Increase of share capital in the stock company by capitalisation of reserves

Increase in share capital from the company's own resources (so-called capital increase by means of capitalisation of reserves, ‘paper’ increase 1 ) it consists of reserving the financial resources shown in the company's balance sheet under the position of reserves and reserves into core capital.

At the same time, the amount of resources raised in reserve capital which may be allocated by the company to increase the share capital is limited. According to Article 442(1) dd.

2 Act on 15 September 2000 – Commercial Companies Code 2 ((k.s.h.) the company cannot use for this purpose a proportion of the capital that corresponds to uncovered losses and own shares. This includes the capital that can be allocated[3].

With regard to the public limited company, the regulation on the increase in share capital from the company's resources includes Article 442 k.s.h. Although this adjustment prima facie seems to be exhaustive, it is in the doctrine that there are differences in practical aspects of the application of this institution.

The position of the doctrine is presented in this study, which aims also to indicate the interpretation doubts related to this provision.

1. Sources for financing the share capital increase

Given the severity of the legal consequences in the event of failure to apply or incorrect application of the provisions on the increase in share capital from the company's resources, it is worth looking at this institution.

Resolution of the General Meeting on the increase in the share capital in which the appropriations were allocated to this increase Article 442(1) k.s.h. may not be intended for this purpose, is contrary to the law and is subject to appeal under Article 425 k.s.h.

The registration court may and should refuse to enter in the register an increase in share capital based on such a resolution[4]. Article 442(1) k.s.h. as applicable from 15 January 2004 significantly expanded the types of capital (funds) that can be used to raise this capital.

Before you change from 2003 Only profit-based capital could be used for this purpose. Currently Article 442 k.s.h.

states that ‘The General Meeting may increase share capital by allocating resources from the reserves created from profit if they can be used for this purpose (increase in share capital from the company’s resources), including reserves created in the case of a specified under Article 457(2), reserves created from profit which under the Statute cannot be allocated to distribution between shareholders and from reserves.

However, part of the capital that may be allocated should be left to the extent that the losses and own shares are not covered.’

In practice, due to the editorial Article 442(1) k.s.h., the determination of a specific amount of equity that may be allocated to an increase in share capital may raise doubts.

It might seem that the term ‘including’ after ‘reserve capital measures created from profit if they can be used for this purpose’ leads to the conclusion that all the other resources in question are worth the benefit.

442 section 1 k.s.h., are only examples of the general category of reserve assets created from profit that can be used for the purpose of the increase and, consequently, that they must be included in that category.

However, this is not a valid application. After ‘including’ under Article 442(1) sentence first k.s.h. not only reserve capital (as well as reserve capital) and not only those reserves that were created from profit (as well as the reserve capital in question) were mentioned. Under Article 457(2) k.s.h., i.e.

from a reduction in share capital). The linguistic interpretation of this provision does not therefore lead to clear results[5]. In view of the doubts that arise on the basis of logical and linguistic interpretation Article 442(1), a functional interpretation must be used to resolve the indicated issue.

The introduction of restrictions on the transfer of own funds to an increase in share capital may serve two purposes: first the protection of shareholders’ interests against the definitive exclusion of the possibility of the dividend being used for the payment of funds from specific capital, and secondly, the exclusion of the possibility of apparent capitalisation, which would consist in the transfer of the share capital of funds from equity that are not covered by the net assets of the company. None of the above grounds warrant the interpretation that only the funds created from the profit may be used for the increase in share capital.[6].

Consequently, the doctrine assumes that the capital calculated under Article 442(1) sentence first k.s.h. after the return ‘including’ are additional sources of financing of the share capital increase, regardless of whether they were created out of profit and whether the arrangements for these capitals (other than Article 442(1) k.s.h.) allow this possibility; it results directly from Article 442(1) k.s.h. 7 .

2. Other conditions for increasing share capital

In addition, it is essential to increase the share capital from the company’s resources to have the appropriate amounts for the indicated value. 442 section 1 k.s.h. reserves or reserves. This is a necessary condition, but not the only condition, determining the admissibility of an increase in the share capital of the company.

