Companies are increasingly choosing to issue silent shares that combine the advantages of bonds and ordinary shares. There are still doubts among the representatives of the doctrine about the possibility of issuing silent partnership shares in a limited partnership.
Recently, investors have seen a trend towards using investment alternatives to ordinary equity or debt instruments.
Investors have figured out the investment opportunities of silent shares in this respect, such as the fact that an investor that includes silent shares becomes a co-owner of the company, so that it can benefit from its development and also obtain the right to dividend.
However, in relation to the content of the provision Article 145(3) dd. 2 The Code of Commercial Companies raises doubts about the possibility of issuing silent partnership shares in a limited partnership. There is a view in the doctrine that the issuance of silent partnership shares in a limited partnership is unacceptable.
His supporters set out the reasons that, in view of the vague wording of the provision, allegedly prejudge the recognition of the inadmissibility of issuance of silent shares.
However, due to the interests of the shareholders-investors and the nature of the limited-share company, including, inter alia, the exclusion of the risk associated with the hostile takeover of the company at its recapitalisation, it is appropriate to favour the acceptance of the issue of silent partnership shares in the limited-equity company.
With the option of allowing the issuance of silent shares and given this investment trend based on instruments in the form of silent shares, combining investment advantages of ordinary shares and debt instruments such as bonds, the limited-liability company can be seen again as an attractive legal form of business activity
Characteristics of silent shares
The main feature that distinguishes such shares is the exclusion of the shareholder’s right to vote. In return, the holder of the non-monetary shares is privileged in terms of dividends.
Nieme shares allow to create a separate category of shareholders who are virtually excluded from the possibility of influencing the company's affairs, while at the same time constituting a kind of capital investment, providing a much higher rate of return than ordinary shares.
The latter feature brings silent shares closer to bonds, among others.
one for the main reasons for issuing silent shares is a relatively simple and rapid recapitalisation of the company with own funds without changing ownership relations simultaneously. Thus far, shareholders do not lose control of the company.
The silent partnership shares are primarily intended for investors who value more to obtain dividend preferences over voting rights.
Silent shares are mainly characterised by the fact that the statutes can grant them 1) dividend higher than the limit laid down in the provision Article 353(1) KSH, 2) priority in the satisfaction of dividends before other shares contrary to the limitation from Article 353(2) KSH, 3) compensation from the profit generated in the following years, in so far as the conditions described in the provision exist Article 353(4) KSH.
The Views of Doctrine
In literature you can meet two differing views on the possibility of issuing silent partnership shares in a limited partnership. Part of the doctrine advocates the admissibility of silent partnership shares in the limited liability limited partnership, and the remainder states an unconditional ban on such shares.
By the second view from itself Article 145(3) k.s.h. it follows that the shareholder cannot be completely deprived of the right to vote. Therefore, the supporters of this view are not allowed to issue silent shares.
At this point, it should be pointed out that, despite the claim that silent partnership shares could not be issued in a limited partnership, courts register changes based on the issuance of silent partnership shares, without calling on companies to change the content of the statutes providing for the issuance of silent partnership shares.
In fact, courts approach this issue very openly, because they allow the issuance of silent shares by a shareholder who has not so far held other ordinary voting shares, i.e.
allow the existence of a shareholder who does not have a voting right, which may seem to be contrary to the rule Article 145(3) KSH, which speaks of the inability to completely deprive the shareholder of voting rights. The court’s current practice of admissibility of silent shares should be considered correct.
There are many arguments behind allowing the issuance of silent shares in limited-activity companies.
First of all, it should be pointed out that, when planning silent shares in the statutes, there is no risk that the rights of the shareholder would be impaired, since, when covering silent shares, the shareholder agrees to a restriction of voting rights, while obtaining the most important right to an increased dividend because of his interests.
In the case of issuance of silent shares, there is in fact no deprivation of voting rights, since the essence of the silent stock is that it does not give the right to vote, so it is not possible to conclude that a shareholder is deprived of the power which the share does not, by its nature, have and will not have.
The shareholder, choosing to take over shares, is well aware that his greatest privilege will be to participate in the dividend rather than to vote. In the case of a silent action, the new investor is not deprived of the right to vote, as obtaining that right was not the purpose of the acquisition.
Shareholders – holders of silent shares as passive investors – are not interested in exercising their voting rights and agree to devote this right to the price of obtaining dividend privileges.
Another reason to reject the view that the issuance of silent partnership shares in limited-activity companies would be contrary to the interests of investors and would result in loss one with the most important benefits of this form of legal activity.
The possibility of issuing silent shares constitutes a significant reason for potential investors to invest in the shares of the limited partnership. Investors can benefit from dividend advantages through the issuance of these shares to a greater extent than those held by ordinary shares.
Despite several loud investment failures in recent years related to the issuance of silent shares by public limited companies, there is now an increase in interest in investments in silent shares, guaranteeing regular dividend payments. With the solution of allowing the issuance of silent shares and given this investment trend based on instruments in the form of silent shares, combining investment advantages of ordinary shares and debt instruments such as bonds, the limited-liability company can be seen again as an attractive legal form of business activity.
Written by Maciej Tuszyński
Legal Manager in the Legal Department. Lawyer, member of the District Bar Council in Warsaw, graduate of the Faculty of Law and Administration of the University of Warsaw. He specializes in commercial and civil law law. He has professional experience, which includes litigation and comprehensive legal advice on the day-to-day service of economic operators, in particular commercial law companies. As part of his work at the law firm, his practice focuses on corporate, civil and economic matters.