies of Poland:
- the consent is given by the management board in writing,
- where the consent was refused, the share transfer may be approved by the registry court, provided that there are compelling reasons for doing so,
- the company may, within a deadline set by the registry court, indicate another buyer,
- where the parties were unable to reach an agreement, the price of shares and the payment due date – at the requisition of the shareholder or the company – will be determined by the registry court, having beforehand used the advice of a court expert (if necessary),
- if the person indicated by the company failed to pay the purchase price within the deadline, the shareholder is free to dispose of their shares as they see fit, unless they refused to accept the offered payment.
Right of first refusal – preemption right – priority to purchase
Another common restriction that has to be examined prior to any M&A deal is the right of first refusal (preemption / priority to purchase) established for the benefit of the existing shareholders of the company. Where such right exists, before the shares are sold to a third party, the existing shareholders are entitled to join the transaction by submitting a unilateral statement to that end to the shareholder intending to sell the shares. Once the shareholders submit the statements, they replace the third party as the buyer under the share purchase agreement and acquire the shares usually in proportion to the contributions they made to the company’s share capital.
Violation of the right of first refusal
It must be stressed that the sale of shares in violation of the right of preemption (the right of priority to purchase) held by the existing shareholders is not invalid by operation of law, however, the shareholders will be able to challenge the transaction by claiming that the agreement is ineffective to the extent that they are concerned in order to exercise their right of preemption or, alternatively, they will be entitled to seek damages.
Unpaid contributions towards LLC
Another important issue that shall be verified by corporate attorneys prior to any M&A transaction is whether there are any unpaid contributions / consideration owed by the seller to the company. If yes – the investor shall be aware that Polish Company Law establishes implied joint and several liability of the seller and buyer for such contributions / considerations.
Formal requirements of shares purchase in Polish LLC
A share purchase agreement must be made in writing and the signatures of parties to the agreement must be certified by a civil-law notary.
An agreement that does not satisfy these requirements is invalid. If this is the case, the registry court (Company Register of Poland) will refuse to update information in the register records in respect of the changes in the shareholdings.
Shares purchase agreement outside of Poland
Very often M&A transaction documents are executed outside of Poland. In such event there are two usual solutions for effective share transfer:
- Polish corporate attorney may execute the share purchase agreement based on the Power of Attorney at Polish Notary; or
- the shareholder may sign the share purchase agreement at a notarial office outside Poland’s borders, however such acquisition contract will need to be legalized in accordance with the law of the given state. The legalization will confirm that the notarial certification is authentic.
- In the case of countries that are party to the Hague Convention Abolishing the Requirement of Legalization for Foreign Public Documents of 1961, it would not necessary to legalize the documents. It would be sufficient to obtain an apostille clause, instead.
Permit to purchase shares in Poland by foreigners
Participants of M&A deals in Poland shall always bear in mind that the Polish law places certain restrictions on the purchase of shares by foreign nationals, if the transaction involves a company that is the owner (or a perpetual usufructuary) of real estate located within the Polish territory. M&A transactions that involve real estate in Poland shall always be consulted with Polish Real Estate Law Firm.
A foreigner or foreign company seeking to complete a share deal regarding company that owns real property in Poland will need to obtain a permit granted by way of an administrative decision by the minister of interior affairs. The permit will be issued following an application filed by the foreign national, if:
- the purchase of shares will not pose a threat to the national defense, security or public order and interfere with social policy and public health,
- the foreigner demonstrates that they have (bonds) ties to Poland.
A foreign national is considered to have ties to Poland especially if they:
- have Polish nationality or Polish descent,
- marry a Polish citizen,
- have temporary or permanent stay permit or a permit for a long-term EU resident,
- are a member of a governing body of a company based in Poland, controlled by foreigners,
- run a business or an agricultural operation in Poland in accordance with the Polish law.
The purchase of shares in Polish company by a foreign national without the required permit will be invalid.
Exemption from permit requirement
On a final note, it should be mentioned that the abovementioned restrictions do not apply to the nationals of countries that are parties to the Agreement on the European Economic Area or the Swiss Confederation.
Share purchase agreement in Poland
The shares acquisition in Poland takes place on the basis of the contract between a company shareholder and the buyer.
Compulsory elements of the Polish Share Purchase Agreement
Apart from meeting the requirements specified above, the share purchase agreement must contain the following elements:
- details of the parties to the agreement,
- details of the company which is about to have its shares transferred,
- the number of shares about to be sold,
- the price of the shares,
- the payment due date and the payment method.
