Poland: New Formalities When Selling Shares
→ Paweł Halwa
→ Katarzyna Dziedzic-Stańczyk
The latest Supreme Court’s (SC) judgment increased the number of formalities when selling shares in LLCs. According to the judgement, it may be necessary to put original share purchase agreements on registry files. Given this, parties to transactions are trying to find ways to keep sensitive terms of share purchase agreements confidential.
Formalities related to a share transfer
Transfers of share required certain formalities. Many of them are only technical, but some may influence the transactional practice.
In Poland, each time shares of an LLC are transferred, the management board submits a new list of shareholders to a relevant registry court within seven days from when the share purchase agreement was concluded. Failure to do this results in a fine, which may be repeatedly imposed by the registry court, and also in a refusal to list the new shareholder in the register.
Courts want more
In practice, however, besides a list of shareholders, some registry courts require a share purchase agreement, or other document constituting the grounds for the share transfer, to be attached to an application on change of a shareholder. Courts relied on a general legal provision, which enabled them to demand additional documents, if they had doubts about the legal grounds for an entry in a register. Courts also argued that they are obliged to determine whether a transaction was concluded in accordance with applicable laws.
This practice was severely criticised by legal practitioners and scholars. They argued that share purchase agreements are confidential documents that contain sensitive information. They should therefore not be provided to publicly accessible registry files. They also claimed that other provisions clearly indicate which documents should be attached to an application on a change of a shareholder, and that a share purchase agreement (or equivalent share transfer documents) is not among them.
Moreover, the requirement to provide documents to the court clearly omits the fact that the documents that constitute grounds for the transfer of shares are often foreign, including corporate ones, and that the Polish courts are not in the position to evaluate their legal significance or the validity of the transaction. The obligation to verify the legal effectiveness of the share transfer lies first with the shareholders notifying the transfer to the company, and then with the management board. The court merely records the current status based on the request from the management of the company, which is in charge of establishing the true legal status.
The SC’s decision
This issue has been recently decided by an SC judgement dated 6 June 2012. The SC held that registry courts were entitled to request those share purchase agreements that entailed changes in shareholders holding of at least 10% of the share capital, if there were doubts as to the grounds for making a certain entry in a register. In the judgement, the SC has underlined that it is crucial to keep the registry court’s authorisation to request additional documents and to strengthen a presumption of truthfulness of entries.
In practice, this means that a share purchase agreement should be attached to each application for entering a change among shareholders holding of at least 10% of the share capital in an LLC if the change has been caused by a transfer of shares on the basis of a share purchase agreement.
From a perspective of potential parties to share purchase agreements, two different approaches should be considered. For small or intercompany transactions, terms of which can be disclosed in public registry files, the only effect of the SC’s decision would be an additional copy of the share purchase agreement with signatures certified by a notary public.
For transactions of a greater value, which often contain sensitive information, it is recommended that either an appropriate excerpt from a share purchase agreement or an additional executive agreement be prepared. The latter confirms only transfer of shares, parties to the transaction and a price. In this case, all confidential transactional details remain in a separate document, constituting in fact a share purchase agreement. This document, however, should not be attached to an application to a registry court.
In practise, the SC’s decision dated 6 June 2012 has two main consequences. First, the need to attach a share purchase agreement increases the formalities connected with a registration of shareholders that hold at least 10% of the share capital. Second, the costs of these transactions are higher due to a necessity to obtain an additional copy (or extract) of the share purchase agreement, or even prepare a separate executive share purchase agreement or transfer agreement.
In practice, for more significant transaction, a separate transfer or “executive” agreement appears to be the favourable option, since it allows the parties to keep the essential elements of the transaction away from the light of the public register.