Decommitment of a limited liability shareholder

The redemption of shares of the shareholder of the company from the o.o., in the event of the conclusion of the relevant provisions in the articles of association, constitutes one from the instruments of the shareholder's withdrawal from the company.

In fact, the redemption of shares is a specific activity of the company, the effect of which is the legal liquidation (disposal) of certain shares in share capital and the payment of at least the balance sheet value of the shares, when it is compulsory remission[1] .

How are the individual redemption procedures of the shareholder of the Polish limited liability company. used?

Introduction

The waiver of participation is a corporate activity, consisting in the annihilation of the personal rights embodied in the participation[2] . It is therefore also referred to as the legal annihilation of participation.

With the expiry of the share (or shares), it also ceases to have any rights and obligations of a material and corporate nature. A person who does not hold any shares other than the decommissioned one ceases to be a partner of the company from the o.o. with the redemption of the shares in the company.

The purpose of this publication is to analyse the grounds for the admissibility of the redemption of the shareholders' shares in the company and to approximate the procedures for the redemption of those shares.

The normative basis of the institution for the redemption of the share of the shareholder of the Polish limited liability company.

Article 199 Act on 15 September 2000 Commercial Companies Code[3] ((a.k.s.h.) is the legal basis for the redemption of shares in zo.o. This provision is only a general normative rule on the admissibility of redemption of shares in the capital of the company.

On the basis of the aforementioned article, it is possible to distinguish third the redemption procedures of the shareholder's shares. Each of them is characterised by certain differences and sui generis conditions for the waiver of the shareholder's participation.

Having regard to the above, First, name of the so-called redemption to bro voluntary, i.e. redemption of shares of the shareholder of the company with the consent of the shareholder of the company by means of acquisition of shares by the company[4] .

Another procedure for the redemption of shares of the company's shareholder is the so-called compulsory write-off, which follows the adoption of the relevant resolution by the meeting of shareholders without the need for consent of the shareholder[5] , next – so-called automatic write-off without a resolution by a meeting of shareholders, which comes to fruition in the event of a certain event being fulfilled[6] .

The redemption of a shareholder's shares in a company with a limited liability company may be applied only if the articles of association so provide.[7] . In the case of voluntary redemption, it is sufficient to include in the articles of association a provision allowing for the redemption of shares.

On the other hand, with regard to compulsory write-offs, the articles of association should specify detailed conditions and redemption procedures.

In the case of automatic write-off, the Act allows the redemption of the share, in the event that a particular event as defined in the articles of association is fulfilled, without the resolution of the meeting of shareholders on redemption. The company's shares in O.o. may be decommissioned only after the company has been entered in the register.

It is unacceptable to adopt a resolution on the waiver of shares by the company from the o.o. in the organization (cf. judgment of the Provincial Administrative Court in Wrocław from 9 April 2015[8] ).

The redemption of shares is also unacceptable in the course of the winding-up proceedings, either as incompatible with the winding-up proceedings, because of the fact that the redemption is made by a reduction in share capital (which would be contrary to the objectives of the liquidation) or by a clear return (which is contrary to the Article 275(2) k.s.h., which prohibits the payment of profit during winding-up proceedings)[9] .

Conditions and procedure for voluntary redemption of the participation of the shareholder of the Polish limited liability company.

As per content Article 199(1) k.s.h. the share may be decommitted with the consent of the shareholder by way of acquisition of the share by the company (voluntary redemption). The voluntary waiver of participation is the legal institution sui generis, a complex activity.

The individual components of the voluntary redemption institution, i.e. the consent of the shareholder whose shares are to be decommissioned, the adoption by the meeting of the shareholders of a resolution on the basis of the authorisation contained in the articles of association shall determine its content and form[10].

In order to bring about voluntary redemption of shares, it is necessary to give consent by the shareholder whose shares will be the subject of redemption to do so.

The views of the doctrine in which consent is given by the partner are inconsistent. Andrzej Kidyba emphasizes that the voluntary waiver must be granted in an additional form in order to be able to rely on it in the future, and the waiver made without such consent makes the action ineffective[11]. A different position is taken by A.

