Conversion of shares of a listed company

In the Polish legal order, there are two basic types of shares: registered and bearer’s. Until recently, the shares could have a tangible (paper document) or intangible (electronic record) form, but since 1 March 2021 all shares have become dematerialised.

The names of those two basic types of shares were influenced by paper shares: bearer’s shares did not contain the bearer’s data and each bearer of the share document was considered a shareholder. In the case of registered shares, solely the person specified in the share document could use the share and exercise related rights. And, although paper shares did not survive, the names remained. Despite of the common dematerialisation, the shares are divided into registered and bearer’s shares, but at present, practically, this division only applies to rights related to shares: as a rule preference shares (e.g. in terms of vote) must be registered shares and ordinary shares are bearer’s shares. However, what happens if a shareholder of a listed company wants to convert their shares, for example to sell them?

Art. 334 § 2 of the Code of Commercial Companies stipulates that registered shares can be converted into bearer’s shares or vice versa at the shareholder’s request, unless the act or statute provides otherwise. Based on such a general statutory regulation, it is not clear whom the shareholder should address such a request to. In the case of listed companies, which are obliged to register all their shares in the National Depository for Securities (KDPW), the shareholder must comply with KDPW regulations, namely “The KDPW Code of Conduct” („Szczegółowe Zasady Działania KDPW” (§ 223 and §224)). Thereunder, an entity competent to file a conversion request is a direct participant keeping a securities account, i.e. an entity that acts as the company’s registration agent, which is usually a brokerage house. When the procedure is initiated at the shareholder’s request, the registration agent blocks the shares subject to the request in the securities account and informs the company about the initiated conversion procedure. The company must only file a request with the KDPW for the conversion of shares in the deposit system and then make the actual conversion on the basis of the Directors’ resolution.

It is necessary to note that the conversion can be perceived in two different ways: in legal or technical terms. The conversion in legal terms is made the moment a relevant resolution of the Directors is issued. In turn, the conversion in technical terms is made as of the date specified in the KDPW’s statement. As far as possible, both “forms” of the conversion should be made at the same time.

It is clear that the KDPW Code of Conduct provides for the conversion process in a sufficient way. Unfortunately, this does not apply to the Code of Commercial Companies, which is laconic in this field. In the event the shareholder does not take into account the KDPW’s regulations and files their conversion request (by acting in good faith only on the basis of the Code of Commercial Companies) with the company, the company will be legally obliged to convert the shares. In such a potential situation, the conversion will be lawful, but will not be reflected in the deposit system of the KDPW, which is likely to contribute to unnecessary complications.

In this context, the Latin maxim “ignorantia iuris nocet” (ignorance of the law does not excuse) could be quoted, but it would be out of place, because the KDPW Rules and regulations stemming therefrom (including the KDPW Code of Conduct) are not considered commonly applicable law and the shareholders are not obliged to comply with them.

Until the legislator decides to specify the above regulations more precisely, the shareholders must rely on themselves or on the company.


Maksymilian Marciniak, Legal Counsel Trainee