Conversions of companies into foreign companies will soon be possible.

From 15 September 2023, Polish companies will be able to be transformed into companies operating in other EU countries and states party to the EEA Agreement.

On 24 August 2023. The President signed an amendment to the Commercial Companies Code (“CCC”) dated 08 August 2022, which introduces significant changes to the provisions concerning the processes of transformation, merger and division of companies. The upcoming changes include both domestic and international legal regulations, embodying the EU demands assuming harmonisation of transformation processes in EU countries.

As a result, Polish entrepreneurs will soon be able to transform a Polish company into a foreign company operating under the laws of another EU country or a state party to the Agreement on the European Economic Area (“EEA“). This possibility will apply to Polish companies operating in the form of a limited liability company, a joint-stock company, a simple joint-stock company, as well as a limited joint-stock partnership.

What is more, there will be analogous methods used in cross-border procedures, which so far have not been regulated in the Polish legal order and have significantly limited business opportunities for Polish entrepreneurs. The entry into force of the amendment will certainly open the way to tax optimisation, making new investments and expanding the scale of existing operations to new markets!

Below, we outline the key changes that the new provisions of the Companies Act provide for in relation to cross-border company conversions – we will cover cross-border mergers and divisions in subsequent publications.

What is a company conversion? It is a process whereby a company changes its legal form while retaining its existing rights and obligations. This means that both before and after transformation, we are dealing with the same entity, but operating in a different legal form, e.g. from a limited liability company our company becomes a joint-stock company. At the same time (as a rule), as of the date of transformation of the company, the partners of the transformed company become partners of the transformed company.

Cross-border conversion: As indicated above, the new regulations provide for the possibility of converting a limited liability company (Ltd., S.A. and P.S.A.) and a limited joint-stock partnership (S.K.A.), into one of the forms listed under the EU Directive, governed by the law of an EU Member State or a state that is party to the EEA Agreement. According to the assumptions of the adopted law, the transformation would involve, at the very least, the transfer of the registered office of the transformed company to a country whose law governs the operation of the legal form we have chosen. It is worth noting, however, that in addition to the aforementioned requirement, the Act does not impose an obligation to transfer the entire company to the state whose legislature regulates the future legal form of the transformed company. Thus, it is possible to transfer the registered office of the company, while keeping factories, plants or offices in Poland.

Relevant documents for the purposes of conversion: As with other transformation processes, it is essential that a transformation plan is drawn up by the management (or, as the case may be, by the general partners/board of directors) of the company being transformed. The company’s transformation plan should, among other things, contain information on the timetable as well as the terms and effects of the transformation. This document is intended to provide transparent information about the planned changes to the company bodies, the court registering the transformation and other stakeholders. One of the elements of the transformation plan is the draft memorandum or articles of association of the company prepared in accordance with the law applicable to the company to be established as a result of the transformation. Importantly, shareholders, creditors and employees of the company have the right to submit comments to the company on the cross-border conversion plan. The cross-border transformation plan must also be subject to an expert examination, but this requirement may be waived with the consent of all shareholders. In addition, the board of directors of the converting company must draw up a report for the shareholders
and employees of the company in which it explains the legal and economic aspects of the planned cross-border conversion.

Filing documents with the court: The amendment to the Companies Act gives the registration court an important role in the company transformation process. Namely, the registration court will be empowered to supervise the entire cross-border transformation process to ensure compliance with the law and to protect the interests of the participants in the process. As a result, even before the date on which the resolution on the on the transformation, the company is obliged to submit documents and information related to the transformation to the registration court. Some of these data may be made available to the court and others by publishing them on the website of the transformed company.

Voting and protection of shareholders’ rights: In order for the conversion to be effective, a resolution must be passed by the shareholders of the converted company, who should be notified
of the vote on the transformation resolution well in advance. The new rules provide for the protection of the rights of shareholders in the conversion process – this applies in particular to
in particular minority shareholders who may not have sufficient votes to block the adoption of the transformation resolution. According to the wording of the new KSH, such shareholders will have the right to demand the repurchase of their shares in the company, provided that they have opposed the adoption of a resolution on cross-border transformation or have been unreasonably prevented from voting on such a resolution.

Certificate of the registration court: Once the resolution has been adopted and all required documentation has been prepared, the management board shall submit it to the registration court together with an application for a certificate on the compliance of the cross-border transformation with Polish law, at the same time attaching a request to the competent tax authority for an appropriate opinion. The court may refuse to approve the transformation plan if it considers that the transformation serves to abuse, violate or circumvent the law. Alternatively, if serious doubts are raised about the transformation, the court may request an opinion from the competent authorities to examine a specific scope of the company’s activity or consult an expert and then decide whether or not to issue the aforementioned certificate.

Notification to the registry court of an EU/EEA country: After the date of receipt of the certificate of compatibility of the cross-border transformation with Polish law, the cross-border transformation shall be subject to the law of the country that governs the legal form of the transformed company. Thus, the management board of the transformed company shall notify the cross-border transformation to the foreign court of registration in order to register the transformed company. Importantly, the foreign court accepts the certificate of the Polish registration court as final confirmation that the transformation procedure has been duly carried out.

Summary of changes: In summary, the amendment to the Commercial Companies Code of 8 August
2022 introduces orderly and clear procedures for the cross-border transformation of companies, while taking into account the interests of minority shareholders and the security of business transactions. The upcoming changes undoubtedly represent a significant and indispensable step in the domestic market towards making the operations of Polish entrepreneurs more flexible and broader.

The new rules will take effect as early as 15 September 2023, so Polish companies can confidently take the first steps to change their legal form and transfer their registered office to an EU country of their choice or a state party to the EEA Agreement.

However, it should be borne in mind that the company conversion process itself can be complicated and time-consuming, and its improper planning and execution may lead to serious legal or financial consequences. Therefore, it is worth entrusting this task to experienced lawyers specialising in company law. With the support of qualified specialists, we will efficiently and effectively go through the process of transforming the company, taking advantage of the best available solutions for the given business.

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