Opalski, indicating that "it is not necessary to give consent in a separate declaration of intent (directed to the company and received on general passive representation basis), as it results from an agreement which is the basis for the transfer of shares"[12].

The quoted author argues that the legislator uses the term "agreement" primarily to clearly distinguish between voluntary and forced redemption procedures, as being missed by the position that the shareholder's consent should be expressed in an additional form.

As a compromise, Mr Pabis takes the position, indicating that the shareholder's consent can be expressed in any way sufficiently revealing his will, i.e. both explicitly (by making a written statement) and implicitly (by voting in favour of a resolution on redemption or by disposing of shares in favour of the company for redemption)[13].

Although it is difficult to deny the correct arguments put forward by A.

Opalski, using the institution of the redemption of shares in practice, it seems more confident to ensure that the shareholder's consent to the redemption is given in an additional form, preserved for evidence purposes and the possibility to rely on it in the future (as stated by A. Kidyby and R. Pabis).

Another condition for the effective voluntary redemption of shares is the adoption by the meeting of shareholders of a resolution on the waiver of shares. The agreement of a particular company must provide in its content the admissibility of such redemption, even if by a laconic provision of the content of ‘Shares in the company may be redeemed’.

The resolution should specify, in particular, the legal basis for the redemption and the amount of remuneration due to the decommitted participation. The wording of the resolution should also determine whether the payment of remuneration for the acquisition and redemption of the shareholder's shares will be made by reducing the share capital or from a pure profit. According to Article 199(3) k.s.h. with the consent of the partner, redemption may occur without remuneration

The final step is the acquisition of the shares by the company of the o.o. from the shareholder in order to redeem them. Standards established under Article 199 and 200 k.s.h. do not reserve the fact that the transfer of shares between the company and the shareholder is to take place by means of a specific type of contract.

Acquisition of shares may take the form of a sale agreement or other non-named contract. The limitation of the contractual freedom of the parties relates only to the purpose for which the company acquires its own shares.

If the acquisition takes place in accordance with the purpose set out in the Act, the parties may freely shape the content of the contract, while retaining full contractual freedom[14].

Conditions and procedure for the compulsory redemption of the participation of the partner of the Polish limited liability company.

In the event of compulsory redemption, the articles of association should specify the conditions and procedure for redemption[15].

The provisions contained in the articles of association should specify the circumstances giving rise to the redemption of shares, the redemption procedures and an indication of whether it comes from share capital or from pure profit.

Only with the conclusion of the above provisions in the company's contract, can it be accepted to adopt a resolution by the meeting of shareholders on redemption, indicating the legal basis for redemption and the justification of the resolution.

The resolution should also indicate the remuneration of the partner for the decommissioned participation.

According to the disposition Article 199(2) k.s.h., the remuneration in the event of compulsory redemption shall not be lower than the net asset share shown in the report for the last financial year of the company, less the amount to be allocated among the shareholders.

The resolution on the compulsory waiver of the participation of a shareholder of the company from the o.o. should also contain a justification.

Controversial in doctrine and judicature is the view that the grounds for compulsory redemption of regulated shares under Article 199(1) k.s.h.

may be both the conditions concerning the company (the title of the example – the economic and financial condition of the company) and the conditions relating personally to the partner or partners, concerning future events likely for each of the partners, including the conditions concerning the partner, resulting from his or her behaviour, and from him or her wholly independent.

Dispute on second of those conditions, also called "sanctionable" conditions for the redemption of shares, seems to prevail between two Divergent positions, and the case-law has been disunited.

first from the above mentioned positions assumes that the sanctioning nature of the redemption of shares of the company's shareholder is unacceptable. The expression of this position is the Supreme Court ruling from 12 May 2005[16].

In the statement of reasons, the Supreme Court advocated the view that a compulsory redemption institution could not be used to remove a shareholder from the company for reasons which it had in mind Article 266(1) k.s.h. (i.e.

for important reasons concerning the partner concerned), arguing that such use would constitute circumvention Article 266 k.s.h.

