The decision to conduct a corporate division is typically made because of the economic condition of the company, in order to optimise cost management (bearing in mind the tax aspects) or for reasons connected with the global strategy of the group.
Permissibility of division
The Commercial Companies Code regulates what types of entities may be divided:
- Only capital companies (i.e. a joint-stock company or a limited-liability company) may be divided.
- A joint-stock company may not be divided if its share capital has not been fully covered.
- A company in liquidation may not be divided if it has begun to distribute its assets or is in bankruptcy.
- Personal companies (i.e. various types of partnerships) may not be divided.
Forms of division
There are several distinct forms of division:
- Division by acquisition-all of the assets of the divided company are transferred to other companies in exchange for shares in the acquiring companies, which are distributed to the shareholders of the divided company.
- Division by establishment of new companies-the shareholders establish new companies, taking up all their shares, and in exchange transfer to the new companies all of the assets of the divided company.
- Division by acquisition and establishment of new company-the assets of the divided company are assigned to an existing company and to a newly formed company or companies.
- Division by split-off (division by separation)-part of the assets of the divided company are transferred to an existing or newly formed company or companies.
Division of a company requires a shareholders’ resolution of each of the companies involved in the division, passed by a ¾ majority of votes representing at least half of the share capital(unless the articles of association or statute provides for a more stringent requirement).
The division date is the date of deletion of the company from the National Court Register. The deletion is a technical matter, and for organisational or tax reasons companies often request that the division be registered on a specific date. The court is not bound by such request, but generally will comply.
Division by establishment of a new company occurs as of the date of its entry in the register. In the case of transfer of part of the assets of the divided company to an existing company, the division occurs as of the date of entry in the register of the increased share capital of the acquirer (the division date).
Rights and obligations after the division
As of the division date, or separation date, the acquirers or the companies newly created in connection with the division assume the rights and obligations of the divided company as specified in the division plan. More specifically, concessions, exemptions and entitlements that are connected with the assets allocated to the given acquirer or newly established company pass to that company (unless otherwise provided by law or by the decision establishing such rights).
The acquirer or the new companies formed in connection with the division assume all tax law rights and obligations of the divided company connected with the assets allocated to them under the division plan.
Main stages of division
- Preparation stage:
- preparing division documentation (division plan and enclosures)
- Decision stage:
- preparation by the management boards of the company being divided and each of the acquiring companies reports justifying the division, its legal and economic grounds, in particular the share exchange ratio
- filing of division plan with the National Court Register and publication in Monitor Sądowy i Gospodarczy
- application to appoint an auditor to examine the division plan
- notice to shareholders of the company being divided (twice)
- adoption of division resolution
- Registration stage
- filing of motion to divide the company
- registration of the division.