Optional elements of the Polish Share Purchase Agreement
Optionally, the agreement purchase agreement may regulate other issues, such as:
- the moment when the title to the shares is transferred to the buyer:
- the seller can retain the title to the shares until the full payment of the price or
- the parties can agree that the title will be transferred to the buyer upon the execution of the agreement, irrespective of when the price is paid or whether it is paid at all,
- where the price is to be paid in installments, the parties can also agree that the title will be transferred upon the payment of the first or the last installment,
- the contractual interest that will accrue in the event that the payment of the price is delayed,
- the right to rescind the agreement which usually:
- can be exercised by the seller in the event that the buyer defaults on the agreement, especially fails to pay the price on the agreed date,
- can be exercised by the buyer in the event that any legal defects in the shares are found,
- a contractual penalty for failure to perform duties other than making the payment,
- other duties of the parties that will vary depending on the specific transaction.
Post-closing obligations (reporting changes)
Among post-closing obligations that the parties to a share purchase agreement have, the most important one is, without a doubt, the obligation to notify the company about the transfer of the shares to the buyer. In accordance with Polish Company Law – it only when the company receives the notice along with a proof of transaction (usually the agreement) – the share transfer will be binding on the company.
The obligation to notify the company lies with both parties to the agreement, unless the shares sale agreement provides otherwise.
You should note that the buyer of the shares will be able to exercise their corporate rights and proprietary interests with respect to the company, including the participation in general meetings, voting on resolutions and claiming the payment of dividend – only after the company is notified of the share transfer.
Registration of shares transaction
Once the company is notified about the transaction, it has the duty to:
- update the information about the company shareholders and the number of shares in the corporate registers; and
- reporting the changes to the relevant government bodies, in particular:
- the National Court Register (Krajowy Rejestr Sądowy),
- the Central Beneficial Owner Register (Centralny Rejestr Beneficjentów Rzeczywistych),
- the tax office competent for the company,
- Poland’s Central Bank (Narodowy Bank Polski) (in certain cases).
Tax number for the shares buyer in Poland
If, before the merger or acquisition transaction in Poland, the buyer of shares did not have the taxpayer status in Poland, he should request Polish tax attorney to submit a tax identification application to the competent tax office. The application will be necessary to obtain a Polish tax identification number (NIP).
Stock acquisition in Joint Stock Company – corporate requirements
Before a transaction of stock acquisition in the joint stock company in Poland (JSC), the investor should determine whether the target company is private or public JSC:
- Transactions regarding public, i.e. stock listed, joint stock companies are subject to separate regulation of Polish capital markets.
- If the target company is a private JSC then the potential buyer may pass on to examination of the corporate governance rules and in particular corporate requirements for effective stock purchase.
Restrictions on stock transferability in JSC
Although, it is more common for LLC’s, sometime Statutes of joint stock companies in Poland, establish restrictions on stock transferability. The most usual form are:
- corporate consent of the Company,
- right of first refusal of the existing stockholders.
Regulation of corporate consent and the right of first refusal in joint stock company is comparable limited liability company, therefore more may be read in section regarding purchase of LLC shares.
Execution of stock transfer agreement
Theoretically, Polish law places no requirements as to legal form of the stock transaction. Therefore, speaking strictly from Polish Corporate Law point of view, even oral stock transfer agreement regarding stock in private JSC, would be valid and enforceable.
However, practical side of stock transactions regarding stock in private JSC in Poland, is quite different. This is because stocks (shares) in a joint-stock company are dematerialized, i.e. they exist only in digital form. Stock registers are run by stock brokers (brokerage houses) selected by the companies themselves. Each brokerage house has its own procedures and requirements as to the form of the stock transfer agreement and accompanying documents. As a result, stock deals regarding private joint stock companies in Poland shall reflect requirements of the broker house running stock register of the target company. Practice of M&A transactions shows that requirements of each brokerage house are very different, some of them are very flexible, other extremely stringent.
For the above reasons, our corporate attorneys always underline that it is advisable to execute the stock purchase agreement in the written form with signatures certified by a notary. If the stocks agreements is signed outside of Poland – legalization or Apostille is recommend.
Entry in the stockholders register
In accordance with Polish Corporate Law – in case of private joints stock companies – the title to the stock does not pass to the buyer along with execution of the stock purchase agreement. The ownership / title passes only with entry of the transaction in the shareholders register.
Who may request to record of the transaction in the stockholders registry of the joint stock company ?
The request the record changes in the company stock structure in the stockholders registry may be placed by:
- Board of the private joint stock company company; or
- a person with a legitimate interest – e.g. buyer.
The person requesting the record is required to submit documents in support of the record to the entity keeping the shareholders register (brokerage house).
How much time does the stockholders registry has to do the entry ?
The brokerage house shall do the entry immediately, yet no later than within a week from receiving the request. However, if the transaction is not well prepared, and the list of required documents is not consulted / agreed with the brokerage house prior to execution – registration time may take more due to questions and requests for further documents.