It should also be borne in mind that a resolution on the increase of the share capital from the company's resources can only be taken if the company's financial statements for the previous financial year show profit and the report on the audit of the financial statements does not contain significant reservations regarding the financial situation of the company (Article 442(2) (k.s.h.)[8].

The provisions mentioned do not make the adoption of such a resolution dependent on the demonstration of market realities or economic situation[9].

The increase in the share capital of the company is one from the normal increases in share capital and as such is made by the amendment of the statutes.

Therefore, in addition to the provisions contained under Article 442-443 k.s.h., it is subject to general provisions concerning the amendment of the statutes and the normal increase in share capital, except for those which would not be compatible with the specific characteristics of that institution (i.e.

Article 431(2)(3a)(5)(6), Article 432(1)(6)(7)(2)(3)(4), Article 433 k.s.h., share subscription regulations). Exclusion of the application of these provisions results from the provisions contained under Article 442-443 k.s.h., which are legis specialis.

Rules laying down requirements for the adoption by the general meeting of a resolution on the increase in share capital are also applicable (Article 402(415)(419)(2) (k.s.h.)[10].

The measures carried over by the company to cover increased share capital are neither monetary nor non-monetary contributions[11].

Capitalisation boils down to the re-booking on the liability side of items that previously existed as reserves or reserves into a share capital position without an increase in assets (because the capital increase is not accompanied by the shareholders' coverage of newly issued shares).

Only its existing shareholders can participate in the increase in the share capital of the company.[12]. Transfer of funds from the reserve to the share capital is one of the means of increasing it and does not require justification.

In practice, the increase in the share capital of the company boils down to the re-booking on the liability side of items that previously were in the reserve into the share capital position but without an asset increase.

This is a factual act, which results in the acquisition of shareholders, because on the shareholders' side (...) the nominal value of shares is increased free of charge (...)[13].

From expressed under Article 442(1) k.s.h. the principle that the general meeting may increase share capital by allocating funds from other equity capital of the company indicated in that provision, inter alia, that:

1. making an increase in the share capital of the company does not require the authorization contained in the statutes 14 ;
2. the statutes must not exclude the powers of the general meeting to increase the share capital from the resources of the company (cf. Article 304(3) k.s.h.); limiting the possibility of making such an increase may, on the other hand, consist in introducing in the statutes the specific requirements for the qualified majority required for the adoption of a resolution on the matter, as there are no obstacles to the establishment of more extensive requirements for the majority of votes for such a resolution than for the resolution on the increase in the share capital covered by contributions (cf. Article 415(5) (k.s.h.) 15 ;
3. the statutes must not provide that the share capital increase in question will be ‘automatic’, i.e. without the need for the general meeting to adopt a resolution on the matter (e.g. ‘automatic’ transfer of part of the funds from the reserve to the share capital after obtaining a certain level of reserve capital) 16 ;
4. The statutes may not confer on the board of directors the power to increase the share capital from the company’s resources (this principle is further confirmed by the Article. 444 section 5 (k.s.h.)[17].

Nor can the statutes exclude the principle that shares issued as part of an increase in the share capital from the company’s resources are allocated to shareholders in proportion to their shares in the current share capital (Article 443(1) (k.s.h.)[18]. Regulation Article 442(443) k.s.h. has character exhaustive and therefore, according to Article 304(4) k.s.h., the statutes may not introduce additional (complementary) regulations concerning the increase in share capital from the company's resources[19].

3. Objectives of the increase in the share capital of the company

The increase in the share capital from the company's resources may aim at a stronger link between the company's resources by limiting the possibility of allocating funds from the company's own capital to a distribution between shareholders[20]. This is because:

1. Measures transferred to share capital will be able to be paid to shareholders only if the capital is reduced, i.e. following the procedures required for this reduction (Article 455-458 (k.s.h.) or if the company is dissolved 21 ;
2. The resources transferred to share capital will not be available to cover the loss, the possible loss will therefore have to be covered by other equity capital, and in the absence of coverage the amount that can be allocated to the distribution of shareholders will be reduced (Article 348(1) (k.s.h.) 22 ;
3. the increase in the share capital amount increases the required level of reserve capital, which is exempt from the obligation to write off profits on reserves (Article 396(1) (k.s.h.)[23].

