Piotr Wcisło

The corporate charter of the target should be reviewed before the transaction

Comments on restrictions on the sale of shares under a company’s articles of association or statute.

Although shares in commercial companies are generally alienable pursuant to Poland’s Commercial Companies Code, there are a number of exceptions. These include restrictions provided by law as well as restrictions based on contractual relationships—including the articles of association of a limited-liability company or the statute of a joint-stock company.

This is why it is crucial during due diligence prior to acquiring shares in a company to analyse the corporate charter for any limitations on disposal of shares in the company.

The analysis of the articles of association or statute should be comprehensive, because limitations on disposal of shares may take various forms and may have various legal consequences for the parties if overlooked.

In particular, the charter may require prior consent of the company, in a specified form, before a disposal of shares may be made. In such case, a transaction in the shares made without obtaining the company’s consent will be subject to the civil-law sanction of suspended ineffectiveness.

A number of other provisions may be included in the company charter limiting the ability to freely dispose of the shares. For example, a right of priority or pre-emption may be established in favour of specific entities, the permissibility of the transaction may be conditioned on the buyer’s fulfilment of specific requirements, or the current shareholder may be required to obtain consent to the transaction from a third party.

For these reasons, analysing the provisions of the company’s articles of association or statute to identify any risks in this respect may be crucial to protect the parties to the transaction against unforeseen legal consequences.

This is a particularly important issue because in some instances, the legal consequences may thwart the transaction entirely, giving rise to claims for damages between the parties for breach of the share sale agreement.

Piotr Wcisło, Corporate Law, Corporate Restructuring, and Commercial Contracts practices, Wardyński & Partners

See also K. Libiszewski & P. Wcisło, “Restrictions on the Disposal of Shares in a Limited-Liability Company or a Non-Public Joint-Stock Company in the Context of a Planned Transaction,” in P. Ciećwierz & I. Zielińska-Barłożek (eds.), Legal Risks in M&A Transactions, Warsaw 2013, pp. 80 and following (in Polish).