A share deal is defined as a transaction involving acquisition of shares in a capital company—which in Poland means a limited-liability company (sp.z o.o.) or a joint-stock company (SA). As a result of the transaction, the buyer becomes the owner of the shares, but (apart from the right to participate in any distribution of the company’s assets or liquidation of the company) does not obtain direct rights to the assets or enterprise of the target, which remains the property of the target.
This type of transaction is of particular interest to financial investors, who invest funds in various sectors of the economy and hold a diversified investment portfolio. Investors also choose a share deal when the target conducts regulated activity and an asset deal would entail the need to obtain new concessions, licences or permits. However, the greatest significance for investors is their lack of liability for the debts of the target, because while the investor obtains control over the operations of the target, it is not individually liable on this basis. The investor is generally at risk only up to the amount it pays for the shares.
When deciding to conduct a share deal, it is important to be aware that the warranty arising out of public reliance on the land and mortgage register does not apply with respect to real estate held by the target. Thus, in such transactions due diligence with respect to real estate should be more detailed than in the case of an asset deal.
Transferability of shares
The rule of transferability of shares is an important feature of capital companies. The articles of association of a limited-liability company or the statute of a joint-stock company (in the case of registered shares) may, however, limit transactions in the company’s shares, e.g. by requiring the shareholder to obtain consent to the transfer from one of the company’s authorities.
Transfer of the shares in a limited-liability company must be made in writing with notarised signatures. In a joint-stock company, the form of transfer of shares depends on whether they are registered shares or bearer shares. Transfer of registered shares must be made in writing, by making a declaration on the share certificate or in a separate document, and requires transfer of possession of the share certifycate. Transfer of bearer shares does not require any specific form; the shares are transferred by transferring possession of the share certificates. Shares of joint-stock companies that are listed on the stock exchange (public companies) are dematerialised (i.e. do not take the form of a paper document) and are transferred by making the relevant entries in the parties’ securities accounts.
Administrative notification and consent
The permissibility of a share deal may depend on fulfilment of certain notification requirements or obtaining certain administrative approvals or decisions, if one or both parties, or the company, has certain relevant features or conducts a specific type of business.
For example, a party or parties may be required to:
- Provide notice of a concentration of undertakings to the Polish competition authority (the president of the Office of Competition and Consumer Protection), if the entities participating in the transaction have achieved a certain level of turnover on the Polish or worldwide market
- Obtain a permit from the Minister of the Interior and Administration for a foreign company to acquire or take up shares in a company with its registered office in Poland which is the owner or perpetual usufructuary of real estate in Poland.
It should also be mentioned here that some specific laws (such as the Gambling Act) impose restrictions on acquisition of shares in companies conducting certain regulated activity.
Seller’s warranty against defects in the shares
The seller may bear liability to the buyer arising under the law or the provisions of the transaction documents. In the latter case, this will for the most part mean liability under a contractual warranty or quasi-warranty, although in line with the principle of freedom of contract the parties have great latitude in establishing contractual liability principles to suit their needs and the conditions of the given transaction.
The sale of shares is also covered by the statutory warranty on sales under the Civil Code. The statutory warranty provisions are an important instrument to protect the buyer in a share deal, supplementing the buyer’s general claims for breach of contract.
A legal defect in shares may occur more specifically when the shares sold are encumbered by a right of pre-emption, or if the shares were created through a capital increase that was not entered in the National Court Register before the date of the sale. It should be pointed out in this respect that in a share deal, unless otherwise agreed, the seller’s statutory warranty liability is directly connected solely with defects in the shares, which are the immediate subject of the transaction, and does not immediately extend to any defects in the enterprise or specific assets held by the target company. However, because the shares and their value are closely connected with the assets of the company, it cannot be entirely excluded that any defects in the company’s assets could have an effect on the legal status and value of the shares.
For this reason, the parties to a share sale agreement commonly include provisions in the seller’s representations and warranties concerning the condition of the company’s assets, designed to protect the buyer’s interests. The parties usually also provide for sanctions if the representations prove false or misleading.
Corporate notification requirements
Following a share deal and acquisition of the shares, the company must be notified of:
- change of shareholder
– in a limited-liability company, any of the parties may notify the company of the transfer of shares, by presenting appropriate evidence, which is a condition for the company to regard the buyer as the holder of the shares (under Commercial Companies Code Art. 187.);
– in a joint-stock company, only a person who is entered in the share register or has possession of a bearer share (subject to provisions on securities trading) is deemed a shareholder; the relevant entry in the share register is made (under Commercial Companies Code Art. 341 and 343) at the request of the buyer, who is required to submit a document to the company justifying the entry;
- Establishment of control by the investor over the target company, as under Commercial Companies Code Art. 6 the new parent is required to notify the subsidiary within two weeks after obtaining control (otherwise, the parent will not be authorised to exercise voting rights to shares representing more than 33% of the share capital of the subsidiary).