The increase in the share capital from the company's resources can therefore in practice be used as a tool that effectively restricts the possibility of a general meeting to decide whether to allocate the company's resources to the division[24].

The purpose of increasing share capital from the company's resources may also be to increase the liquidity of the company's shares. Such an effect may be desirable in those companies in which due to the high price of the shares their turnover is hampered.

This increase, if carried out by the issuance of new shares, results in similar effects to the split (so-called split) of shares, leading to a reduction in the unit price of the shares and an increase in the liquidity of the shares.

Increasing the liquidity of the shares in turn can lead to an increase in the price of the holding held by the shareholder[25].

Another objective of increasing the share capital from own resources may be to strengthen the situation of shareholders who will thus have more or more shares. Such transactions also aim to increase creditworthiness.

The ‘capital’ increase in share capital may also lead to an equalisation of the proportion between the nominal value and the actual assets of the company[26].

The increase in share capital from the company's resources may occur by issuing new shares, so-called free shares, or by increasing the nominal value of existing shares; only existing shareholders are eligible (see R. Czerniawski, Code of Commercial Companies, Warsaw 2004, p. 630-632; cf. M.

Litvinska-Werner, Commercial Companies Code, 2002, p. 941)[27].

4. Types of capital that can be used to increase share capital

In order to increase the share capital, they may be used two the types of reserve capital whose resources come from profit. After first, on the use of resources from the profit accumulated in the reserve for the increase in share capital, according to Article 442(1) k.s.h.

– determines the possibility of their destination for this purpose. After second, The increase in share capital from the company's resources may also be financed by means of reserves created from profit which, under the Statute, are not split between shareholders (Article 442(1) (k.s.h.)[28].

However, it does not appear that, for the exclusion of such a possibility, it is necessary that the statutes or the law clearly state that these capitals cannot be used for that purpose.

The statutory or statutory prohibition on the use of these capitals for the increase in share capital will also apply if, according to the law or the statutes, the reserve is reserved for other purposes (e.g. dividend payment)[29].

Therefore, if the resources in reserve capital may be used for dividend payments, the possibility of using them for share capital increases is excluded[30].

The resources for the increase in share capital may also be generated by the reserve capital created in the case of a specified under Article 457(2) k.s.h. These are capitals which arise from amounts derived from a reduction in share capital. True. Article 457(2) k.s.h. states that these capitals can only be used to cover losses, but Article 442(2) k.s.h. clearly indicates the possibility of allocating them to an increase in the share capital of the company[31].

On the other hand, the question of the possibility of using all spare capital to increase share capital is different in writing. For example, Adam Opalski claims that all of the capital reserves can be used to increase the share capital, and thus also the share of the capital, which according to Article 396(5) k.s.h. may only be used to cover loss.

As regards reserve capital created in accordance with Article 457(2) k.s.h. recipe Article 442(1) k.s.h. constitutes lex specialis in relation to Article 457(2) k.s.h.

(formulating the principle that this reserve capital can only be used to cover losses) it should be consistently assumed that it is also lex specialis in relation to Article 396(5) k.s.h. Functional considerations also support this interpretation. Ratio Article 396(5) k.s.h.

is to exclude the possibility of allocating the share of the capital referred to in that provision to shareholders, and this objective will also be achieved if that part of the reserve is intended to finance the share capital increase[32].

This thesis is supported by Radosław Poszcie, who claims that the reserve capital can be used entirely to raise capital, including in the minimum part envisaged under Article 396(1) and 5 k.s.h. According to this commentator, spare capital was deliberately exchanged at the end of the provision section 1 under Article 442 k.s.h.

after ‘and’ and the requirement from Article 396(5) k.s.h.

does not apply here, since it is always updated in the form of an increase in share capital, and since this minimum is used to cover losses, it cannot be doubted that the inclusion of that part in the share capital does not constitute (except for the requirements of the resolution) a fundamental difference in the subsequent coverage of losses when taking into account the content of the Article 457(1)(2) k.s.h.

In addition, a specific ‘buffer’ limiting the company's capital conversion efforts is a sentence second commented section 33 .