1. Katner and P. Brzeziński expressed their approval of this position. first from the authors cited, he expressed the view that if the conditions for the exclusion of the shareholder from the company are met, the Article 266(1) k.s.h., whose provision cannot be circumvented by providing in the company's contract for such conditions or events as would justify the application of compulsory or automatic redemption on the basis of Article 199(1)(4) k.s.h.17. second The author submits that the admissibility of the sanctioned redemption of shares is contrary to the nature of the company's contract with o.o., referring to Article 3531 Act on 23 April 1964 Civil code.

A different position is taken by A.

Opalski, who emphasizes that the institution of voluntary and compulsory redemption is necessarily linked to the granting of a certain decision-making discretion to the majority of partners, and that discretion limits the principle of equal treatment of partners, good morals and principles of social coexistence[18].

In addition, Artur Nowacki points out that the existence of an institution to exclude a partner does not support the admissibility of the compulsory write-off in the contract.[19], so both institutions do not exclude each other.

The cited author argues that the partners may use the compulsory redemption institution to ensure that the shareholder can be excluded in certain circumstances agreed upon by them in the company contract, in a way that ensures greater certainty than in the case of an institution excluding a shareholder from the company for important reasons relating to a member of the company under a court ruling.

The position authorising the application of the ‘sanctionable’ compulsory redemption of shares is reflected in the ruling of the Court of Appeal in Katowice from 3 November 2011[20]. In the explanatory memorandum of the judgment, the Court of Appeal states that the standard derived from the content Article 199(1) k.s.h.

in no way constitutes a restriction on the conditions for the redemption of shares of the company's shareholder, leaving the specific conditions in the partnership's agreement to the will of shareholders.

It is only with the determination of the conditions for compulsory redemption and their inclusion in the company's contract that it is possible to form a legal relationship between the shareholder and the company by decommitment of shares under the terms of the company's agreement.

As a result of the fulfilment of the circumstances laid down in the articles of association, which are a condition for sine qua non compulsory redemption, this power shall be updated in the form of the power of the meeting of shareholders to adopt a decommitment resolution.

The adoption of the resolution is optional and, as already mentioned, constitutes a right at the disposal of a meeting of shareholders.

The Court of Appeal notes that the application of the compulsory redemption of shares in a particular company with an o.o.

depends on the will of all shareholders, as expressed in the articles of association, by introducing provisions on the compulsory redemption of shares in the articles of association and determining the reasons for redemption.

The so expressed will of the shareholders of the company not only provides the legal basis for the admissibility of the withdrawal of the shareholder's participation, but also serves as a safeguard against the shareholder.

On the basis of the content of the agreement, the shareholder shall be familiar with the possible reasons which may result in the termination of the relationship between him and the company and, being aware of their content and joining the company, consent to it.

By shaping the terms of the company's contract and then concluding it, it co-decisions (including other partners) on the circumstances which it considers to be an obstacle to further participation in the company, and diminishing its rights.

For example, the conditions for the compulsory redemption of shares, such as non-fulfillment on the date of the company's performance, the undertaking, contrary to the express contractual ban, of competitive activities by a member of the board of directors or the damage to the company by using information about the company by the partner.

The directory of the premises is open, so it is not intended to make a possible exhaustive letters. However, it should be borne in mind that the conditions introduced in the articles of association should not, as already mentioned, leave room for a subjective assessment or an extension interpretation.

The resolution on the waiver of shares does not constitute a change to the articles of association, so it will not apply Article 246(3) k.s.h.21 And to make it happen, it's not necessary for all partners to agree. Furthermore, having regard to the content of the Article 241 k.s.h. and Article 245 k.s.h.

and the absence of a special provision on the basis of k.s.h., it must be stated that a resolution on the redemption of shares falls by an absolute majority and does not require the quorum to be retained unless otherwise provided for in the articles of association.

There are some differences in doctrine regarding the way the resolution is voted. For example, M. Pabis points out that the resolution of the Assembly of Associates is taken by secret ballot[22]. In contrast, Mr Nowacki points out differently, stating that the vote on the resolution does not require a secret vote[23].

