A recently published legislation draft provides for additional protection of minority shareholders at private (closed) companies established under Polish law. Specifically, a shareholder of a limited liability company (sp. z o.o.) and a shareholder of a non-public joint-stock company (spółka akcyjna) is to have the right to demand withdrawal from the company. This means that, under the draft, a shareholder may demand to be released from the company (resignation of a shareholder).
Resignation of a shareholder
In Poland, the private (closed) companies are: a limited liability company (sp. z o.o.), a joint-stock company (spółka akcyjna), and a Simple Joint-Stock Company (P.S.A.). The most popular is the limited liability company (sp. z o.o.). The draft introduces into the limited liability company and joint-stock company a mechanism intended to be available in situations where their shareholder is „locked-in.”
The formal requirements for a demand to resign are to be according to the amendment draft: material reason justified by the relations between the shareholders, or the occurrence of a material reason in the relationship between the company and the shareholder that resulted in gross harm to the shareholder who wishes to „exit” the company. According to the draft’s rationale, the mechanism is intended to be available in particular to a shareholder when (1) is unable to dispose of shares, or (2) cannot do so without suffering a serious loss, while experiencing gross harm at the same time.
Resgination of a shareholder from a Simple Joint-Stock Company
It is worth noting that the right to demand an „exit” from the company for a minority shareholder is already available under Polish law – it is currently available to shareholders of a Simple Joint-Stock Company (P.S.A.). The draft also reforms the right of withdrawal already granted to P.S.A. shareholders (Article 300⁵⁰ of the Commercial Companies Code), aligning it with the principles adopted in the proposed provisions for withdrawal from a limited liability company. Analogous changes are proposed with respect to joint-stock companies whose shares have not been admitted to public trading.
Buyout of shares
If the shareholder’s demand for resignation is granted, the court will order the shareholder’s withdrawal and will also determine the terms for the buyout of shares. Under the draft, the shares of the resigning shareholder are to be bought out at a price corresponding to their fair value.
Additionally, when determining this value, the court may take into account the fair value that the shares would have had if the gross harm to the exiting shareholder had not occurred. In this way, the buyout price may include compensation for the harm suffered by the withdrawing shareholder, if the court considers the award of such compensation justified. As a result, the withdrawing shareholder should receive compensation that accounts for, among other things, the non-payment of dividends despite the company having generated profits whose retention in the company – taking into account all relevant circumstances – was not justified, or for the company’s reduction of the fair value of shares or the diminishment of the company’s profitability.
Summary
The proposed new right (resignation of a shareholder) proposed would be a new tool in corporate disputes involving Polish companies. Currently, in many cases, a minority shareholder in a private (closed) company has no actual possibility to exit from the company. The solution proposed in the draft may be particularly effective where other methods of reaching an agreement between shareholders have failed.
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