Conversion of the entrepreneur into a capital company

The procedure for converting the entrepreneur into a capital company was introduced into a law with 15 September 2000 Commercial Companies Code 1 (Further: k.s.h.) by law with 25 March 2011 reducing administrative barriers for citizens and entrepreneurs 2 (Further: u.o.b.a.) According to the legislator, the proposed solutions In the second of these laws aimed at filling a systemic legal gap and enabling an entrepreneur who is a natural person carrying out an economic activity in his own name (transmitted entrepreneur), transforming into a single-member capital company (recast company)[3].

Last 9 The years of application of the new regulations clearly indicate that this form of restructuring is a great support for Polish entrepreneurs. The article presents the essence of the transformation of the entrepreneur into a capital company and the legal and organisational aspects of such transformation.

1. Introduction – the essence of the transformation of the entrepreneur into a capital company

According to k.s.h.

an entrepreneur who is a natural person carrying out an economic activity in his own name within the meaning of the Act of 6 March 2018 - Business law 4 (the undertaking being converted) can transform the business into a single-member capital company (the company being converted; the entrepreneur becoming a capital company).

This does not mean that, on the date of the conversion, such a natural person becomes a capital company. This is because the form of business is transformed, from one-man business to one-man business.

one of the main motivation for the transformation of one-person business activity into a capital company is to limit the liability of the entrepreneur/shareholder to the value of the company's assets. The risk of financial failure also increases as the size of the business increases.

A single-person business operator shall be responsible for all its assets for the obligations associated with that activity.

A characteristic feature of such transformation is the preservation of any privileges, rights and obligations of an entrepreneur who is a natural person. As a result of the transformation, a new company is entered in the Register of Entrepreneurs of the National Court Register, while the entrepreneur himself becomes a shareholder or shareholder of that company. The entrepreneur is also removed from Central Register and Information on Business Activity.

2. Universal Succession

The main advantage of the transformation is the occurrence of universal succession. Before the entry into force of the Barrier Restriction Act existed two the ‘transformation’ of single-person business activity into a capital company. The entrepreneur could either bring his business to the company by means of an aport or either eliminate the business activity and establish a company. In these two However, there is no universal succession.

According to the Supreme Court: “It is best to consider the divestment of the company as a series of single successions, which means that a separate legal assessment must be carried out. Indirectly, although insufficiently, this is due to Article 751(4) Act on 23 April 1964 Civil Code 5 (Next: k.c.). This view means a separate assessment of the admissibility of each transfer of goods and thus the divestment of an undertaking does not consume specific requirements relating to its individual components." 6 .

In the event of a transformation of an entrepreneur into a capital company, the converted company shall have all the rights and obligations of the converted entrepreneur.

The converted company shall remain an entity in particular of the permits, concessions and reductions which were granted to the trader prior to its conversion, unless the law or decision granting the permit, concession or concession provides otherwise.

Initially, the succession did not include the tax concessions provided for in tax law, however 1 January 2013 The legislator removed this passage from the recipe.

According to Article 93a(4) Act on 29 August 1997 - Tax Ordinance 7 (hereafter: (o.p.) a single-member capital company formed by the transformation of an entrepreneur who is a natural person enters into the tax law of the transformed entrepreneur related to the economic activity, with the exception of those rights which cannot be continued under the provisions governing the taxation of capital companies.

The company converted from the date of the conversion becomes a party to any contract concluded by the entrepreneur, it also becomes a party to any pending judicial proceedings as well as those conducted by administrative authorities.

1. Transforming an enterprise of a natural person into a capital company – legal requirements

A number of requirements imposed by k.s.h have to be met in order to convert a natural person’s business into a capital company.

First, Whereas it is necessary to draw up in the form of a notarial act a plan for the conversion of an entrepreneur; That plan should at least contain an indication of the balance sheet value of the economic operator's assets converted to a given day in the month preceding the drawing up of the conversion plan.

The determination of the balance sheet value of the assets of the entrepreneur is crucial as it will reflect the amount of the share capital of the converted company will be indicated.

Annexes such as:

• • draft statement on the transformation of the entrepreneur,
• • draft instrument of incorporation (statute) of the capital company,
• • the valuation of assets (assets and liabilities) of the converted undertaking,
• • the financial statements drawn up for conversion to the same date as the valuation of the assets.