Maciej Goszczyk, among others, is opposed to such interpretation, pointing out the need to protect the interests of minority shareholders from limiting the possibility of using equity funds to pay dividends. Although part of the reserve capital in question under Article 396(5) k.s.h.

in fine, cannot be used to pay dividends, but the transfer of these funds to increase the share capital may reduce the company's ability to pay dividends, as this increase increases the scope of the obligation to write off profits into reserves (Article 396(1) k.s.h.), and any balance sheet losses that reduce the amount to be broken down (Article 348(1) k.s.h.) will have to be covered from other sources.

However, this should not be a prejudicing argument, since the possibility of paying dividends is also adversely affected by the use accepted by the legislature to increase the share capital of the resources created in accordance with the Article 457(2) k.s.h.

(also after such an operation, possible losses will have to be covered by other sources) and from the profit from the remaining part of the capital.

It therefore appears that the protection of minority shareholders against the definitive exclusion of certain resources for distribution between shareholders is, on the grounds of Article 442(1) k.s.h., to exclude the possibility of allocating to the increase in the share capital of the profit for a given financial year and the undivided profits of previous years and to limit the possibility of using the reserve capital referred to in that provision before the term ‘including’, i.e.

the profit-based reserves that may be used for the payment of dividends and in the latter case their use for another purpose, in particular for the payment of dividends, excludes their use for the financing of the share capital increase, unless the provisions on these capitals allow their use also for the increase of share capital.[34].

This view is shared by Iwona B. Mik, who points out that part of the reserve capital corresponding to 1/3 share capital may be used as provided for Article 396(5) k.s.h. – only to cover the loss shown in the accounts.

The content of this provision leaves no doubt that only part of the reserve capital which is not intended solely to cover losses can be freely held[35]. Mateusz Rodzynkiewicz also claims that part of the reserve capital one third share capital can only be used to cover the loss (according to Article 396(5) (k.s.h.)[36].

In summing up this theme, it should be argued that part of share capital equal to 1/3 the share capital cannot be used to increase the share capital, and this application must be made from Article 396(5) k.s.h., which provides that these measures may only be used to cover losses.

Except that according to Article 442(1) k.s.h.

there must be funds in reserves or reserves that can be used to increase share capital, section 2 the same provision further requires that the approved financial statements for the past financial year show a profit and that the audit report does not contain significant reservations as to the financial situation of the company.

It is therefore not possible to adopt a resolution on the increase in share capital from own resources before the adoption of a resolution approving the financial statements for the previous financial year[37].

1. Making a profit as a requirement for the share capital increase and the allocation of profit from the current financial year

The amount of profit achieved shall not affect the possibility of an increase in share capital. Article 442(2) k.s.h. requires only profit to be generated by the company and does not indicate the minimum amount on which that possibility would depend.

However, where the company has a profit for the past financial year, an obstacle to the increase in share capital may constitute reservations in the audit report as to the financial condition of the company which must be material.

The absence of these reservations or the negligible nature of them enables the general meeting to adopt a resolution on the increase in share capital from the company's resources. In this case, whether the company will be able to increase the share capital from its own resources will depend on the expert’s opinion. Iwona B.

Mika calls for only those reservations which the auditor himself considered relevant in the audit report (Article 83 Act on 11 May 2017 statutory auditors, audit firms and public oversight, i.e. Journal of Laws of 2019, item 1421)[38].

Similarly, according to Andrzej Kidyba, who points out that the report on the financial situation of the company drawn up by the audit firm must not contain significant reservations. So it is not about any reservations, but those which, in the assessment of the researcher, may indicate undesirable adoption of the resolution[39].

There are no significant reservations that do not concern the financial situation of the company[40].

Maciej Goszczyk does not agree with this thesis, which calls for not only the experts to consider the relevant reservations as important. According to this commentator, the mere fact that the expert did not indicate that his reservations were relevant does not automatically mean that they cannot be considered relevant within the meaning of the provision Article 442 k.s.h. 41 .

The general meeting should have up-to-date information on the financial situation of the company before deciding to increase the share capital from its own resources. Therefore, if the last financial statements have been drawn up at the balance sheet date at least per 6 months from the date of the general meeting in which the resolution on the increase of the share capital from the company's resources is to be adopted, a new balance sheet, a profit and loss account together with additional information must be drawn up, and these documents should be examined by an audit firm selected for the audit of the company's accounts or an audit firm selected by the supervisory board (Article 442(2) (k.s.h.)[42].

