On 1 March 2020, the amendment to the Code of Commercial Companies and Partnerships of 15 September 2000 entered into force (hereinafter: “Companies Code”), including, among others, amendments to the provisions on company transformation. The new solutions include various changes, including the limitation of the obligation to submit the transformation plan to the auditor’s review – this requirement will apply in relation to the transformation into a joint stock company or the transformation of an entrepreneur running a sole proprietorship into a limited liability company or a joint stock company. Moreover, the amendment provides a waiver of the obligation to draw up the articles of association or statutes of the transformed company and the introduction of the so-called exit right.
Right to repurchase – the so-called exit right
This is a significant change as compared to the previous legal status which assumed non-participation of partners in the transformation. The amendment provides that all partners of the company being transformed (and not only those participating in the transformation) become partners of the transformed company on the date of its transformation. It is important that an exception to the above rule is a completely new article 5761 of the Companies Code, according to which the partner who voted against the resolution on the transformation of the company into the partnership and demanded that this objection be recorded in the minutes may demand the repurchase of its shares or stocks in the company being transformed.
The repurchase price, in accordance with the new regulation, should be determined by the company and should correspond to the fair value of shares or stocks in the company being transformed (Article 5761 §4 of the Companies Code). The partner who does not agree with the valuation is entitled to bring an action to determine the fair value of the shares or stocks. However, bringing the action does not stop either the repurchase or registration of the company’s transformation.
The repurchase right is an exceptional regulation because it allows a company to acquire its own shares or stocks on its account. However, their total nominal value may not exceed 10% of the share capital, and in order for the proceedings to be effective, it is necessary to repurchase all shares or stocks of the partners making such a request. Significantly, if all the shares or stocks of the partners requesting the repurchase are not repurchased, the transformation does not take place. Moreover, § 2 has been added to Article 569 of the Companies Code, according to which the application for registration of the transformation in the register shall be accompanied by a statement of all members of the management board that all shares or stocks of the partners who requested the repurchase have been repurchased.
This solution was introduced to protect both the interests of the company itself and to ensure the protection of the legitimate interests of partners or shareholders who do not agree to participate in a company operating in a changed legal form.
Transformation plan and auditor
The obligation for the transformation plan to be reviewed by the auditor has been limited only to transforming the entity into a joint stock company and to the situation when an entrepreneur running a sole proprietorship transforms into a limited liability company or a joint stock company. The opinion is issued in order to determine whether the valuation of assets (assets and liabilities) of the company being transformed is reliable. In other cases, the review is no longer mandatory, which in practice means speeding up proceedings and significantly reducing costs.
Resolution instead of articles of association
Another change is the elimination of the requirement to prepare articles of association or the statute of the transformed company from the list of prerequisites necessary for transformation. There were also changes in the scope of Article 563 of the Companies Code concerning the resolution on transformation. Such a resolution no longer has to contain information about the amount allocated for payments to partners not participating in the transformed company. Furthermore, § 2 indicates explicitly that the adoption of a resolution on transformation replaces the preparation of the transformed company articles of association or the establishment of the transformed joint stock company and the appointment of the bodies of the transformed company.
Thanks to this solution, it will no longer be possible to block the proceedings by individual partners refusing to sign the articles of association or statutes, despite the effective adoption of a resolution and compliance with all other requirements provided by law.
Notification of transformation
The amendment also introduced changes in the aspect of notifying partners about the transformation and their right to information. The company is obliged to notify the partners of its intention to adopt a resolution on the transformation of the company twice, in the manner prescribed for notifying the partners of the company being transformed. The first notification shall be made no later than one month before the planned date of adoption of this resolution and the second not less than two weeks after the date of the first notification.
All these changes were aimed at streamlining the merger process, speeding it up, de-formalising it and reducing its costs. This approach to entrepreneurs should be evaluated positively – it will certainly increase the number of initiated proceedings. The lack of review of the transformation plan and the reduction in the number of documents required will make a real contribution to simplifying and shortening the procedure for changing the legal form.
Aleksandra Bętkowska, trainee