Private subscription of shares in a non-public company
A private subscription is a convenient method to raise share capital. How to carry it out in practice?
The share capital of a Polish joint-stock company may be increased by issuing new shares or by increasing the nominal value of existing shares. When new shares are created, they must be taken up for the capital increase to take effect. The Commercial Companies Code provides for three ways to take up shares in the increased share capital of a joint-stock company:
- Open subscription, consisting of a subscription announcement addressed to persons who do not have pre-emptive rights to the company’s shares
- Closed subscription, consisting of offering shares to shareholders who have pre-emptive rights
- Private subscription, involving offering shares to a specific addressee.
The private subscription seems to be the least regulated. Below, we take a closer look at some practical aspects of a capital increase using private subscription.
Resolution
To increase the share capital of a joint-stock company by amending its articles of association, a resolution of the general meeting is required, which is the first step necessary to carry out the entire process. In the resolution, the general meeting also specifies the group of persons to whom the shares will be offered. The selection of offerees is the company’s business decision. They may be new investors whose access to the company will change the shareholder structure. And there are no obstacles to offering the shares to selected existing shareholders.
However, it is essential for the resolution to exclude the pre-emptive rights of current shareholders. Otherwise, in accordance with the applicable provisions, the company’s existing shareholders will be entitled to subscribe for the new shares in proportion to the number of shares they hold, and the private subscription will not be possible.
Offering
According to the literal wording of the provisions, a private subscription consists of the company’s submission of an offer to subscribe for shares to a designated addressee, who accepts the offer in writing. That is where the statutory regulation ends, which leaves open the formal side of the offering process. Indeed, it is not clear whether the company’s offer should also be made in writing, nor whether the offer and acceptance can (or should) be made in two documents or in one.
The law explicitly provides that the statement of acceptance of the offer to take up shares should be in written form. Therefore, it can be concluded from the general rules of civil law that the subscription for shares takes place precisely when the offeror accepts the offer to take up the shares, but this still does not clarify the formal aspect of the process.
In practice, the offer can be included in the resolution on the increase itself, provided that the resolution specifies all the essential elements of the offer, including the issue price of the new shares.
Also, the general meeting may authorise the management board or supervisory board to determine the issue price at a later date. But in that situation, the resolution will not contain a key element of the share subscription offer, and the company will have to make a separate offer to the offeree with an indication of the price.
These doubts are partially resolved by the provision regulating the formal requirements for filing a share capital increase with the registry court, according to which the application must be accompanied by, among other things, the agreement to acquire shares if the acquisition was made by private subscription. As a result, a formal requirement for conducting a private subscription is the company’s conclusion with the subscriber of a share subscription agreement, in writing, as it will be annexed to the application to the National Court Register. The deadline for the company to conclude a share subscription agreement must be specified in the resolution on the share capital increase.
In practice, a private subscription usually leads to a share subscription agreement whereby the company makes an offer of shares to the investor and the investor accepts the offer, and as a result of an exchange of declarations of will, the parties enter into a share subscription agreement. Therefore, in a private subscription, the company does not issue an announcement on subscription, and investors do not separately subscribe for shares.
As can be seen from the above, a private subscription is a simplified procedure for taking up shares and subsidising the company, directed to certain entities known to the company. In practice, the issuance of shares through private subscription may boil down to two key elements: the resolution to increase the share capital, constituting an offer to subscribe for shares, and a share subscription agreement concluded between offeror and offeree covering the submission and acceptance of the offer to subscribe for the shares.
It is also worth remembering that a private issue of shares of a non-public company to more than 149 persons may fall under the provisions on public offerings and thus require preparation and publication of an information memorandum or prospectus.
Danuta Pajewska, attorney-at-law, Katarzyna Jaroszyńska, attorney-at-law, Capital Markets & Financial Institutions practice, Wardyński & Partners
