Succession of the business of a natural person. Safeguarding the continuation of operations in the event of the death of the entrepreneur

Individual activity by individuals is by far the most popular form of economic activity in Poland. Many entrepreneurs who are natural persons achieve multimillion turnover and create jobs for tens or even hundreds of people.

For several years we have been observing the development of succession law, which protects such companies in the event of the death of their owner. The article describes the basic principles of the succession board. The author tries to answer the question whether it is optimal for each company and what alternative it may have.

From a legal point of view, the economic activity is inextricably linked to the person of the owner and thus, at the time of his death, the legal existence of the company he runs ends. It is removed from the Central Register and Information on Business Activity from day to day, and its business is “gone”.

This may occur not only because of the age of the entrepreneur but also because of a sudden illness or an unfortunate accident, which causes the company to lose the only person entitled to manage it. This poses many risks to the company's assets, employees and economic turnover, including creditors.

This problem has been seen by the legislator and In 2018 a new institution was introduced into the legal order of the so-called succession board. Act dated 5 July 2018 on the succession management of a natural person and other business succession facilitations (i.e.

Journal of Laws of 2021, item 170, hereinafter ‘the Act’) entered into force 25 November 2018 Its aim is to allow the company to continue to operate after the death of the entrepreneur – the owner, when the inheritance issues have not yet been regulated and at the same time allows for a smooth continuation of the business as long as the formal heirs are not able to take over the entire business.

Generation of the succession board into the legal order

According to the justification for the draft Act, the need to regulate and introduce a new institution into the legal system was due to a number of problems that arose at the time of the death of the entrepreneur running the company in the form of one-man business activity. These problems concerned the sphere of private and public law, which in practice prevented or significantly impeded the continuation or resumption of the business by the successors of the legal entity. The most important of these, which the legislator indicated, are:

• • no "decision centre" – one of the person empowered to conduct business affairs and to represent all legal successors independently;
• • limited opportunities for the use, even temporarily, of an entrepreneur who identifies not only him, but also his business;
• • the termination of the employment contracts concluded by the entrepreneur and, in principle, the mandates for employees and co-workers;
• • the expiry or inability of civil law contracts related to the business;
• • the expiry of administrative decisions necessary for the conduct of a given business activity (e.g. concessions, licences and permits);
• • limited possibilities for taking over tax powers and obligations (see e.g. Article 97(2) Tax Ordinance);
• • difficulties in accessing and withdrawing the bank account for the business;
• • the obligation to reimburse the State aid received on the basis of contracts not yet implemented, in full with interest from the date of its transfer by the sponsor [1] .

In addition, the explanatory memorandum to the draft Act indicated the long-termity of procedures related to the finding of acquisition of inheritance and its department, especially in the absence of activity, agreement or cooperation between heirs, often lasting many months.

To solve these problems, the institution of the Successive Board was introduced into the Polish legal order. It may continue to operate after the death of the entrepreneur – the owner, when the inheritance issues have not yet been settled. The introduction of the succession board avoids downtime and possible permanent closure of the company of the deceased entrepreneur and at the same time allows for a smooth continuation of the business as long as the formal heirs are not able to take over.

The appointment of a succession manager still during the life of the entrepreneur and the notification of him to CEIDG brings important positive aspects of such action:

• • the undertaking retains full liquidity,
• • The manager may immediately after the death of the entrepreneur take charge of running the company (without having to settle matters with the notary),
• • contracts with employees will remain in force,
• • the continuity of performance of contracts may be maintained,
• • The administrator may quickly obtain confirmation of the possibility to exercise concessions or permits.

How to establish a succession board?

The succession board regulations apply to single-member economic activities (entrepreneurs) registered in the Central Register and Information on Business Activity. The entrepreneur can choose a person who, after his death, takes over temporary management of the company's assets. This form of temporary management ensures that the business continues and at the same time gives legal successors time to decide whether they want to continue their business on their own account, sell the company or close it.

In order to establish a succession board, it is necessary to: (i) appoint a succession manager, (ii) give consent to the person appointed as a succession administrator to perform this function, (iii) enter into CEIDG the succession manager [2] . An entrepreneur may appoint a succession manager in such a way that he indicates a certain person to serve as a succession manager or reserves that, at the time of his death, the appointed proxy will become a succession manager.