An entrepreneur who is a natural person for the purpose of converting into a capital company shall make a statement, in the form of a notarial act, on the conversion, the minimum scope of which shall be to indicate:

• • the type of company in which the trader is transformed;
• • the amount of share capital;
• • the scope of the rights granted in person to a trader converted as a shareholder of a converted company, if such rights are provided for;
• • names and names of members of the board of directors of the converted company.

The draft conversion declaration attached to the merger plan itself need not be drawn up in the form of a notarial act. In the doctrine of law, one can often see opinions that making a declaration of conversion is an unnecessary element in the recasting procedure, since the data resulting from it are also included in the draft founding act (statute) annexed to the conversion plan. It is therefore an additional unnecessary document which only generates unnecessary conversion costs related to notarial costs[8].

As regards the draft founding act (statute), it should be pointed out that the provisions of k.s.h. in the chapter on the transformation of the entrepreneur into a capital company do not specify the minimum content to be included in such a founding act or statutes.

It is therefore appropriate to apply the provisions on the formation of a converted company, in particular to Article 157 (Polish limited liability company.), Article 3005 k.s.h. 1 January 2021) and Article 304 k.s.h. (stock company).

The draft founding act (statute) as an annex to the conversion plan does not need to be drawn up in the form of a notarial act, while the final signing of the founding act (statute) takes the form of a notarial act.

The conversion plan shall also include the valuation of the assets (assets and liabilities) of the converted entrepreneur and the financial statements drawn up for the purpose of the conversion for a given day in the month preceding the drawing up of the conversion plan.

As Michal Zdyb points out: “The listing of assets at the date of conversion is important in terms of the business activity of the converted company. It makes it possible to establish in the company the converted initial value of assets, which is of particular importance in view of the depreciation of assets’ 9 .

If an entrepreneur is not obliged to keep accounts under the Act of 29 September 1994 on accounting 10 (hereafter: u.o.r.), the financial statements for the transformation shall be drawn up on the basis of a summary of the records in the tax statement of revenue and revenue and other records kept by the entrepreneur for tax purposes, an inventory by nature, and other documents permitting that report.

The condition for a business to be converted into a capital company is to draw up an audit opinion aimed at examining the conversion plan (with annexes) in terms of its correctness and reliability. The registered office of the converted trader shall designate, at the request of the trader, the converted auditor.

In justified cases, the court may appoint two or more experts. An auditor, within the time limit set by the court, shall not exceed two months from the date of its designation, it shall draw up a detailed opinion in writing and submit it together with a plan to transform the trader into a registered court and a converted entrepreneur.

According to Article 584 5 k.s.h. to transform an entrepreneur is required:

• • drawing up a plan for the conversion of the entrepreneur together with the annexes and the audit opinion;
• • to make a declaration on the transformation of the entrepreneur;
• • appointment of members of the organs of the converted company;
• • the conclusion of a partnership agreement or the signing of a charter of a converted company;
• • the entry in the register of the converted company and the deletion of the trader converted from Central Register and Information on Business Activity.

After drawing up the conversion plan together with the annexes, making a statement on the transformation of the entrepreneur and concluding the founding act (statute), the next step will be the appointment of members of the organs of the converted company.

In the case of a limited liability company, this will be the compulsory appointment of a board.

On the other hand, we will not be faced with the mandatory appointment of a supervisory board/revision committee, because such an obligation arises only if the share capital exceeds the amount 500,000 PLN, And there are more partners than twenty five.

The converted limited liability company is a single-member company. In the case of a simple public limited liability company, it is mandatory to appoint a board of directors, while in the public limited liability company, a board of directors and a supervisory board.

According to Piotr Pinior: “The appointment of the company’s authorities may take place at the same time as the signature of the company’s founding act and may be covered by the notarial act containing the founding act. vocation may also occur first the authorities of the company in a separate document.

It is necessary that first the authorities of the company were found in writing as a document confirming the establishment first the bodies of the company, if this is not covered by the notarial act containing the instrument of incorporation, should be added to the registration of the company.