When considering the practical aspects of the choice of the voting procedure applicable to the adoption of the resolution on the waiver of shares, it should be borne in mind that a possible choice of the wrong procedure may form the basis for an action for the annulment or annulment of the resolution of the meeting of shareholders.

However, the possible motion for a resolution by the court will depend on the circumstances in which the adoption of the resolution in an erroneous manner affected the content of the resolution, since the Supreme Court in its judgment of 22 April 2016 decided that it was incorrect to say that the mere failure Article 247(2) k.s.h. constitutes a violation of the law, invalidating the adopted resolution, without the need to examine the impact of this infringement on its content[24].

However, following on from the deliberations of the Supreme Court in the judgment cited above, a secret vote on the adoption of a resolution to waive the shares should be considered appropriate, as the Supreme Court points out: “The concept of personal matters in the context of Article 247(2) k.s.h.

covers all cases which concern persons and, at the same time, do not constitute directly mentioned in that provision of electoral votes, votes on applications for dismissal of members of the company's or liquidators' bodies, as well as to hold them accountable.

Personal matters are matters relating to the organisation and activities of the company which affect its functioning.

The literature stresses that the subject matter of a particular case is not relevant, it determines whether it relates to members of the company's bodies, liquidators, shareholders.’ Thus, since personal matters also relate to matters related to shareholders, and undoubtedly such a matter is a resolution on the redemption of the shareholder's shares, the use of a secret ballot will be found in this case.

Conditions and mode of automatic redemption of the shareholder’s share of the company.

According to Article 199(4) k.s.h. the articles of association may provide that the shares shall be decommitted if a particular event is fulfilled without the resolution of the meeting of shareholders being passed. For redemption in the above mode, called automatic remission, the provisions on compulsory remission shall apply.

Automatic write-off is sometimes considered inappropriate also as a sub-type of forced write-off.

This classification is carried out on the grounds that automatic remission also takes place without the consent of the partner concerned, but despite certain common features it is not possible to identify it with the remission established by the legislature under Article 199(1) k.s.h.

In this regard, W.

Katner takes the correct position by stating that ‘automatic redemption is different from the compulsory redemption of shares in the Polish limited liability company.’25, and then suggests that possible terminology inconsistencies blur the differences between compulsory and automatic redemption resulting from the conditions for their admissibility, making it difficult for practices to apply this institution.

It should also be pointed out that disposition Article 199(5) k.s.h. complements the content of the standard from Article 199(4) k.s.h.

in such a way that, in the event of the event referred to in the articles of association of which under Article 199(4) k.s.h., the Management Board should immediately adopt a resolution on the reduction of share capital, unless the write-off of the share comes from a pure profit.

The amount of remuneration for the automatically decommitted participation should be determined by the articles of association and, if the agreement does not contain such a provision, it is necessary to fix the amount of remuneration in the separate resolution of shareholders taken at the meeting or in circulation[26].

In addition, it is not permissible to reserve in the company’s contract the unpaid write-off[27].

The specific nature of the automatic redemption of a shareholder's shares in a company with an o.o.

requires the introduction in the company's agreement of a strict indication of the event constituting the condition for redemption, the explicit exclusion of the need for a resolution by shareholders or the conferral of competence to the management board in this respect.[28].

The resolution taken by the Management Board is the result of the performance of an event set out in the articles of association, is not of a constitutional nature and only determines whether the redemption is made by a reduction in the company's share capital or from a pure profit.

The order contained in the articles of association allowing the automatic redemption of the shares must be sufficiently specific and unambiguous in order not to raise doubts as to the nature, substance and occurrence of the event.

The event referred to in the articles of association must be a future event, of a individual nature, which can be objectively stated, without discretion and subjective (estimated) elements[29].

For example, the death of the partner, the expiry of the time limit, the conviction of the partner by a final penalty sentence, or even the submission by the partner of the request for redemption, is not eligible, but the fact that the existence of the company itself depends solely on the will of the company expressed by the board of directors (relatively the supervisory board), e.g.

the resolution of those authorities[30].