Can the entry in stockholders registry be rejected ?
Theoretically, as per Polish Law, the brokerage house is under no obligation to verify the legality or authenticity of documents in support of the record, including the signatures of the seller of the stocks. However, here again the practice is quite different. Most usually brokerage houses are very strict and the run thorough verification of the transaction documents, accepting only documents executing before the Notary. In case of any doubts, it is possible that the brokerage house may refuse to make the record in the stockholders register.
Is the stockholders registry the same as Company Registry of National Court Registry (KRS) ?
No, stockholders registry in joint stock company is not the same registry as company registry of NCR (National Court Registry).
- The stockholders register (called also shareholders register) is kept by an entity which, by virtue of the Act on Financial Instruments Trading of 29 July 2005, is authorized by the joint stock company to maintain a securities account. Usually, this means a bank or a brokerage house.
- Company Register of National Court Registry (KRS) is a public register of all companies in Poland, it is maintained by Local Courts in Poland. Each company in Poland has its files and its entry in Company Register. You can also check shareholders structure of each company with exception of joints stock companies and this is because shareholders structure for joint stock companies, as an exception, is registered by separate entity (i.e. by brokerage house in stockholders registry).
Private bill of sale regarding stock in Polish company
Bills of sale in Poland are not in common usage for two reasons:
- Firstly, as they do not represent title / ownership to the stock, as title passes only once the brokerage house registers the transaction in the digital stock register.
- Secondly, as mentioned above, each brokerage house in Poland has its own procedures and requirements as stock transfer documents and our experience with M&A deals shows that they are very often reluctant to accept other document then the classical stock purchase agreement.
Stock certificate in Poland
As opposed to bill of sale, brokerage houses running the stockholders registers for joint stock companies in Poland are obliged to issue the stock certificates (registration certificates). Stock certificates are valid for the period defined in their content.
Can a shareholder trade with stock covered by this certificate during the validity period of the certificate?
Stock listed in the of the stock certificate may not be the subject trade from the moment of its issue until its expiry or return of the certificate Shares listed in the certificate blocked on the account and excluded from trade.
Summary – registration of changes in shareholders register
Once the stock (share) purchase agreement is concluded, the buyer shall immediately pass on to submitting an application to the entity keeping the shareholders register (brokerage house) for recording changes in the shareholders register. Most usually the following data need to be updated: buyer data and the shares data: the number, class, series of the shares. The purchase of stock (shares) becomes effective only after the record in the shareholders register is made. It is important to be aware that the buyer of the stock (shares) will be authorized to exercise the rights attached to the shares, i.a., claim dividends, attend the general meeting and vote, only after the record is made in the shareholders register.
Other post transaction reporting obligations
Once the application for record in shareholders register is submitted, the company has the duty to report the changes in other relevant registers, especially:
- the National Court Register (if necessary),
- the Central Beneficial Owner Register (UBO register of Poland),(if necessary),
- the tax office competent for the company,
- Poland’s Central Bank (in certain cases).
If, before the execution of the transaction, the buyer of shares did not have the taxpayer status in Poland, they should remember about submitting an identification application to the competent tax office. The application will be necessary to obtain a tax identification number (NIP).
Is there a model Share Purchase Agreement in Poland ?
No, there is no model share purchase agreement in Poland. Each agreement shall be tailor-made, adjusted to needs and requirements of particular transaction or M&A deal.
Share Purchase Agreement in Poland for illustrative purposes
Below we are presenting very simple template share purchase agreement (template SPA) for illustrative purposes only. The template shall not be used for transactions. Each share transaction requires an individual and legal analysis that would take into account the legal status of the shares on the one hand, and the particular situation of the buyer, the seller and the company.
Why the template of share purchase contact is so short ?
Template SPA is so short due to the following reasons:
- Firstly – we are presenting a very simple template contract that meets just basic legal requirements.
- Secondly – in Poland most of the provisions that are missing in the template are implied from Polish Companies Code or Civil Code, as a result there is no need to repeat them in the content of the purchase contract, unless parties desire so.
Is there a minimum content of share purchase agreement ?
Yes, in Polish Law we call this essentialia negotii, i.e. minimum content of the share acquisition contact. Without such elements the contract would not be valid:
- shares description,
- parties description,
- price definition.
Absence of all other usual clauses, incl. moment of title transfer, payment term, applicable law, court jurisdiction, warranty, rules of notification – will not invalidate the share purchase agreement. They will be automatically implied from Polish Law, e.g. Companies Code and Civil Code.
Can the share purchase agreement be more complex ?
