Agnieszka Godusławska

Duties of the management board of a limited-liability company in the process of share transactions

Sale or encumbrance of shares in a Polish limited-liability company requires the management board to take certain actions, including entry of changes in the share ledger and, in some cases, consent to the transaction.

If the articles of association require the company’s consent for alienation of shares, consent is given in writing by the management board unless otherwise provided in the articles. Consent may be given before or after the transaction, but if the transaction is concluded before consent is given the effectiveness of the transaction will be suspended until consent is given.

If the management board refuses to consent to the transaction, the registry court may permit the transaction if there are important reasons. However, when the court grants permission for the transaction, the company may present another acquirer instead, within a time set by the court. If there is no agreement on the acquisition price or the payment date, these will be set by the registry court upon application by the shareholder or the company, after the court seeks an appraisal, if necessary. However, if the acquirer designated by the court does not pay the price by the deadline, and the shareholder did not reject the payment, the shareholder may then freely dispose of the shares.

Under Art. 188 of the Polish Commercial Companies Code, the management board of a limited-liability company is also required to maintain a share ledger. The share ledger is an internal company document that reflects the current ownership structure of the company. The share ledger includes entries for the name and address of each shareholder, the number and par value of the shares held by each, any pledge or usufruct of the shares, and information on voting rights of the pledgee or usufructuary, if applicable. Entries must be updated to reflect any changes concerning the shareholders or their shares.

Shareholders have an unlimited right to review the share ledger. This includes a person who is a shareholder but is not indicated as such in the ledger. This might be the case, for example, if the interested parties notified the company of a change in the shareholders, under Art. 187 §1 of the code, but the management board failed to update the share ledger accordingly. Any transfer of shares is effective against the company from the time the company receives notice of the transfer from any of the parties together with evidence that the transaction has been carried out.

After each entry of a change in the share ledger, the management board is required to file a new list of shareholders with the registry court, signed by all members of the management board, stating the number and par value of the shares of each shareholder and a notation of any pledge or usufruct of the shares. However, the regulations do not require the management board to document the changes, for example by filing copies of the agreements under which the shares were transferred or encumbered. The registry court adds the list of shareholders to the company’s registry file. If a shareholder holds at least 10% of the share capital by itself or together with others, the court will enter in the register the data concerning such shareholders and the number and par value of the shares they hold. If the company has only one shareholder, the court will also note in the register that it is the sole shareholder. Under the principle of openness of the register, any person—for example a prospective buyer of the company—may access the register file or obtain a transcript from the register, without having to demonstrate a legal interest.

Entries in the share ledger are not ultimately determinative of who is or is not a shareholder. As the Polish Supreme Court has held (judgment dated 26 July 2007, Case No. V CSK 130/07), entries are declarative only and serve to maintain order within the company. Entry of a shareholder in the commercial register is also only declarative and does not provide any legal protection to a buyer of the shares.

Failure to maintain the share ledger properly may expose members of the management board to civil or criminal sanctions. Under Commercial Companies Code Art. 293, a member of the management board is liable to the company for any act or omission contrary to law or the articles of association of the company, unless the board member was not at fault. A board member is required to exercise the duties of the office with due care reflecting the professional nature of the office. Management board members are liable to shareholders under general rules (Civil Code Art. 415), which means that if a shareholder suffers a loss because of failure to maintain the share ledger properly, a management board member may be held liable for the loss.

In addition, if a member of the management board fails to maintain the share ledger or submit the list of shareholders to the registry court, the court may impose a fine on the board member of up to PLN 20,000.

Agnieszka Godusławska, Corporate Law, Restructuring, and Business-to-Business Contracts practices, Wardyński & Partners