Transformation of a limited liability company into a joint-stock company
One of the advantages of a joint-stock (Polish term: „spółka akcyjna”, abbreviated „S.A.”) company is the fact that the management board members’ liability for obligations of the company is limited. It is thanks to the Code of Commercial Companies (“KSH” in Polish). In the case of a joint-stock company, the Code does not provide a solution analogous to that described in the Article 299. To clarify: according to the Article 299 of the Code, management board members of an LLC (sp. z o.o.) are liable for the company’s obligation if the enforcement against the company renders ineffective. Such regulations do not apply to the board members of a joint-stock company (S.A.).
Preconditions to transformation
There are several premises that determine whether or not you can transform an LLC (sp. z o.o.) into a joint-stock company (S.A.). These premises are nothing more than rules that need to be met:
- the share capital of an LLC (sp. z o.o.) must conform to the minimum requirements of the share capital in a joint-stock company (S.A.). This means that the share capital of the joint-stock company cannot be lower than the share capital of the limited liability company that was converted,
- approval of the company’s financial statements for at least two previous fiscal years. If the company has been operating for less than two years, then the financial statements covering the entire period of the company’s activity need to be approved (if they were not covered in the annual fiscal statements). It is worth emphasizing there is no minimal amount of time in which the company needs to operate before being converted. In theory, you can convert an LLC (sp. z o.o.) that has been set up only a couple days prior.
- a limited liability company (sp. z o.o.) cannot be in bankruptcy or in liquidation when it has already started liquidating the assets.
Transformation of a limited liability company into a joint-stock company — procedure
The process of changing a limited liability company (sp. z o.o.) into a joint-stock company (S.A.) is regulated by the provisions of Title IV, Section III, Chapters 1 and 4 of the Polish Code of Commercial Companies (KSH). The procedure consists of several stages that could take up a couple of months.
Generally speaking, we can divide conversion into three stages: managerial, proprietary and registrative.
Transformation of a limited liability company: stage I ("managerial")
Plainly speaking, the first stage is just a plan of transformation of the company. At this time you need to produce the statutory auditor’s opinion and other various documents (as per Article 556 point 1 of the KSH). The documents that are to be attached to the plan of transformation are:
- draft resolution for the conversion,
- draft articles of association of the converting company,
- valuation of assets (assets and liabilities) of the converted company,
- the financial statements drawn up for the purposes of the conversion. It needs to be prepared as of the date in the month preceding the submission of the transformation plan to the shareholders
The plan of transformation is a subject to an audit by a statutory auditor. The auditor is appointed by the registry court at the request of the company. The company’s management board has to submit the plan of conversion with all its attachments to the registry court. It is worth noting that the company may request a specific auditor by name in the documents. When the auditor is appointed, they begin to audit the plan of conversion.
Transformation of a limited liability company: stage II ("proprietary")
Once the examination of the plan of transformation and the statutory auditor’s opinion have been completed, the second stage commences. At this stage the company undertakes steps that enable adopting the resolution for the conversion, and adopts the resolution itself.
It is crucial that you notify the shareholders that the company intends to convert. The company is required to inform the shareholders twice. The first notice has to be sent no later than a month prior to the planned date of the adoption of the resolution. The second notice has to be sent at least two weeks later.
Then, one month after the first notice, the shareholders adopt the resolution on the conversion. According to the Article 577 of the KSH, if the transformation has been supported by shareholders representing at least half of the share capital, the conversion into a joint-stock company (S.A.) may take place. The resolution itself requires a majority of 3/4 of votes (unless the articles of association provide for stricter conditions).
Then, the shareholders appoint management board members as well as the supervisory board of the joint-stock company (S.A.). In addition, they sign the company’s articles of association (Article 556 point 3 and 4 of the KSH) and submit declarations of participation in the transformed company. Typically all of these actions occur simultaneously (given that all the partners agree).
At this point, all the shareholders should have submitted their declarations of participation. However, if one of more of the shareholders did not do so, the management board should call on the shareholders to submit their statements.
A shareholder who wants to participate in a converted joint-stock company (S.A.) must submit to the company a statement on this subject. Such a statement under pain of nullity must be submitted within one month from the date of adoption of the resolution on transformation.
Transformation of a limited liability company: stage III ("registrative")
The third — and the final — stage of the transformation is the entry of a joint-stock company (S.A.) in the National Court Register and the deletion of an LLC (as per Article 556 point 5 KSH). After adopting the resolution of the conversion, the company’s management board submits an electronic application for registration of a joint-stock company in the National Court Registers via the Court Registers Portal (or “Portal Rejestrów Sądowych” in Polish; also known as PRS). The court enters the joint-stock company in the National Court Register, and deletes the limited liability company ex officio. At that moment your LLC (sp. z o.o.) becomes a joint-stock company.
As you can see, converting of a company is a complex procedure. In practice it cannot be completed without the aid of a lawyer who would cooperate with the accounting team and the statutory auditor. As a rule, lawyers cooperating with the company perform virtually all the tasks that the KSH imposes on the management board.
Notification to the shareholders register
In the last years there was a significant amendment to the provisions of the Code of Commercial Companies. Effective 1 March 2021, there is a mandatory dematerialization of shares in a joint-stock company (S.A.). This results in necessity of entering a joint-stock company, and registering its shares in the shareholders register.
When you adopt the conversion of your LLC (sp. z o.o.) into a joint-stock company (S.A.), it is in your best interest to have a chosen entity that will keep the shareholders register. This will speed up the formalities, such as signing the agreement for keeping the shareholders register by the Management Board.
If you completed that step, this means that you have successfully converted your limited liability company (sp. z o.o.) into a joint-stock company. Congratulations!
At this time we should also mention that we cooperate with a number of entities that maintain the shareholders registers. In addition, we offer a full spectrum of legal services, including the formalities related to the shareholder register.
Effects of the transformation into a joint-stock company
- The day the National Court Register (KRS) enters the converted joint-stock company (S.A.) in the register is treated as the date of the conversion. On that date the transforming limited liability company (sp. z o.o.) becomes the converted joint-stock company.
- The converted company has all the rights and obligations of the converting company. The effect occurs by operation of law. This means that the company does not have to obtain any additional permissions from its contractors.
- Additionally, the converted joint-stock company (S.A.) remains the subject of all the permits, concessions, and reliefs that were granted to the LLC (sp. z o.o.) before conversion (unless the Act or the decision on granting the permit, concession, or relief states otherwise).
- The partners of the LLC (sp. z o.o.) who participated in conversion become the shareholders of the converted company on the date of transformation.
- If the company also changes its name in the process of the conversion, it is obliged to disclose the former company name. The previous name should be written in the brackets, and preceded by the word „formerly”, e.g. „XYZ S.A. (formerly YZX sp. z o.o.)”. The company is obliged to indicate the former name for a period of at least one year from the date of transformation.
If you need a consultation or assistance in converting your company, please contact us via e-mail: kancelaria@chudzikowski.pl or by phone — 71 333 90 90. Our lawyers will use their experience to guide you through the process, and help you to avoid any unnecessary difficulties. We are experienced in transormations of various enterprises in a number of niches. We are also well versed in legal representation of joint-stock companies, limited liability companies, and other types of enterprises.
Contact
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