Is the division of the capital company carried out within the framework one from the procedures indicated under Article 529(1) Commercial Companies Code[1] is it possible to break up partners and divide business between individual entities and persons of partners?

Conflicts between the partners of the company lead most often to losses in business, and the image of the company suffers. This is closely related to the possibility of losing valuable workers, and the efforts put into the dispute rather than in the company's development may be the beginning of major problems.

If neither party wants to give up its business, it is worth considering whether it is possible to divide the company between partners according to the regulations of k.s.h. The possibilities arising from the split-up procedure for regulated capital companies should be analysed. Under Article 528 and another k.s.h.

Introduction It turns out that, in real market conditions, especially in the case of small and medium-sized companies, a business model in which some partners are to derive only dividends from their shares/shares, and some are actively working for the company, including while also acting on the board, does not work.

For it is very often those whose work affects the performance of the company who are convinced that their efforts consume not only themselves, but largely passive partners.

The argument that this is the idea and legal structure of the whole company is not convincing, nor that the partners had to make an investment in the form of payment or coverage of shares.

The possibilities k.s.h.

According to Article 529(1) k.s.h. the division of the capital company may be made:

• 1) by transferring all the assets of the company divided into other companies for the shares or shares of the acquiring company, which include the shareholders of the shared company (division by acquisition);
• 2) by setting up new companies to which all the assets of the company shared for the shares or shares of the new companies are transferred (dividing by the new companies);
• 3) by transferring all the assets of the company divided into an existing and re-established company or company (division by acquisition and incorporation of the new company);
• 4) by transfer of part of the company's assets to an existing company or to a newly established company (division by division).

Subject to the provision Article 529(3) k.s.h., the shareholders of the split company may receive, in addition to the shares or shares of the acquiring companies or companies newly bound cash subsidies not exceeding the total 10% the balance sheet value of the shares or shares awarded to the competent acquiring company as determined in accordance with the statement in question under Article 534(2)(4), be 10% the nominal value of the shares or shares assigned to the newly tied company. The recipient company's payments shall be made either from profit or from the company's spare capital.

In the situations referred to Under point 1-3 as indicated above, the split company is dissolved without carrying out winding-up proceedings on the date on which it was removed from the register (the day of division). However, in the case in question Under point 4, i.e.

in the case of division by division, the split company shall not be removed from the register and shall continue to function and the new company shall be separated on the date of its entry in the register.

In the event of the transfer of part of the assets of a company divided into an existing company, the separation shall take place on the date of entry in the register of the increase in the share capital of the acquiring company (the day of separation).

According to Article 531(1) k.s.h., the acquiring companies or companies newly established in connection with the division enter on the date of division or on the date of division into the rights and obligations of the divided company as defined in the distribution plan.

Therefore, the distribution plan will specify exactly which assets, assets and liabilities, as well as rights and obligations from contracts and other private and public relations will be assigned to the entity concerned – new or acquiring companies, which will remain in the split company (this concerns the situation of separation, as defined in the provision). Article 529(1)(4) k.s.h., in which the split company is not annihilated but remains legal).

Associates and Management Boards[2] The companies involved in the division, in the draft division plan, shall lay down the rules for the division and further, in order to approve the decisions covered by the division plan, a divisional resolution shall be adopted expressing acceptance of the solutions adopted.

Provision Article 531(5) k.s.h. provides that on the date of the division or on the date of the division, the partners of the split company become shareholders of the acquiring company indicated in the plan.

The mere literal wording of the above-mentioned provision indicates that the partners of the existing split-up company will become shareholders of that acquiring company, which was decided in the distribution plan that its shareholder would be a specific partner or partners. This should be understood to mean that from the date of the separation of the partner of the former company, the shares/shareholders of another entity, the shares/shares of which have been assigned to the person concerned in the distribution plan, will reach the status of shareholders/shareholders.

Since the recipe Article 529(1) k.s.h. allows division not only to one companies, there are no obstacles to determining in the distribution plan that the shareholder will be entitled to shares in a specific acquiring company and another shareholder in another. It is therefore possible to divide the existing company by agreement and to continue to operate as partners within separate entities. This possibility is permitted by doctrine.

