Law on commercial activities a legal leap into third millennium
Regardless of how you define the start of the third millennium, Polish law on commercial activities has made the leap into it with the passage of a new Law on Commercial Activities (the "Act"). The Polish Parliament passed the Act on December 19, 1999. Not only has the Act been drafted in accordance with European Union law, but it serves to codify in one place a number of issues relating to conducting business in Poland. As the Act has already earned the nickname of the "Economic Activity Constitution," you can imagine the sheer number of issues that it addresses. The WBJ editors have indicated that I may not extend my usual half page to three pages; therefore, I have selected for your reading pleasure a few of the more important issues.
When does it all happen?
In principle, the Act will come into force on January 1, 2001. Don't let this fact lull you into procrastination. Some parts of the Act are already binding or will be binding soon. January 1, 2001 will also mark the repeal of the Act of December 23, 1988 on Commercial Activities (the "Old Act") and the Act of June 14, 1991 on Companies with Foreign Participation.
What's all the fuss about?
The Act sets forth the ground rules for undertaking and conducting commercial activity in Poland. Its scope is broad and encompasses Polish individuals, partners of civil partnerships, legal entities and commercial companies that are not legal entities (a.k.a entrepreneurs) to the extent they professionally, in an organized and continuous manner and on their own behalf undertake and conduct commercial activity. The Act likewise applies to individuals and legal entities whose domicile is located outside of Poland and also companies that are not legal entities, but whose seat and partners' seats are located outside of Poland. These entities, not surprisingly, are defined in the Act as foreign persons or foreign entrepreneurs if they conduct commercial activity abroad.
The Act contains numerous new regulations, not covered by the Old Act, regarding various matters from permits needed to do business and definitions of small and medium entrepreneurs to commercial self-government and tasks of governmental agencies on commercial activities. Other concepts, such as the rules of undertaking and conducting commercial activities, definitions of commercial activity and entrepreneur, rules of conducting commercial activity by foreign persons and foreign entrepreneurs, as well as rules regarding concessions and criminal penalties have been amended. In all, the Act will amend over 20 different acts in an attempt to harmonize the entire scope of Polish law on commercial activities.
Did someone say "concession"?
Sometimes it seems that a Legal Side column wouldn't be complete without mentioning some requirement to get a concession or permit. Well, the Act does not disappoint us on this front. Pursuant to the Act, concessions will be required only for eight types of commercial activities. In comparison, the Old Act indicated over 20 types. Under the Act, concessions will only be required for the following types of activities: geology and mining; manufacturing and trading in arms, ammunitions, explosives, and technology and goods for the police or military; power and petrol industry; bodyguard and property protection services; air transport and other air services; building and exploitation of paid highways; management of railways and railway transport; and television and radio broadcasting. Most of the activities that are subject to a concession now, but will not be after 2001, will only be subject to a duty to obtain a permit. In some cases, performance of some previously concessionary activities will be unrestricted.
While the Act indicates that certain concessions will be necessary, the detailed terms and conditions of performance of concessionary commercial activities will be governed by other laws yet to be enacted. The unusual thing is that the Polish Parliament fixed the final date for passing those new acts. It means that if the Parliament does not pass these new laws by the end of December 2000, the duty to obtain some concessions will expire.
There is one more interesting detail about concessions. If the number of entrepreneurs interested in obtaining a concession is greater than the number of concessions that may be issued, the licensing body must commence an administrative trial. An administrative trial can be more advantageous to entrepreneurs than a tender, for example, because the candidates have an opportunity to demonstrate why they are the best candidate in front of an administrative body.
Getting back to those permits, the Act provides for general rules on permits for commercial activity thus removing a loophole currently existing in Polish law. In essence, the Act sets forth the ground rules on the procedure for issuing permits. All other acts containing provisions on issuance of permits will need to be based on those of the Act. Additionally, the Act provides for an administrative trial for over-subscribed permits and sets a deadline of December 31, 2000 for enactment of all new necessary laws, similar to those regarding concessions.
Preparation to join the EU
means new definitions
Following the regulations of other European countries, the Act defines two categories of entrepreneurs, small and medium. The criteria for distinguishing them are based on the average number of employees employed during one year, net income from trading or financial operations or value of its assets, and participation of other entrepreneurs in its capital. A "small entrepreneur" is someone who employs up to 50 employees and has a net income of up to the zloty equivalent of O7 million or assets of up to the zloty equivalent of O5 million. A "medium entrepreneur" is the one that is not a small entrepreneur, employs up to 250 employees, and has a net income of up to the zloty equivalent of O40 million or assets of up to the zloty equivalent of O27 million. Unfortunately, the Act does not appoint any body responsible for determining which entrepreneurs are small and which are medium. The point of distinguishing them is to make assistance from the European Union available for Polish entrepreneurs. The provisions regarding small and medium entrepreneurs are already in force.
Stay tuned for part two. In my next article I will discuss the provisions of the Act relating to foreign persons and branch offices and agencies of foreign entities. These provisions have already come into force.
This article was prepared by Lejb Fogelman, managing partner of Hunton & Williams Poland, with the assistance of Izabela Klaus, an associate attorney.