The suspension of economic activities shall not prevent the establishment of a succession board. However, a succession board cannot be established if the bankruptcy of the entrepreneur has been declared [3] .

The succession board shall be updated upon the death of the entrepreneur, provided that the entrepreneur has applied for entry into the CEIDG of the appointed succession manager (Article 7 Act). Where an entrepreneur has not appointed a succession manager in life or has not applied for entry of the manager into CEIDG, after his death, the succession manager may appoint: a spouse of an entrepreneur entitled to participate in the company in the inheritance, or a statutory heir of an entrepreneur who has accepted the inheritance, or a will heir of an entrepreneur who has accepted the inheritance, or a debt collector who has accepted the debt note if, in accordance with the announced will, he is entitled to participate in the company in the inheritance [4] .

The role of the succession manager and the expiration of the succession board

The succession board consists of temporary management of the company, after the death of the entrepreneur, until the legal successors of the deceased entrepreneur have been formally established, to divide the inheritance and to decide on the company's further decline. The Management Board shall include the obligation to conduct the business in succession and the right to judicial and out-of-court proceedings relating to the conduct of the business in succession. [5] .

The scope of the mandate of the succession board should be defined as broad. It includes an obligation to conduct the business in succession and to give rise to judicial and extrajudicial activities relating to the conduct of the business in succession.

A provision that allows to determine more precisely what activities are involved is Article 29 laws defining the ‘external’ limit of competence of the succession administrator. Activities that go beyond the scope described under Article 29 The laws are not covered by the competence of the succession administrator in any case.

It should therefore be pointed out that since the appointment of the Successive Management Board, the Successive Administrator has exercised the rights and obligations of the deceased entrepreneur as a result of his business activity and the rights and obligations resulting from the company's succession [6] .

It requires that certain activities may be performed by the manager (within the limits of his or her competence), but with the approval of other entities, cannot therefore be carried out by the succession manager alone. First of all, it's about activities beyond the ordinary board.

This constitutes a "internal" limitation of the competence of the succession manager [7] .

The succession administrator performs ordinary management activities in matters arising from the conduct of the company in succession, and activities exceeding the scope of the ordinary management are carried out by the succession administrator with the agreement of all the owners of the company in succession and, in the absence of such permission, with the permission of the court.

A natural person who has the full capacity to act may be appointed as the successor administrator (Article 8(1) The Act), provided that it cannot be a person to whom the prohibition of economic activity or a criminal measure or a safeguard measure has been legally imposed, in the form of a prohibition on the pursuit of a particular economic activity (including an economic activity carried out by an entrepreneur or an economic activity in the management of assets) [8] .

The maximum duration of the succession board provided for in the Successive Board Act is 2 years from the date of the death of the entrepreneur. For important reasons, the court may extend the term of the succession board for a maximum period of time before the date of expiry of the succession board. 5 years after the death of the entrepreneur [9] .

Notwithstanding that provision Article 59 The Act also sets out other conditions, the ex lege of which causes the succession board to expire, and which often eludes the attention of entrepreneurs who decide to apply this institution.

Consequently, they mistakenly assume that the duration of the succession board is 2 years from the date of death of the entrepreneur, while this time may be much shorter.

At the same time, the succession board will cease for any of the reasons mentioned Under section 1 the said Article makes it impossible to re-establish it and thus definitively and definitively ceases to be a legal entity in decline.

After first, the succession board will expire on expiry 2 months after the date of the death of the entrepreneur, if, during that period, none of the heirs of the entrepreneur accepted the inheritance or the debt-register has accepted a recovery record, the subject of which is the undertaking or the participation in the undertaking, unless the succession manager is acting for the spouse of the entrepreneur who is entitled to a share in the company in the inheritance. As a result, the legislature has established 2 monthly period, at least one from the heirs, both statutory and testamentary, is obliged to accept the inheritance and the debt collector to accept the recovery record if they wish to maintain the status of the company in decline and continue the business of the deceased entrepreneur.

Another condition specified under Article 59(1)(2), the existence of which leads to the expiry of the succession board, the order to establish the acquisition of the inheritance, to register an inheritance certificate or to issue a European inheritance certificate, if one the heir or collector has acquired the company in full.

This is the case where, following formal determination in succession proceedings of the successors of the company in succession, it appears that only one the entity becomes its owner in its entirety.