According to A. Szumański's position, presented in the Commentary to Article 531 k.s.h.3:

„Provision Article 531(5) k.s.h. provides that on the date of the division or from the date of the separation of the partners (shareholders) of the split company become shareholders (shareholders) of the acquiring company indicated in the plan. The concept of acquiring company should be understood in this case broadly, i.e. in a way that includes the already existing acquiring company (sensu stricto), the newly established company in connection with the division, and the company separated in the event of division by division (so A. Kidyba, Commercial Companies Code). Commentary, t. II, p. 969, cited 7; Otherwise, A. Witosz, in: J. Strzepka, W. Popiołek, A. Witosz, E. Zielińska, Code of Commercial Companies. Commentary on the case law, Warsaw 2001, p. 1200). There is no reason to believe that “personal succession” applies only to one of the methods of division, i.e. specified under Article 529(1)(1) k.s.h. omitting others (Article 529(1)(2-4) k.s.h.), as this would be contrary to Article 531(1) k.s.h., which refers to both the acquiring company and the newly established company, the company is separated from the design or the acquiring company, or the newly established company, would then be without object.

Consequently, the definition of “the acquiring company as indicated in the allocation plan” contained in under Article 531(5) k.s.h.

should only be considered as the legislative abbreviation, so as to avoid repeating in the wording of this provision all possible ways of dividing the company (Article 529(1)(1-4) k.s.h.), especially since following the etymology of this term, the company is newly established as a result of the division or as a result of the separation, and from the actual point of view takes over the part of the shared company's assets defined in the plan, doing so as part of universal partial succession (cf.

M. Rodzynkiewicz, Code of Commercial Companies). Commentary, ed. 1, p. 973, cited 7).

By specifying that “shared companies become shareholders of the acquiring company indicated in the distribution plan” (Article 531(5) k.s.h.) it can be concluded that this plan will also determine the division of the substrate of the personal partners or shareholders of the split company.

This means that the plan will result in the fact to which the company participating in the division or the company being released will be transferred by individual partners (shareholders) of the shared company. This conclusion is confirmed in the content Article 534(1)(8) k.s.h. (cf. A.

Witosz, Merger, division and transformation of commercial companies, p. 152-153; the same, in: J. Strzepka, W. Popiołek, A. Witosz, E. Zielińska, Code of Commercial Companies. Commentary on the case law, Warsaw 2001, p. 1200)”.The possibility of separating partners in case of division by division also allows P. Pinior[4]:

„Acquisition of membership. By way of a provision Article 531(5) k.s.h. on the date of the division or on the date of the division, the partners of the split company shall become shareholders of the acquiring company or of the newly created company indicated in the division plan. This happens by assigning shares or shares of acquiring or newly created companies to the shareholders of the company. The conditions under which this occurs shall be determined by the allocation plan.

As a rule, as a result of the division of the company, the shareholders of the split company shall include proportionally the shares or shares in all acquiring or newly bound companies.

The allocation of shares or shares may not only be made in proportion to the shares or shares held so far, but may also lead to the “distribution” of shareholders as a result of the division.”

As it follows from the above, therefore, that all partners/shareholders of the split company will receive a proportionally due share in the new acquiring or tied companies is a rule. However, this principle is not an absolute rule and there are no obstacles to establishing different business separation rules in the distribution plan.

You can imagine a situation where some partners will go to one companies and others to another company.

It is also possible that one whether several partners will remain in the split company and other partners will pass to the new entity with the relevant assets and contracts in order to continue to run business independently of the old entity.

With regard to the position of the representatives of the doctrine in this case, attention should also be paid to the view of the M. Rodzinkiewicz[5], which indicates that:

„Article 531(5) strengthens the argument that the division of the company may also lead to a “distribution” of the share (shareholders) of the shared company (one will go to one acquiring or newly bound company, others to another). This provision does not provide that all partners (shareholders) of the split company become on the date of the division (distribution) in the respective proportions of shareholders (shareholders) in each of the acquiring companies (newly bound) but that they become shareholders (shareholders) in the “listed in the plan of division”. As regards the division by division, the separation of the share ownership (shareholders) of the split company means, in particular, that not all partners or shareholders of the split company must participate in the issue of units of shares by the acquiring company (newly established), while some of these shareholders (shareholders) may, as a result of the whole being separated “out” from the divided company and others may not participate in the transaction at all. Similarly, P. Pinior, in: J. Strzepka (ed.), Code of Commercial Companies. Commentary, op. cit.’.

It is therefore appropriate to allow the separation procedure to enable the partners to separate their business from each other so that any shareholder who expresses the will to conduct it independently receives an appropriate share of the assets enabling them to continue to operate and, in turn, the partner who does not wish to participate in the new entity has the right to buy out its shares.

This thesis clearly confirms the content of the provision Article 534(1)(8)) k.s.h., which provides that the division plan includes a division between the shareholders of the split company of the shares of the acquiring companies or companies newly bound and the rules of division.

As U. Roge points out[6]: „In this point of the plan, elements such as the determination of the manner and time limit within which shares or shares of the split company will be issued to (allocated) shareholders of the acquiring or newly bound company, the date of dematerialisation of the shares, the limitation or exclusion of the right to an outstanding dividend in the new company to shareholders of the split company, etc.

