The ABCs of the PKDs for the centralized KRS
Alphabet soup is an unfortunate by-product of the information age and the standardization that has ensued. As you have heard me mention on numerous occasions, on Jan. 1 of this year the National Court Register (KRS) was created to provide a centralized, electronic register of all companies doing business in Poland.
A new system means new registry rules and a number of practical problems. One common concern of companies in registering or re-registering in the KRS is formulating a description of their economic activity in accordance with the Polish Classification of Economic Activity (PKD).
The PKD is nothing more than a standardized classification of business activities. It assigns codes, broken down into several subclassifications, to various descriptions of business activities. It all works well until one tries to pigeonhole the planned or actual activities of a company into this rigid system of codes.
Companies must describe their economic activity in two situations: in their articles of association and in the application to register or re-register in the KRS. Companies already doing business in Poland and those that are newly created face diverse problems with using the PKD classifications.
Many companies registered before Jan. 1, 2001 are in an unenviable position. Neither the old Commercial Code (pre-2001) nor the new Commercial Companies Code (post-2001) requires a company to use PKD-based business activities descriptions in its articles of association. This obligation arises only in connection with registration or re-registration in KRS. Additional uncertainty arises as companies must provide a description in accordance with, and not as provided in PKD. This wording could suggest that the verbal description of business activities used in conjunction with a particular code does not have to be identical with the description used in PKD, but no solid practice has yet developed to confirm whether a court will accept a variance in the description.
This is not merely an academic question on how to fill out the application to re-register a company with the KRS. A thorny problem arises when a concise drafter managed to include in one brief clause a description of a few different economic activities. In this case, it will be practically impossible to find one PKD description covering all activities contemplated in the articles of association.
As an example, lets say the articles state that the company manufactures leather clothing and shoes. At least two different classifications from the PKD could apply to these activities. Most likely, in the re-registration application, you would need to separate out leather clothing and leather accessories into their respective PKDs. In this situation, you should use the PKD verbal descriptions in the KRS application as similar as possible to the description set forth in the articles of association.
Despite all your efforts, it may be impossible to find an appropriate PKD description. In this case, you may always use the fall-back category of business activity not classified elsewhere. You should take care to use this fall-back category sparingly and only when it is impossible to find an adequate PKD description elsewhere.
Another potential problem relates to how specific you need to be. Each PKD classification is broken down into numerous sub-categories. Is it possible to use more the general description or must you use a sub-category? How many numbers do we have to fill in when providing a PKD code in the KRS application? Again, there is no ready answer for whether you need to fill in all five spaces for codes, as provided in the application, or whether two are enough.
We believe that a company does not need to fill in all five code spaces provided in the application. The level of specificity will depend on the description of business activity conducted by your company. Using our example, PKD section 19.3 is the sub-section for shoe manufacturing. PKD sub-sub-section 19.30.A is for manufacturing of shoes, except sports shoes. Using only two numbers when specifying a PKD code should not raise doubts for a judge as long as it accurately reflects what the company actually does and is in accordance with the articles of association. You should avoid, however, overgeneralization. If you provide a general code and description, but do not conduct all activities listed in the particular code and corresponding description, a judge may reject your application.
Fortunately, new companies should have it a little easier. Lets say that you want to form a limited liability company to manufacture leather clothing and shoes. Of course, you do not have to use PKD codes and descriptions in the articles of association of your newly created company. For the practical reasons mentioned earlier, you should conform the description of your companys business activity in the articles of association with the PKD. As the application to register in the KRS requires both the PKD code and a description of business activities, it is advisable to use the exact description from the PKD.
As it may all too often seem, the law does not give us a clear answer to what would appear to be a relatively minor issue. Until a solid practice develops in the KRS, you should, then, examine existing law and practice and try to apply it in a way that should make your application acceptable to the KRS. In this situation, the goal should be to get the company registered or re-registered, and not to prove the correctness of a position by engaging in a protracted fight with the judge.
This article was prepared by Lejb Fogelman, the managing partner of Hunton & Williams Warsaw office, with the assistance of Małgorzata Barańska, an associate attorney
