The simplified joint stock company

The simplified joint stock company

Finally, Poland has a corporate form that works for joint ventures, the simplified joint stock company (the “SJSC”). The SJCS has been created for Poland to remain competitive amongst other counties and the Polish legislator took inspiration from other countries such as the Netherlands, where the so-called “flex BV” was introduced in 2013.

Creating a joint venture company in Poland was always very difficult. In a joint venture the roles of the joint venture partners are often very different. There is one partner with the great idea, the recognisable name or the hard work, and another one with the money, looking for a good return on investment. The investor wants to protect his money, the founder wants to make sure that his idea remains his, also when the joint venture is resolved. Similar problems appear in family companies where the next generation comes in as shareholders but for example only the one sister has the business acumen and the others just want to take their dividends.

Until the introduction of the SJSC, there was no good corporate form for joint ventures. The Polish limited liability company provides very little flexibility when it comes to differentiating shareholders’ rights, and the joint stock company requires a high capital and strict reporting rules. Partnerships imply personal liability of the partners. In the limited partnership such liability can be avoided by having a limited liability company as general partner, but this comes with additional bookkeeping costs.

Another difficulty with the other existing corporate forms is the creation of shares for management. The SJSC allows for the issue of shares with the right to profit, but without the obligation to provide capital or for example without the right to vote.

An advantage of the SJSC is that one can also contribute to the company’s capital by providing know-how or work. The law allows for a period of 3 years from the company’s registration to provide the contributions. The norm with current corporate forms is contributions in cash or kind before registration.

It looks like the simplified joint stock company is the answer to all of the above mentioned problems. Shares in the SJSC can provide priority voting rights, such as veto rights for certain decision or the right to appoint board members. Also when it comes to profit sharing everything is possible, e.g. one can grant a certain return on investment to a specific shareholder or grant one shareholder the right to take profits before the others. It should be noted, however, that no dividends can be disbursed if it would put the liquidity of the company at risk. If that is the case both the shareholder receiving the dividend and the members of the corporate body that decided on the payment are liable towards the company to return the unjustly paid dividend.

Speaking of corporate bodies, the SJSC also introduces the one-tier board, that is a board with both executive and non-executive board members. It is called a board of directors. The law says that the SJSC can have just a management board, a management board together with a supervisory board or a board of directors.  However, some of the provisions  regarding the board of directors don’t appear to be fully thought through. Article 30077 states that the right to represent the company of member of the board of directors cannot be restricted with effect vis-à-vis third parties. This seems to defeat the purpose of a one-tier board, and exposes the supervisory director to much more liability than a member of the supervisory board. The advantage of a one-tier board is of course less paperwork because one board resolution is enough to ensure the approval of the supervisors.

It is also easier to hold shareholders meetings by means of electronic communication, so no need to come to Poland or to grant powers of attorney to locals. It is also possible for shareholders to call a shareholders’ meeting. This can solve potential deadlocks the board refuses to call the shareholders’ meeting.

Some things are more stringent that in the Polish limited liability company, which is for example the need to keep reserves up to 5% of last year’s liabilities. It is not allowed to pay out dividends when the liquidity of the company is endangered by such payment. However, these are rules that a serious entrepreneur will apply anyway.

Last but not least, a difficult issue in existing companies is the fact that when a conflict arises between shareholders, it is not very easy to exit. The provisions regarding the SJSC envisage the possibility to apply to the court for a court order that the company has to buy the shares of the shareholder that wishes to exit. With the current delays in Polish courts, it remains to be seen if this article has any practical value.

In conclusion, despite some minor imperfections, the SJSC looks like a very good alternative for start-ups that at some point will be looking for capital and for joint ventures, in which each of the joint venture partners has a distinct role and specific interests.

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