No-par shares in limited-liability companies in bill to amend the Commercial Companies Code
The government plans revolutionary changes in the asset structure of limited-liability companies to go into effect 1 January 2015.
The government’s proposed Act Amending the Commercial Companies Code and Certain Other Acts would introduce no-par shares into Polish corporate law for the first time, along with a new concept of share capital—kapitał udziałowy.
According to the justification for the bill, the argument in favour of introducing these institutions is the frequent overestimation of the importance of the current notion of initial capital (kapitał zakładowy—also known as share capital) in the capital structure of limited-liability companies. The usefulness of the existing concept of initial capital as an element of the system of protection of creditors is increasingly questioned. By effectively eliminating the requirement for minimum capital, the bill would enable businesses to operate in the form of a limited-liability company which previously were not inclined to use this form or capable of assembling the minimum share capital. Under the proposal, the minimum capital contribution to start a company would be one zloty.
In place of the current notion of initial capital, creditors would be protected among other things by a liquidity test that would have be met before any payment could be made out of the company’s assets.
Under the bill, shares in a limited-liability company could be created with no par value. No-par shares would be completely unconnected to the initial capital and thus would not represent a fractional share of the initial capital. Contributions to cover no-par shares would instead be applied to share capital (kapitał udziałowy) as a new balance-sheet item in the company’s equity. The share capital would be disclosed in an amount equal to the value of contributions made to the company in exchange for taking up no-par shares, but the amount of the share capital would not have to be stated in the articles of association.
The bill assumes that no-par shares would carry the same rights and obligations as par shares. In a company in which at least one no-par share has been created, the scope of corporate entitlements of the specific shareholders would be determined by the number of shares held by the shareholder in proportion to all the shares created in the company.
The government expects that the introduction of the institution of no-par shares and the new notion of share capital will make the asset structure of limited-liability companies more flexible, which will consequently make it easier to do business. The shareholders would be able to withdraw all or part of their contributions toward the share capital without having to adopt a resolution on reduction of the share capital requiring amendment of the articles of association. This would facilitate the process of restructuring at the stage of reduction of the capital. Moreover, the funds collected in the new share capital could be paid out in the form of a dividend or for redemption of shares. Introduction of these solutions would also facilitate increases in the capital of the company. Under current law, it is necessary to split up the value of contributions for shares on the balance sheet between the par value of the shares (initial capital) and the excess, which is transferred to supplementary capital. In the case of no-par shares, the entire contribution toward the shares would be regarded as share capital.
Under the proposed new regime, the capital of a limited-liability company could include:
- Exclusively initial capital (kapitał zakładowy), divided into shares with par value
- Exclusively no-par shares, or
- Both par shares and no-par shares.
Magdalena Moczulska and Mateusz Sokorski, Corporate Law Practice and Restructuring Practice, Wardyński & Partners