Of course, and that is the usual practice in foreign investment transaction in Poland. Foreign investors, as opposed to Polish domestic investors, are reluctant to relay on terms implied from Polish Law, as a result, our Polish M&A attorneys draft complex share purchase agreements, that exclude Polish implied terms, and comprehensively regulate all the terms and conditions within the content of the share acquisition agreement.
SHARE PURCHASE AGREEMENT TEMPLATE
made on………….. 2021 in ……….…., hereinafter referred to as: the “Agreement” between:
….…………………………………… (Seller’s details) hereinafter referred to as: the “Seller”
…………………………………………(Buyer’s details) hereinafter referred to as the “Buyer”
with the Seller and the Buyer referred to collectively as the “Parties” and individually as a/the “Party” reading as follows:
Article 1 Parties’ representations
- The Seller and the Buyer both represent that:
- they are shareholders of ………….. (company name) spółka z ograniczoną odpowiedzialnością with its registered seat in ……… (city/town), listed in the register of business entities of the National Court Register (Krajowy Rejestr Sądowy) kept by the District Court in ……., ……….. Commercial Division of the National Court Register (name of the registry court) under number: ……………., tax identification number (NIP): ……………, statistical information number (REGON): …………(hereinafter referred to as the “Company”),
- the Company’s share capital is equal to PLN …………. and is divided into …………. equal and indivisible shares with the nominal value of PLN …………. each
- the shares in the Company’s share capital have been subscribed for as follows:
- – shareholder………. – holds …… shares with the nominal value of PLN …… each and the total nominal value of all the shares held by the shareholder equal to PLN ……,
- shareholder………. – holds …… shares with the nominal value of PLN …… each and the total nominal value of all the shares held by the shareholder equal to PLN ……,
- The shares in the Company’s share capital can be disposed of with the Company’s consent by virtue of Article ….. of the Company’s articles of association,
- In accordance with Article ….. of the Company’s articles of association, the other Company shareholders have the right of priority to buy the shares about to be sold in proportion to the shares already held by them; this right can be exercised by way of a written statement submitted within one month of receiving the shareholder’s notice of the intention to sell the shares.
- By virtue of resolution no. ………. of the Company’s Management Board dated………….. the Company has given its consent for the sale of all the shares held by the Seller to the Buyer on the basis of terms that they freely determined; the abovementioned resolution of the Company’s Management Board is attached hereto as Appendix 1,
- The Seller also represents that the shares held by them are free from all legal and physical defects, exist in the legal sense and belong to the Seller and are not encumbered with any rights, claims or debts.
- The Buyer also represents that they have the means to buy the shares under the Agreement.
- The Parties both represent that they will fully cooperate with each other to duly perform this Agreement.
Article 2 Sale of shares
- The Seller sells and the Buyer buys …… shares in the Company’s share capital belonging to the Seller for a total price of EUR …… (say: …………. euro and 00/100 cents).
- The Buyer shall pay the price for all the shares purchased on the basis of Article 2 section 1 of the Agreement within 7 days from the execution of the Agreement.
- The title to all the shares sold by the Seller on the basis of Article 2 section 1 of the Agreement is transferred to the Buyer upon the execution of the Agreement.
- As regards Article 2 section 2 of the Agreement, the Parties agree that the payment date will be the date when the Seller’s bank account is credited with the price.
- The Buyer shall pay the price referred to above to the Seller via a wire transfer to the Seller’s bank account specified below: ….
Article 3 Notice to the Company on the transfer of title
The Buyer shall notify the Company in writing about the purchase of shares from the Seller under the Agreement and produce the Agreement and proof of payment of the entire price specified in Article 2 section 1 of the Agreement to demonstrate that the title to the shares was effectively transferred, as required under Article 187 section 1 of the Commercial Companies and Partnerships Code.
Article 4 Final provisions
- This Agreement is governed by the Polish law.
- To matters not regulated in this Agreement, the relevant provisions of the Polish law, especially the Civil Code and the Commercial Companies and Partnerships Code, will apply.
- All disputes related to the execution or performance of this Agreement will be settled by Polish courts, specifically a court with jurisdiction over the Company’s registered seat.
- All expenses related to the execution of the Agreement, especially notarial fees, fees for copies of the Agreement, as well as public levies (including the tax on civil-law transactions) will be paid by the Buyer.
- All amendments to the Agreement must be made in writing and the signatures placed on an amending annex must be certified by a civil-law notary. Otherwise, the amendment will be invalid. A notice of rescission of the Agreement must be made in writing or will otherwise be invalid.
- Appendix 1 containing resolution … passed by the Company’s Management Board, whereunder the consent for the sale of all the Seller’s shares to the Buyer was given, is an integral part of this Agreement.
- This Agreement was made in 3 identical written copies with signatures certified by a civil-law notary. The Seller, the Buyer and the Company will each receive one copy.
Contact our stock purchase specialized lawyers
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