Draft commercial code makes life simpler for companies
Enterpreneurs and executives said that a draft commercial code approved by the Council of Ministers last week should remove some of the bureaucratic headaches that currently plague company owners as they try to set up new firms or bring on investors for existing entities.
The draft code, which replaces the existing legal framework left over from 1934, is seen by many as being more flexible and more accurately representing the reality of modern business. One of the major changes in the code is the ability of company owners to change legal forms, such as moving from a limited-liability company to a joint-stock company, with relative ease. Lawyers said the new law also gives entrepreneurs and primarily service entities more legal options for creating their companies.
"All changes that lead to a larger number of legal forms to run a company and facilitate its transformation from one form to another are more than welcome," said Grzegorz Buczek, an independent architect. "To my knowledge, it's a very good draft, but we have to keep in mind that it's still a draft."
Andrzej Szumanski, professor of law at Jagiellonian University in Krakow and a co-author of the draft, said that when the economic and political system in Poland changed in 1989, the country rediscovered its old commercial code from 1934 and used that as the basis for its corporate legal framework. "And in the meantime, life has changed," Szumanski said.
The government is pushing for the new code to come into force by Jan. 1, 2001, but first Parliament must vote on the bill and make its amendments. Then President Aleksander Kwasniewski must sign the new law. The Sejm and Senate have not yet set a date to discuss the bill.
"I only hope that Parliament won't spoil it," Buczek said.
Overall, the new code simplifies registration procedures, allowing an easy transformation of a company from one legal form to another. Under the current law, if a firm wants to switch from a limited-liability company (spolka z ograniczona odpowiedzialnoscia) to a joint-stock company (spolka akcyjna), it first has to formally dissolve its operations as a limited entity and only then can it register as a new joint-stock company.
"In the meantime, there is a vacuum," Szumanski said.
Under the new code, company owners can simply change the firm's registration, which will then automatically replace the old legal entity.
The draft code also introduces new legal forms, namely a partnership and a limited joint-stock company. The partnership is to address service-based professions, so-called free professions in Polish law, such as doctors, lawyers or architects.
"It's a very convenient legal form for free professions," said Witold Jurcewicz, a corporate lawyer with White & Case Poland.
White & Case's structure is just one example of why the new forms are needed, Jurcewicz said. Now, the international law firm operates as a limited-liability company (sp. z o.o.), which legally requires all stockholders to be responsible for the acts and decisions of each individual partner. Policing those decisions, and the potential legal impact, is difficult, Jurcewicz said.
"One partner is simply not able to know what the other one is doing," he said.
He said that the law firm may consider changing to a partnership, which would then make each partner responsible for his or her decisions and that individual liable for any malpractice proceedings.
The second new form introduced in the draft, the limited joint-stock company, seeks to provide a bridge between the traditional individual or family-owned business and a company with shareholders. The new form enables the individual owner to issue shares and increase the company's capital without having to automatically give up control. Right now company owners get around this situation by drafting a series of corresponding civil agreements that allow them to maintain control.
"It's a very interesting form," said Beata Bochinska, owner of Wzornik, an agency that represents furniture designers in their dealings with the industry, "with particular appeal for service companies that have problems raising capital."
Bochinska said that she regularly receives proposals from interested investors, but under the present law they often expect to gain control of the company. By switching to a limited joint-stock company, Bochinska would have more room to move in negotiations and could more easily craft a deal where she remains the primary shareholder with full responsibility for the company.
The new commercial code also introduces legal procedures governing mergers and acquisitions, and talks about how a company should deal with protests over decisions taken at shareholders meetings.
"Such protests by minor or even individual shareholders have become a real plague," Szumanski said.
The suspended merger between Bank Handlowy and BRE Bank is an example of how the law would address this problem, lawyers said. Under the new code, Handlowy shareholders Powszechny Zaklad Ubezpieczen (PZU) and the Treasury Ministry, which have objected to the proposed merger with BRE Bank, would still be able to file a lawsuit opposing the deal. The shareholders would not, however, be able to suspend the merger entirely, Szumanski said.
"If the court decides that the terms of the merger were harmful for a specific shareholder, then the shareholder would be entitled to compensation," Szumanski said.
