Amending the articles of association when the company is still in organisation
29.09.2011
corporate
The Polish corporate code says the articles of association of a limited-liability company in organisation may be amended by a shareholder resolution, but the Supreme Court says a shareholder agreement is required.
Upon conclusion of the articles of association of a limited-liability company, a new legal entity is created: a limited-liability company in organisation. It may acquire property in its own name, including real estate and other tangibles, incur obligations, and sue or be sued. According to Art. 11 §2 of the Commercial Companies Code, in matters not otherwise provided for in the code, a capital company in organisation is subject—“as relevant”—to the provisions of the code referring to the same type of company when it has been entered in the commercial register and is no longer in organisation. The reference to “application as relevant” in Art. 11 §2 means that some of the provisions that will be applicable to the company in its final form (after registration) are directly applicable to the company in organisation, while other provisions apply in a modified form (adjusted to suit the specific nature of a company in organisation), and yet other provisions do not apply at all to the company in organisation.
A limited-liability company in organisation is a type of capital company, as demonstrated by the literal wording of Art. 11 §2 as well as the overall system of the Commercial Companies Code. For this reason, provisions concerning limited-liability companies should generally apply directly to a limited-liability company in organisation as well, but not automatically. The nature of the final form of the company must be compared to the nature of the company in organisation on a case-by-case basis, and only if they are incompatible in this respect should the regulations concerning the final form of company be applied to the company in organisation in a modified form, or even rejected entirely.
For this reason, the position taken by the Polish Supreme Court in its order dated 25 February 2009 (Case No. II CSK 489/08) deserves to be criticised. The court ruled in that case that the articles of association of a limited-liability company in organisation should be amended through an agreement among the shareholders.
It is hard to justify the decision by the court to import this approach from the Civil Code to govern amendments to the articles of association of a company in organisation. Under Commercial Companies Code Art. 2, the Civil Code applies to issues of corporate law only when they are not addressed by the Commercial Companies Code itself. Commercial Companies Code Art. 255 §1 does address the issue of amending the articles of association, providing that amendment requires a shareholders’ resolution and entry in the commercial register, and based on the reference in Art. 11 §2 it should be recognised that the issue is also addressed exhaustively with respect to a limited-liability company in organisation. The only difference is that because the company in organisation is not yet entered in the register, amendment of the articles of association of the company in organisation is effective upon adoption of the shareholders’ resolution.
The corporate nature of the articles of association is also important. The articles of association do not govern only the legal relations among the shareholders. Because the content of the articles of association does not change when the company is registered, the corporate nature of the articles of association applies just as well to a company in organisation. Unlike an ordinary partnership, a limited-liability company in organisation is more than just a contractual arrangement agreed between the shareholders in which they make mutual undertakings to one another. Conclusion of the articles of association creates an entity apart from the shareholders, with its own rights and obligations, with its own organisational structure, operating under the company name, authorised to conduct business in its own name, and acting through its bodies, particularly the management board (the company in organisation may be represented by a proxy appointed by a unanimous resolution of the shareholders, but only up until the time the management board is appointed).
The fact that a limited-liability company in organisation has a shareholders’ meeting is demonstrated not only by the reference from Commercial Companies Code Art. 11 §2, but also by the wording of Art. 170, which provides that if a company in organisation does not have a management board, liquidators for the company may be appointed by the shareholders’ meeting. Thus the drafters of the code clearly assumed the existence and functioning of the shareholders’ meeting in a company in organisation. The position taken by some commentators that the articles of association of a company in organisation cannot be amended by a resolution of the shareholders’ meeting because a shareholders’ meeting may not be held should therefore be rejected.
Nor should the reasoning of the Supreme Court be accepted that with respect to amendment of the articles of association of a company in organisation, the requirement of a unanimous declaration of intent by all of the parties to the articles of association is justified by the common purpose which the shareholders all undertook to pursue when they concluded the articles of association. The shareholders decided to pursue a common purpose through a specific legal form, with all of the consequences flowing from the choice of form, including the consequences with respect to amendment of the articles of association. Moreover, it would follow from the position taken by the court that any change in the articles of association, even after registration of the company, would interfere with their common purpose, implying a requirement of unanimity among all of the shareholders for any amendment to the articles of association. This interpretation would fly in the face of the code provisions governing amendment of the articles of association of a limited-liability company as well as the very essence of a capital company, which is governed by majority rule.
The manner in which the articles of association of a company in organisation may be amended is a controversial issue, extensively discussed in the literature, but in line with the arguments above and the need for certainty in legal dealings, the preferable view is that amendment of the articles of association of a limited-liability company in organisation should occur through a shareholders’ resolution, which as a rule should be passed by a two-thirds majority of the votes. A resolution concerning a material change in the business of the company requires a three-fourths majority, while a change increasing the commitment of the shareholders, limiting their share rights, or awarding personal entitlements to specific shareholders requires the unanimous consent of all shareholders affected. If the drafters of the Commercial Companies Code really sought to require unanimity for any amendment of the articles of association of a limited-liability company in organisation, they would have expressly provided for that rule in the code.
A resolution amending the articles of association of a limited-liability company in organisation may be adopted at a shareholders’ meeting even if it is not formally convened if all of the share capital is represented at the meeting and no one present objects to holding the meeting, or without holding a meeting if all of the shareholders consent in writing to amendment of the articles of association or to written balloting. The resolution amending the articles should be recorded in minutes prepared by a notary. Then, when the management board moves for registration of the company by the registry court, the board should enclose with the motion the articles of association as well as the resolution amending the articles.
Agnieszka Godusławska, Corporate Law practice, Wardyński & Partners