In the case of a division of a company divided in person, where the acquisition companies (newly bound, separated) do not have the identity of the shareholders with the group of shareholders/shareholders of the split company, the plan of division at this point should specify the rules for the division of shares or shares in those companies between the individual shareholders and the criteria for transition.’

1. Rodzynkiewicz similarly says[7], which as regards the provision Article 534(1)(8)) k.s.h. indicates that:

„The criteria for “direction” of a shareholder or a shareholder of a company shared with a given acquiring company or newly bound company, when the division involves “personal separation”, should be clearly described in the allocation plan, in particular because the development opportunities of the individual acquiring companies or newly bound companies (so accurately A. Szumański, in: S. Sołtysiński, A. Szajkowski, A. Szumański, Code of Commercial Companies may vary. Tom IV, op. cit., p. 790).

This is about maintaining the principles of formal justice, i.e. comparable treatment of individual shareholders (shareholders) of the company divided on the basis of comparable elements of the facts. It should also be noted that the division resolution is not subject to appeal solely because of reservations concerning only the exchange parity indicated in the point of the division plan in question under Article 534(1)(2) (Article 544(3)).

It follows that a divisional resolution can be brought forward due to reservations regarding the provisions of the allocation plan indicated under Article 534(1)(8), of which, in particular, due to the injurious rules of “subjective division” (so aptly A. Szumański, in: S. Sołtysiński, A. Szajkowski, A. Szumański, Code of Commercial Companies. Merger, division and transformation of companies, t. 4, Edition 3, op. cit., p. 790-791)”.

In addition to confirming that the separation of shareholders in connection with the division of a capital company is possible, the above-mentioned author points out the extremely important question of the possibility of effectively challenging a divisional resolution by shareholders, who were not guaranteed, or were not granted in the plan of division and consequently in the divisional resolution, the proper rights attached to the assets of the company under division.

The effectiveness and validity of the split resolution depends on the proper notification of shareholders

It should be stressed that according to the provision Article 541(1) k.s.h., the division of the company requires a resolution of the meeting of shareholders or of the general meeting of the divided company and of each acquiring company, taken by a majority third fourth votes representing at least half of the share capital, unless the contract or articles of association provide for stricter conditions.

It is therefore necessary to meet two the reasons for the effectiveness of the merger resolution. The majority must support the resolution 3/4 and that majority must represent at least half of the share capital. It should be assumed that most 3/4 concerning votes cast[8].

It can therefore be imagined that a partner having 51% shares or shares will be able to vote on a divisional resolution if no other shareholders/partners appear at the meeting. Of course, it will be important to show that all partners/shareholders have been properly notified of the meeting indicating the agenda. As the recipe shows Article 539 k.s.h.:

section 1. The Management Boards of the companies involved in the division should notify the shareholders twice, not less than two weeks, in the manner provided for the convening of meetings of shareholders or general meetings, of the intention to distribute and transfer its assets to the acquiring companies or newly established companies, within no later than six weeks before the planned date of the resolution.

section 2. Notification

Under section 1, shall contain at least:

• 1) number of the Judicial and Economic Monitor in which the notice was made under Article 535(3), unless the notification is the subject of a notice;
• 2) place and time limit within which the partners may consult the documents mentioned under Article 540(1); that period may not be less than one month before the planned date of the resolution.

Since the recipe Article 539(1) k.s.h. expressly provides for a reference to the notification of shareholders/shareholders analogous to the provision Article 238(2) be Article 402(2) k.s.h., in that case, in the scope of the split company of the o.o., the partners should be notified by registered letters or by mail, as well as by electronic mail, if the partner has previously given written consent, giving the address to which the notification should be sent.

As indicated by A. Szumański[9]: „To the content of the notice in mode Article 539 k.s.h. resulting from general provisions, i.e. Article 238(2) in conjunction with Article 539(1) k.s.h. or Article 402(2) (Article 4022) in conjunction with Article 539

section 1 k.s.h. specify such elements as:

• 1) the day, time and place of the meeting of partners or the general meeting;
• 2) the detailed agenda of that assembly;

1. the essential elements of the proposed changes to the content of the company's contract (statute), which can only occur in the event of a division by the acquisition and only in relation to the acquiring company. Where the acquiring company is a public limited company, the amended provisions of the statutes and the proposed amendments should be established. If there is a large number of changes, then the draft single text of the Statute should be attached to the notification, together with the new or amended provisions of the Statute (Article 402(2) dd. 2-3 k.s.h.)’.

In the case of a meeting of shareholders or a general meeting of shareholders, it should not be permitted to adopt split resolutions in a way Article 240(405) k.s.h. (recruiting the assembly without formal convocation).