However, where the last financial statements have been drawn up at the balance sheet date at least per six months from the date of the general meeting at which such a resolution is to be adopted (and, therefore, if the period between the balance sheet date on which the final financial statements of the company were drawn up and the date on which the general meeting on which the resolution on the increase in the share capital of the company is to be adopted is equal to or longer than six months), it is necessary to draw up and examine a new balance sheet and profit and loss account, together with additional information, by the audit firm (chosen to examine the financial statements of the company or another selected by the supervisory board).

This is therefore not a full report as it does not include a statement of changes in equity and a cash flow account. The period for which the new ‘limited’ report is drawn up shall begin. In the first the date of the financial year on which the resolution on the capital increase for the company's resources is to be adopted.

Article 442(2) k.s.h. does not, however, result in the date on which this additional report is to be drawn up. The doctrine assumes that this date should be as close as possible to the one in which the resolution on the increase in share capital is to be adopted (see Among others, Andrzej Kidyba, Codex...t. II, 2019, p.

909, stressing that the purpose of this solution is to ensure that the situation of the company can be properly assessed and that the report should therefore be relatively "fresh"). The new report is presented at the general meeting convened to adopt this resolution.

However, in order to be able to adopt a resolution on the capital increase from the company’s resources, it is irrelevant whether this additional report shows profit and whether the statutory auditor who examined it has expressed significant reservations with regard to it.[43].

6. Allocation of shares resulting from an increase in share capital

Shares resulting from the increase in share capital from the company's resources are distributed to shareholders on the basis of a resolution of the general meeting. These shares are not covered by them, so shareholders do not make a statement of intent to cover them. That's the way it is. Article 442(3) k.s.h.

The exception is the case where shareholders in exchange for subsidies include shares in a situation where they were to receive fractional shares (Article 443(2) k.s.h.). At that time, the participation of shareholders is required[44].

Interpretative doubts raise the wording of the last sentence Article 442(1) k.s.h., which may suggest that when determining the maximum amount of equity that may be used to increase share capital, the value of equity and the amount of uncovered losses should be reduced only by the amounts of equity that may be used to pay dividends[45].

This would, for example, lead to the conclusion that, if from among the capitals which according to Article 442(1) k.s.h. may be used to increase the share capital, the company has only those which cannot be used to pay dividends (e.g.

capital created from a share capital reduction), the fact that the balance sheet shows uncovered losses and equity does not affect the amount that may be transferred from the reserve capital to the share capital.

In extreme cases, an increase in capital from the company’s resources would also be possible if the value other than the share capital of the company’s own capital is negative. Such an application cannot be accepted for reasons of purpose, since the provision in question should counter the activities of such apparent capitalisation[46].

However, the phrase ‘which may be used for division’ contained in that provision must be interpreted as meaning that the provision does not concern the distribution between shareholders of dividends, but the distribution made in the manner in question under Article 442(1) k.s.h., i.e.

the allocation of those amounts consisting in their transfer to cover the free shares which will be allocated to shareholders[47].

Doubts may also arise as to whether under Article 442(2) k.s.h.

is only about the profit achieved in the financial year for which the report was drawn up (in this case, the condition for the adoption of the resolution would also be met if the report showed the profit for that financial year and the uncovered losses for the previous years and if the amount of these losses exceeded that profit) or the profit understood as the surplus shown in the profit report (i.e.

profit for this financial year and undivided profits for previous years) on uncovered losses (in that case, the resolution could also be adopted if the report shows that the company did not achieve a profit for the financial year, if only the sum of undivided and undistributed profits for previous years exceeded the amount of undivided losses).

It should be assumed that the provision concerns only profit for the last financial year, i.e. the year to which the report relates[48].

If this were not the case, companies in the same financial situation as those which had made profits in the previous financial years but did not gain profit for the last financial year would be treated differently, depending on whether and what amount of profit they transferred to the reserves (in companies which did not transfer the return on the reserves, there could be an excess of undistributed profits over losses, enabling them to increase capital from the company's resources, while co-workers who at least partially transferred those profits to the reserves could exceed the amount of profit remaining after the transfer of the profits to those capitals).