This may, for example, be the case where the sole heir is the spouse who had a stake in the company in the inheritance, or will be acquired in full by the debt collector.

Then only this one of the person will be entitled to decide on the fate of the inherited undertaking and there will be no need to manage in a specific way this wealth for his benefit as the sole and sole owner of the company in succession.

It may, in such a case, entrust the management of an undertaking on the basis of another legal title, such as a prosecutor or an order, or bring it to the company itself by means of an aport [10] .

This means that if one the heir to the succession board may apply to 2 months after the death of the entrepreneur and not for a maximum period 2 years. Namely according to Article 59(1)(1) Acts within 2 months after the date of death of the entrepreneur at least 1 the heir must accept the inheritance, if not done by the succession board will expire with the expiry of that deadline, and at the same time when there is only 1 the heir, it is the succession board that expires with the moment of formal declaration of acquisition of the inheritance by the sole heir.

Termination of the Successive Board shall also take place when one of the person acquires the company as a whole in decline, which will also lead to the termination of the succession board, as it provides point 3 section 1 (vide: Article 59 Act).

This could be due, for example, to the sale of shares in the company in decline one a person (not necessarily a spouse or heir, or a registrant as one of the joint owners of the company in decline) or joint transfer of the whole company in decline by means of an aport to a capital company or a commercial law company (i.e.

the organisational unit in question) under Article 331(1) k.c., which includes Article 3(3) u.z.s. [11] .

The reasons for the expiry of the succession board are also: the end of the month from the date of the removal of the succession manager from CEIDG, unless another succession administrator has been appointed during this period; the bankruptcy of the entrepreneur; the succession of the company in decline.

As noted, as a rule, the succession board lasts up to 2 years from the date of death of the entrepreneur (for important reasons may be extended by the court even to 5 years), however, the provisions of the Act lay down the conditions/circumstances which result in the previous irreversible termination of that board. This is important that it may turn out that the time of the succession board in a particular case will be much shorter than indicated 2 years.

The condition that the established succession board does not expire is the admission within 2 months after the date of death of the entrepreneur by at least one from the heirs of the economic operator of the inheritance or acceptance by the registrant of the recovery record, the subject of which is the undertaking or participation in the undertaking (except for the succession manager acting on behalf of the spouse of the entrepreneur who is entitled to participate in the company in the inheritance).

At the same time, when the heir to the deceased entrepreneur is only one and it will acquire the company in full, the succession management “automatically” will expire on the date of finalisation of the order to establish the acquisition of the inheritance, to register an inheritance certificate or to issue a European inheritance certificate if one the heir or collector.

Consequently, the above mentioned 2-the summer duration of the succession board may, in practice, be maximum 2-monthly if the deceased entrepreneur left only one The heir.

Alternative solution – transformation of activities

Before setting up a succession manager, the entrepreneur should examine in detail both the business situation of the company and the family-personal relations. It may turn out that the establishment of a succession board in case of death in a particular case would not be an optimal solution.

An entrepreneur established in CEIDG may consider other alternative solutions which he may take during his life to secure the continuation of his business, in particular when the activity is of greater size.

Natural persons who are entrepreneurs may transform their business into another legal form, i.e. a commercial law company using two basic solutions, i.e.:

• • transforming the entrepreneur into a capital company, in practice most often into a one-man Polish limited liability company.;
• • the transfer of the company by means of aport to a previously established commercial (personal or capital) law company .

On the date of conversion, a natural person becomes a shareholder or a shareholder of a converted company, since it is a single-member company ( Article 551(5) k.s.h.), it has all shares or shares in the share capital of that company. The last activity in the conversion process is to submit an application for the removal of the entrepreneur from CEIDG.

The great advantage of this solution is that the transformed company has all the rights and obligations of the transformed 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.

The company created by the transformation of a one-man entrepreneur will be able to continue operations even in the event of the death of the sole shareholder.

Summary

Polish legislator introduced In 2018 the institution of the succession board, which aimed at enabling the company to continue to operate after the death of the entrepreneur – the owner, when the succession issues have not yet been settled.

The introduction of a succession board allows for the smooth continuation of the company's operations as long as formal heirs are not able to take over the entire business and decide on the company's further fate. Alternatively, it is also possible to secure the continuation of business by changing its form, e.g. into a capital company.