PL: Increase in nominal capital of a limited liability company (sp. z o. o.) and the non-payment of a new shareholder’s contribution to cover the capital increase
The decision to increase the nominal capital is often made during the life cycle of a limited liability company (sp. z o. o.).
As a reminder: the minimum nominal capital of a Polish limited liability company is regulated by the provisions of the Polish Commercial Code and currently amounts to PLN 5,000.00. Companies established with this minimum level of capital are not in a position to establish a strong position in the market. These companies often have difficulties in obtaining a loan on preferential terms and attracting investors or business partners. The above-mentioned problems mean that such companies are unable to engage in certain areas because their own assets are inadequate. For this reason, in order to open up appropriate development opportunities for the company, the shareholders make a decision on the increase in nominal capital, which on the one hand grants the company additional funds or contributions in kind and on the other hand makes it appear more credible and strengthens its position in the market in relation to other companies. However, it should be noted that the capital increase of a Polish limited liability company may only be effected in accordance with the provisions of the Polish Commercial Code.
The increase in nominal capital is achieved by increasing the nominal value of existing shares or by creating new shares (Art. 257 § 2 of the Polish Civil Code Commercial Company Code). The following procedures are currently available for increasing the nominal capital of a company:
1) amendment of the existing articles of association,
2) without amendment of the original articles of association, but based on one of the provisions of the articles of association.
The first procedure is discussed here, in which the amendment of the existing articles of association is necessary. The amendment of the articles of association is made by shareholders’ resolution, which is passed with a majority of at least 2/3 of the votes cast. The shareholders’ resolution on the increase in nominal capital must be notarized and put on record in the Polish company register KRS (Art. 255 of the pol. Commercial Company Code).
We now assume that the shareholders of the Polish limited liability company will pass a resolution on the capital increase by issuing new shares. The resolution also stipulates that the new shares will be offered to third parties who are not yet shareholders. It should be noted here that the previous shareholders have a right of priority to acquire these new shares in proportion to their previous shares (Art. 258 of the polish. Commercial Code) unless otherwise provided for in the Articles of Association or the resolution on the increase in nominal capital. In the event of a takeover of newly issued shares, the declaration of takeover by a shareholder must be notarized. Such a declaration must be made within one month at the latest from the invitation to the shareholders to exercise their pre-emptive right. If none of the existing shareholders exercise their pre-emptive rights, these shares can be taken over by a third party. In this case, this person must make a declaration of the taking over of the shares at the nominal value fixed in the form of a notarial deed (Art. 259 of the pol. Commercial Company Code).
The last and at the same time indispensable step is the registration of the increase in nominal capital with the Registry Court (Art. 262 of the pol. Commercial Company Code). The registration of the increase in nominal capital is constitutive, i. e. mandatory. The registration lies in the responsibility of the company’s director. The following documents must be enclosed to the notification of the capital increase:
1) Resolution on the increase of the nominal capital,
2) Declaration of acceptance of shares in the increased nominal capital,
3) Statement by all managing directors that the contributions to the increased nominal capital have been paid in full.
If the nominal capital is increased as a result of the amendment to the Articles of Association, the notification of the change must be filed with the Company Register at the KRS within six months (Art. 169 in conjunction with Art. 256 § 3 of the Polish Commercial Code).
The procedure for increasing the nominal capital in a limited liability company appears to be transparent. In practice, however, problems may arise that prevent the entry of the increase in nominal capital in the register. Such situations occur when a shareholder who joins the company has made a declaration of acceptance of shares in the increased nominal capital, but has not made his contribution to the increased nominal capital.
A fundamental and decisive question in this case is: Is the director obliged to register the increase of the nominal capital if the new shareholder has not made any contributions?
According to the preferred doctrinal opinions, this obligation does not arise until the time when the requirement to register are fulfilled, because the newly issued shares must have been taken over by the shareholder and the contributions to the shares must be paid in full – due to the necessary declaration of the complete takeover of shares in the increased nominal capital*. In other words, the six-month period for notifying the register about the increase in nominal capital shall commence only from the date on which an event justifying registration occurs, i. e. the date on which all contributions to the increase in nominal capital have been made and all declarations of acceptance of the new shares have been made.
We have already pointed out above that the increase in nominal capital will not take effect until it is recorded in the register. The shareholders’ resolution to increase the nominal capital alone is not sufficient to increase the nominal capital**.
However, this solution cannot be satisfactory for the remaining shareholders of the company. As already mentioned above, the increase of the nominal capital brings noticeable advantages for the company, therefore the shareholders will strive to cover the increase in nominal capital so that the increase in nominal capital can be registered. It should be noted here that the doctrine of law holds the view that the obligation to cover this share with a corresponding contribution in cash or in kind arises from the declaration to join the company by the new shareholder and the declaration of acceptance of a share in the increased nominal capital .
Is it therefore possible to bring an action for payment of the contribution against a person who has made the declarations to join the company and of taking over a share in the increased nominal capital?
This is denied by some voices, but cases in court practice show that such matters are being dealt with – e. g. judgment of the appellate court Breslau [Sad Apelacyjny we Wroclawiu] of 16.10.2013, file number I ACa 1011/13. In such cases the GmbH is considered to be the plaintiff.
However, one should consider whether this solution can fully satisfy the shareholders. If we take into account the current (actually totally inadequate) speed of proceedings before ordinary courts, the initiation of legal proceedings on the existing claim for payment could considerably extend the time during which full coverage of the shares in the increased nominal capital is to be expected.
However, the management of the Company must be warned before issuing a false declaration of complete contribution to the increased nominal capital. Firstly, the managing directors are liable jointly and severally for deliberately or negligently providing false information in a declaration in accordance with Art. 262 § 2 Item 3. This joint and several liability in accordance with Art. 291 of the pol. Commercial Code only prescribes after three years after the date of registration of the company or registration of the increase in nominal capital. Even if the contribution to the increased nominal capital is actually paid in retrospectively, this does not cancel the directors’ liability. Secondly, the managing director commits a criminal offence by making a false declaration about the payment of contributions to the increased nominal capital – Art. 587 of the pol. Commercial Code.
If the shareholder does not fulfil his obligation to cover the newly acquired shares, it seems to be necessary for a second, former shareholder to take over the aforementioned shares and pay the required contribution in order to register the increase of nominal capital as soon as possible. In this case, however, the Company loses the possibility of bringing an action for payment of the contribution against the person who was originally obliged to cover the new shares because the amounts of the shares have already been covered.
By judgment of 28.04.2015, the appellate court of Cracow [Sad Apelacyjny w Krakowie] ruled in the case with reference number I ACa 215/15 that there were no legal obstacles to satisfying the GmbH’s claim for payment of the contribution by a second shareholder who acted on the basis of an agreement with the shareholder who was obliged to satisfy the claim. The evaluation of the grounds for the judgment lead directly to the conclusion that the payment (or non-payment) of the contributions to cover the increase in nominal capital was significant in the case. On the other hand, the relationship between the shareholders regarding the basis for why payment of the contribution was made, was irrelevant from the company’s point of view.
Finally, we would like to point out that the legal doctrine has developed the point of view that claims for damages against the shareholder who has not fulfilled his obligation to pay the contribution can exist.
Contact person: Maciej Puchala, Attorney at law, (Maciej.Puchala@bunk-alliance.de )