Furthermore, the fact that the company has uncovered losses is in line with Article 442(1) to be taken into account for the determination of the amount of reserve capital that may be transferred to an increase in share capital.

The overall financial situation of the company is therefore to some extent taken into account in the determination of this amount and, in some cases, the existence of uncovered losses may, on the basis of Article 442(1) k.s.h., exclude the possibility of raising capital from the resources of the company (if the amount of uncovered losses and the value of own shares in total exceeds the amount of reserves that may be used for this purpose).

Establishment under Article 442(2) The requirement that the last approved financial statements show profit is therefore aimed at excluding the possibility of capitalisation of reserves by companies that are currently unable to generate profit, rather than making that possibility dependent on whether the amount of undistributed and non-transferable profits exceeds the amount of uncovered losses[49].

The fact that the profit shown in the financial report for the previous financial year was transferred by the general meeting approving this report for distribution between shareholders is not an obstacle to the adoption of a resolution on the increase in share capital from the resources of the company 50. Article 442(2) k.s.h.

only requires this report to show profit and does not require that the profit be left in the company[51].

The increase in share capital from the company's resources may occur by issuing new shares or by increasing the nominal value of existing shares (Article 431(1) k.s.h.). This one. second the way can be simpler in practice, especially when the company's shareholding is dispersed.

It avoids the practical problems caused by the fact that, given the ratio of the amount of the share capital increase to the existing amount of that capital when issuing new shares to shareholders, fractional shares could fall. In addition, problems that may arise due to the need for a list of buyers of new shares are avoided.

However, if capital increases are made by increasing the nominal value of the existing shares, it is necessary to update or exchange existing stock documents (as indicated by Article 443(4) (k.s.h.)[52]. Simultaneous (also based on one resolution) application of both ways of increasing the share capital from the company's resources[53].

It is also permissible to carry out, on the basis of the same resolution, an increase in share capital from the company's resources and an increase in capital by issuing new shares covered by contributions (i.e. shares which are not even in the free share)[54].

Carrying out the issue of free shares in companies in which bearer shares were issued can be quite embarrassing in practice. New shares do not require inclusion, but are allocated to shareholders.

This in turn means, above all, that there are unnecessary provisions, so the associated identification of persons to whom shares are allocated will not occur. According to Article 441(2)(3) k.s.h.

the request for an increase shall be accompanied by a ‘list of purchasers of new shares’, the absence of which constitutes an obstacle to the registration of an increase in share capital. Appropriate application Article 434 k.s.h.

allows to make an appropriate announcement and then assign shares to bearer stock holders, while simultaneously drawing up a list of purchasers[55].

In the case of free issuance in a public company, this difficulty can be overcome by the use of deposit system databases and brokerage houses, which enables the identification of the bearer share according to the condition at the date of the allocation of the free shares, in accordance with the procedures used in the case of ‘distribution’ of shares in connection with the exercise of the right of collection or the procedures used in the distribution of dividends per bearer shares.

As far as non-public companies are concerned, it may not be sufficient to make a notice according to the applicable Article 434 k.s.h., as suggested by Wojciech Popiołek, because, despite the announcement, the shareholder may not submit (which will make it impossible to identify him), and such failure to submit to the shareholder within the time limit indicated in the notice does not mean that he has lost the right to free shares – he has them all the time (it certainly does not apply).

Article 434(2)(8) (k.s.h.)[56].

In addition, it is claimed in the doctrine that the issue of free shares does not apply at all to the collection law.

In any event, if it is not possible to identify all shareholders to whom the shares are free of charge and the deadline for the increase in share capital must be entered in the register (see Article 431(4) k.s.h.), the board should submit to the registry court a list of purchasers of free shares, even if incomplete, with a possible explanation of the reasons for such a situation, and the registry court may not then refuse to register an increase in share capital as this is a case to which it can be applied Article 317(2) in conjunction with Article 431(7) k.s.h.

57 .

