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The Warsaw Voice » Law » June 25, 2008
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Share Capital Requirements Slashed
June 25, 2008   
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Poland has high capital requirements when it comes to setting up limited-liability and joint-stock companies. This is set to change radically, with the minimum amounts being cut to only 10 and 20 percent of the current levels respectively. A government bill was presented to the parliament on May 9 seeking to introduce a number of changes to the Commercial Company Code aimed at facilitating the conduct of business, particularly in the form of limited-liability and joint-stock companies. Until now, the requirements of share capital in corporations have been particularly harsh in comparison to other European Union member states. Certain other restrictions have been eased as well.

Although the scope of changes to the Commercial Company Code proposed in this draft is relatively wide, touching on a number of issues related to company formation or partner liability, the one with the most impact is a drastic reduction in the minimum capital required for limited-liability (LLC) and joint-stock companies (JSC). The minimum amounts will fall from zl.50,000 to zl.5,000 for LLCs and from zl.500,000 to zl.100,000 for JSCs. This is a return-virtually-to the figures from the 1991 version of the old Commercial Code (superseded in 2001), dating back to the early days of the transition from a socialist state.

One of the primary arguments propounded by the authors of the draft legislation is that a large slice of the business community believe the existing requirements to be too high and ill-suited to the formation and running of new LLCs or JSCs. Under EU guidelines (the 1976 Second Company Law Directive - 77/91/EEC, amended by Directive 06/68/EC), the minimum share capital allowed by national legislation should not fall below euro 25,000 in JSCs, which roughly corresponds to zl.85,000 at current exchange rates and is much lower than the amount prescribed by Polish law. As for LLCs, there is no threshold at all at the EU level. Some member states have totally dispensed with it, while others have set a very low hurdle, not exceeding the equivalent of zl.10,000. This reflects a general trend in EU lawmaking, which finds expression in the Communication of the Commission entitled "Modernizing Company Law and Enhancing Corporate Governance in the European Union: A Plan to Move Forward." In it the Commission argues in favor of finding an alternative solution, based on a solvency test, rather than the requirement of maintaining a stated fixed capital. According to the Commission, this solution would "significantly contribute to the promotion of business efficiency and competitiveness without reducing the protection offered to shareholders and creditors" (preamble to Directive 06/68/EC). Similarly, the Polish draft legislation claims to reduce these figures to an "actual minimum justifying the existence of both types of companies, while preventing (to a certain extent) the creation of companies presupposedly devoid of property and posing a risk to the conduct of business."

This new line in Polish commercial legislation abandons the time-honored principle that LLCs (and especially JSCs) should be the mark of a major enterprise, operating on a sizable scale, as compared to the smaller, or even not so small, partnerships. If the bill becomes law, almost any merchant or service provider could set up an LLC, unless barred by specific regulations as is the case with law firms (they must be partnerships or sole practices). A JSC will not be that hard to found or fund either. While it would not necessarily be prudent to forecast a blizzard of new LLCs or JSCs merely due to the less restrictive legislation coming into force, it would not be unreasonable to expect, with time, companies founded on half the current minimum capital-or less.

Whether setting the requirements at such low levels as in the legislation draft-with just zl.5,000 opening the door to setting up an LLC-will be a good thing is open to debate, however. On the one hand, it will make life easier for existing companies that failed to adapt to the higher 2001 threshold, and will make it easier for entrepreneurs to form new entities. On the other hand, the justification of the draft does not make it particularly clear how the creation of more limited-liability companies, as opposed to partnerships or integral parts of existing bodies, better achieves the goals set forth in the document. Moreover, the draft bill leads towards the liquidation of share capital in general, with the view being that the guarantee function of capital is perceived as minimal.

Dr. Katarzyna Bilewska
Łukasz Gos-Furmankiewicz
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