Conclusion

The redemption of the shareholders' shares of the company from the o.o. is, among other things, a convenient instrument for the shareholder to withdraw from the company. The legislator makes available to the shareholders of the company three the modes by which the process can be conducted.

The voluntary waiver allows the amicable separation of the partner with the company (shareholders) with the consent of the participating partner.

The compulsory waiver is, on the other hand, a legal institution by which the one of partners in a conflict between partners, when at least one of the partners for reasons of blame or innocence, he properly prevented the company from functioning (contributed non-internship at the Shareholders' Meetings or long-term illness).

Automatic write-off of the shares allows the shareholders' shares to be extinguished in the event of a specific event (death of the partner). The redemption of shares in the company may also be aimed at capital restructuring or ownership of the company. It should be noted that the institution of the redemption of shares in a flexible manner enables all these objectives to be achieved without entering the path of legal proceedings, which saves time and funds.

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1 A. Kidyba, Limited Liability Company. Comment. Wyd. 6, Warsaw 2014, commentary on Article 199, thesis 1, Legalis – electronic access.

2 A. Opalski, [w]: A. Opalski (ed.), Commercial Companies Code. Tom IIA. Company z o.o. Comment. Article 151-226, Warsaw 2018, comment on Article 199 - thesis 1, Legalis – electronic access.

3 Act of 15 September 2000 Commercial Companies Code, i.e. Journal of Laws of 2017, item 1577.

6 Article 199(4) k.s.h.

8 reference no. I SA/Wr 118/15.

9 R. Pabis, [in:] J. Bieniak, M. Bieniak, G. Nita-Jagielski (ed.), Code of Commercial Companies. Comment. Wyd. 5, Warsaw 2017, comment on Article 199 – thesis 5, Legalis – electronic access.

10 Judgment of the Court of Appeal in Warsaw of 23 February 2018, reference no. VII AGa 166/18, Legalis, No. 1772403.

11 A. Kidyba, Spółka z o.o., op. cit., comment on Article 199 – thesis 8.

12 A. Opalski, [w]: A. Opalski (ed.), Codex..., op. cit., comment on Article 199 – thesis 6.

13 R. Pabis, [w]: J. Bieniak, M. Bieniak, G. Nita-Jagielski (ed.), Code of Companies..., op. cit, comment on Article 199 – thesis 17.

14 see judgment of the Poznań Court of Appeal of 11 September 2008, reference no. I ACa 544/08, LEX No. 499187.

16 reference no. V CK 562/04.

17 W.J. Katner, Glos to the Supreme Court judgment of 12 May 2005, reference no. V CK 562/04, Gloss 2007, No 2, p. 23-32.

18 A. Opalski, [w]: A. Opalski (ed.), Codex..., op. cit., comment on Article 199 – thesis 6.

19 A. Nowacki, Spółka z o.o. Tom I. Comment. Article 151-226 k.s.h., Warsaw 2018, comment on Article 199 – thesis 18.

20 reference no. V ACa 528/11, Legalis No 469631.

21 A. Opalski, [in:] A. Opalski (ed.), Codex... op. cit., comment on Article 199 – thesis 26.

22 R. Pabis, [w]: J. Bieniak, M. Bieniak, G. Nita-Jagielski, Code of Companies..., op. cit., comment on Article 199 – thesis 25.

23 A. Nowacki., op. cit., comment on Article 199 – thesis 78.

24 reference no. II CSK 441/15, Legalis number 1482776.

25 W. J. Katner, Glosa, op. cit, p. 23-32.

26 M. Chomiuk, [w]: Z. Jara (ed.), Code of Commercial Companies. Comment, comment on Article 199 – thesis 36, Legalis – electronic access.

27 A. Opalski, [w]: A. Opalski (ed.), Codex..., op. cit, comment on Article 199 – thesis 53.

28 Judgment of the Court of Appeal in Białystok of 1 February 2018, reference no. I AGa 23/18, Legalis No 1728533.

29 Judgment of the Poznań Court of Appeal of 25 October 2017, reference no. I ACa 229/17, Legalis No 1692667.

30 A. Opalski, [w]: A. Opalski ed.), Codex..., op. cit., comment on Article 199 – thesis 23.