It is clear that free shares can be issued only at nominal value, and it is not possible to issue free shares at issue price higher than nominal value, since the issue agio according to Article 396(2) k.s.h.

transfers to reserves, and thus so constructed free issuance would mean the transfer of part of the funds from reserves or reserves to reserves (agio) rather than share capital, which would be contrary to the definition of an increase in share capital from the company's resources, and where the source of financing of the free issue is reserves, such an operation would constitute an internal contradiction in terms of agio, i.e.

the transfer of funds from reserves to reserves.[58].

It is disputed whether a shareholder can waive the right to receive free shares. This possibility is rejected by Wojciech Popiołek [in:] J. Sczępka, Code of Commercial Companies, 2003, p. 1281), Andrzej Kidyba [in:] A. Kidyba, Code of Commercial Companies, t. 2, p.

743), noting that a shareholder may waive his or her shares on account of the income tax that would apply to him or her in the event of receiving a free share[59].

Admissibility of waiver of free shares could be derived from content Article 443(1) k.s.h., which provides for the right of shareholders (shares ‘attributes’ to shareholders) rather than the obligation to collect free shares.

In any event, if you allow the right to renounce the shares free of charge, it is, of course, only for the shareholder who renounces and not his successor.

If, therefore, the shareholder concerned did not collect the shares free of charge (it was not allocated to him as a result of the declaration of waiver) and subsequently disposed of the shares held so far, their purchaser should receive an appropriate number of shares free of charge.

It should also be noted that the shareholder's waiver of the shares free of charge does not affect the reduction of the company's liability as an income tax payer, as the company pays it on the total volume of issued shares free of charge.

On the other hand, if an increase in the share capital from the company's resources takes the form of an increase in the nominal value of all shares issued so far (where the tax obligation is the same as for the issue of free shares), then there cannot be a right for the shareholder to renounce the share capital increase, since all shares must have the same nominal value (yes: Article 302 (k.s.h.)[60].

Shareholders may not require the company to pay free shares of the respective amounts (yes: W. Popiołek [in:] J. Sczępka, Code of Commercial Companies, 2003, p. 1281).

Similarly, it is not permissible to conclude an agreement between the company and the shareholder on the so-called ‘guarantee’ instead of the performance in question under Article 453 k.c. i.e., that instead of free shares, the shareholder will receive a certain amount.

The company may acquire free shares (as well as other shares) from the shareholder in order to redeem them, although this is a tax-inefficient solution[61].

To conclude, it is worth indicating the consequences of the infringement Article 442 k.s.h. Decision on the increase of share capital from company funds taken without complying with the requirements of Article 442(2) is contrary to the law and is subject to appeal under Article 425 k.s.h. (yes: S. Sołtysiński, T.

Sójka [in]: Commercial Companies Code. Tom III. Stock Company... op. cit., p. 1687; M. Rodzynkiewicz, Commercial Companies Code. Commentary..., op. cit., p. 970; W. Popiołek [in:] J. Strzepka, Commentary k.s.h., 2013, p. 1055; Unlike Artur Nowacki, according to which failure to comply with the requirements of Article 442(2) k.s.h.

constitutes a procedural infringement and, as such, may be the basis for the annulment of the resolution, only if it affected its content – A. Nowacki, The amount of the share capital increase by the Management Board, 2009, p. 9 and 10).

The registration court may refuse to enter in the register an increase in share capital based on such a resolution[62].

7. Summary

The question of the increase in share capital from the company's resources raises many doubts about the practical application of this institution. Only the doctrine clarified which funds could be used to increase the share capital, since the literal wording of the provision Article 442(1) k.s.h.

continues to suggest that these can only be capital created from profit. Moreover, disputes in doctrine raise the question of the use of spare capital, which should be at least equivalent in a public limited company 1/3 share capital.

Some commentators advocate the possibility of "replacing" all reserve capital into share capital, while most of the doctrine advocates that according to Article 396(5) k.s.h. equivalent 1/3 the share capital may be used only to cover the loss shown in the accounts.

It is also problematic to have a statement under Article 442(2) k.s.h., according to which the auditor's report on the audit of the company's financial statements for the previous financial year may not contain significant reservations, since this provision does not specify what reservations are relevant or who decides on this materiality.

Finally, there is doubts as to whether shareholders can waive ‘free’ shares, which are subject to a tax obligation on their side. These and other doubts on the question of the increase in share capital from the company’s resources are synthesized by this Article.

________________________________________