This is because the above provisions are incompatible with the provisions Article 539 k.s.h., which requires mandatory assembly notice[10]. And Szumański[11] it correctly points out that the view on the admissibility of the adoption of a partial resolution under the Article 240 either Article 405(1) k.s.h.

should be considered impractical and highly risky and should therefore be discouraged. Since it is not possible to circumvent the obligation to make notifications under the Article 539 k.s.h.

without the risk of challenging a partial resolution with an action for annulment[12] whether the refusal to register the division by the court[13], and in those notices, information on the place, date and agenda of the meeting of shareholders or of the general meeting may be provided, it does not make any sense to expose the companies to such risks, also bearing in mind the high costs incurred in the implementation of the preparatory phase (manedarian) of the division of the company and participation in the division of other companies.

The question of the regularity of the notification of the shareholders/shareholders of the meeting is therefore important for a valid and effective divisional resolution. The vast majority of the representatives of the doctrine take the position that the violation of the provision Article 539 k.s.h. warrants appeal against the subsequent resolution by a ground of annulment[14].

That's right. Article 539(1) k.s.h. is of a formal nature and relates only to the activities preceding the meeting of shareholders (free assembly).

However, the case-law holds the view that the formal flaws of the resolution (including shortcomings in the convocation procedure) justify its annulment only if the defect affects the content of the resolution, or the outcome of the vote on the resolution[15].

If, therefore, the shareholder/shareholder is not properly informed of the meeting at which the divisional resolution was to be voted, and his vote would be important for the resolution, then the action could be justified.

In fact, only M. Rodzynkiewicz[16] convinces that the adoption of a split resolution by application of Article 239(1)

and Article 240 (in the company z o.o.), and Articles 404(1) and 405(1) (in a joint stock company) is justified.

He argues that it is therefore permissible to adopt a divisional resolution at the meeting, on the agenda in which no such resolution was envisaged if all share capital is represented at the meeting and no one present objected to the adoption of the divisional resolution[17].

Similarly, a divisional resolution may be adopted at a meeting which has not been formally convened if all share capital is represented and none of the present have objected to both the holding of the assembly and the inclusion on the agenda of that resolution[18].

It should be noted that none of the provisions of Title IV of Chapter II (k.s.h.) explicitly require that a divisional resolution be taken only in the form of a formally convened meeting of shareholders (a free assembly) or only in the framework of a previously established agenda.

This view is not supported by doctrine, although it should be pointed out that A. Szumański exceptionally considered the appropriateness of adopting a divisional resolution by applying Article 239

section 1 and Article 240 (in a limited liability company) and Articles 404(1) and 405(1) (in a public limited company) and indicated that such a risk should be borne only if the content of the notification would be limited only to the determination of the intention to divide in a certain manner (e.g. by taking over, by setting up a new company) with the content indicated under Article 539

section 2 k.s.h., and thus would not contain elements of a significant call for assembly. Adoption of the resolution of this matter informally (provided that the conditions of Article 240 in the case of a limited liability company, either Article 405(1) k.s.h. in relation to a joint stock company) would be the only chance to save the ‘validity’ of a divisional resolution.

Rights of minority shareholders of the split company

Due to the adoption of a divisional resolution, pursuant to the provision Article 541

section 5 k.s.h., partners/shareholders of companies holding no more than 10% the share capital of the acquiring company or of the newly bound company may require the purchase of their shares/shares by the acquiring company or the newly bound company. Under the procedure provided for, partners/shareholders should:

• 1) raise reservations on the allocation plan within the time limit two weeks from the date of his announcement. The method and date of publication of the allocation plan shall be governed by the provision Article 535(3) k.s.h.;
• 2) require the acquiring company or the newly established company to split their shares or shares in those companies by the date of the reverse squeeze out three months from the date of division.

The time-limits indicated in the provision shall be those in question. The right to buy out shares or shares of small shareholders shall be exercised by the obliged acquiring company or the newly established company participating, not at nominal value but at market value. This ensures that the provision refers Article 541(5) dd. 2 k.s.h. to specified rules under Article 417 k.s.h.

Summary

Given the above, the separation procedure may in many cases prove to be an effective tool for dividing the business so far conducted jointly between the partners, so that each of the persons concerned can go on their own within a separate economic entity.

The separation procedure may also be possible for minority shareholders to leave the company. It should also be stressed that the division by separation will probably continue less than, for example, a court dispute over the exclusion of a shareholder from the company.

Economically, it may also turn out that carrying out the division and, in a way, the ‘payment’ of the shareholder, whether monetary or by equipping it within the new company with an appropriate, adequate set of assets and liabilities, will be more advantageous than conducting a long-term litigation and bearing the associated costs.