It is therefore possible in practice to carry out several activities simultaneously, i.e. the establishment of the company's authorities, to make a declaration of participation in a converted company and to sign the initial act of the company's agreement.’ 11 .

The last step finalising the transformation of the entrepreneur into a capital company is to enter into the register of entry of the converted company and remove the entrepreneur converted from Central Registration and Information on Business Activity.

To this end, a request for a conversion to be entered in the court register signed by all members of the board of directors of the company resulting from the conversion should be submitted to the competent registry court.

Since in cases not individually regulated in relation to the transformation of companies, the rules applicable to their formation should be applied, the official form for the establishment of the company should be used for the registration of the conversion, namely: KRS-W3 for a company with an o.o. or KRS-W4 for a joint stock company.

Under Article 584 5 k.s.h. there is no mention of additional activities to be carried out under the procedure for converting the entrepreneur into a capital company. As Peter Pinior rightly points out, if a natural person’s business is part of a marriage partnership, consent is also required for the conversion second spouse[12].

On the other hand, Michał Zdyb and Małgorzata Sieradzka also point out that the entrepreneur must close the accounts on the day before registration of the converted company and open the accounts of a single-member capital company resulting from the conversion on the day of entry[13].

In addition, Article 584 12 k.s.h. requires the management of the converted company to publish a notice of conversion in MSiG. In the event that the instrument of incorporation or the statutes provides for notices to be made in another way, it shall also be as indicated in the act (statute). The provisions of k.s.h.

do not specify the time limit for publication. According to Andrzej Kidyby, the deadline for publication of the notice is 2 weeks from the date of entry[14]. On the other hand, Andrzej Szumański requests that the application for notification be submitted together with the application for registration of the conversion[15].

1. Liability for the obligations of the transformed undertaking related to the economic activity arising before the date of conversion

The Commercial Companies Code lays down the joint liability of the trader with the company converted for the obligations of the trader to be converted in connection with the economic activity which occurred before the date of conversion, for a period of time three years from the date of conversion.

A single-person business operator shall be liable for all of its assets for the obligations arising from the activity carried out. As a result of universal succession, all commitments are transferred to a converted company. The entrepreneur becomes the sole shareholder of the converted company as a result of the transformation.

Under Polish law, only the company, as a legal person, is responsible for the liabilities of the capital company. It bears that responsibility alone and with all its assets, but its liabilities are not the responsibility of shareholders.

This possibility could be used by over-indebted entrepreneurs to avoid spectrum of executions from their private assets. Article 58413 k.s.h., however, introduces their joint liability with the company converted for obligations related to business activities before the date of conversion.

It is of crucial importance to emphasise that this is about commitments arising before the date of conversion. Liability for liabilities arising after the date of conversion shall in principle be borne by the converted company[16].

5. Summary

Despite a fairly costly and complex procedure to transform an entrepreneur into a capital company, such restructuring can bring many benefits to the entrepreneur, with second and the parties have additional fiscal responsibilities and burdens.

The main benefits are the change in the rules on liability for liabilities arising from business activities. An entrepreneur as a natural person who is a partner/shareholder of a converted company shall not be liable to his personal property for the obligations arising from his business after the date of conversion.

Another advantage resulting from the transformation into a capital company is the ability to raise funds for further development of business. More partners may join the converted capital company, and it may also be an investor who will invest in further development. An entrepreneur who turns into a capital company will in principle be seen as a more solid business partner. The share capital held at a sufficiently high level serves as a guarantee, thereby securing the claims of the creditors of the company.

Transforming an entrepreneur into a capital company is also useful in terms of family business succession. Family members will be able to join the company as partners or shareholders and to sit in its bodies, such as the board or supervisory board.

On the other hand, carrying out business in the form of a capital company generates much more costs than carrying out one-man business. First of all, capital companies are required to establish and keep accounts. Operating in the form of a capital company is also a higher tax burden.

The profit of the capital company is taxed in the form of CIT, while the dividend payment to the shareholder/shareholder will involve payment of PIT. Each time a decision to transform a single-person business into a capital company should be taken after careful analysis ‘for’ and ‘against’.

As the author pointed out above, the transformation into a capital company will not always be beneficial for the entrepreneur, in particular when he runs a small enterprise, not generating high revenues.

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