Important Changes to the Operating Principles of a Polish Limited Liability Company and Joint Stock Company (effective from 1st March 2019)

The changes to the Civil Code will allow a company to confirm validity of an agreement signed on its behalf by a member of the board without an authorisation or exceeding its scope. These changes have a big practical importance on the Polish limited liability companies because mandates of the members of the board under Polish law need to be annually renewed, unless the Articles of Association provide otherwise.

The hitherto Civil Code regulation stated solely that if an agreement has been entered into on the behalf of a physical person without his or her authorisation, then such an agreement is invalid unless it has been confirmed by this person. However, there was no provision regarding a similar confirmation made by a legal person (company) regarding an agreement entered into by a person mistakenly acting as a member of the board. It led to many doubts regarding validity of such a contract.

The new regulation puts an end to the controversies concerning validity of a contract signed by the improperly represented company. It determines the validity of such an agreement and permits its subsequent confirmation by the company. Such a contract may be considered invalid, only if it is not confirmed by the company within a deadline demanded by the other party. Further, in case of lack of confirmation, the other party may claim compensation.

The changes also cover unilateral legal acts carried out by  members of the board without authorisation or exceeding its scope. Such an unilateral act is invalid, unless the party to whom the declaration of intent on the company’s behalf had been addressed, agreed to an action without authorisation. In this case, the provisions on the conclusion of agreements without authorisation apply accordingly.

It is also important that provisions concerning confirmation of the contracts by companies will apply as well to the contracts concluded before 1 March 2019, except for these cases in which validity of a contract has been already decided by the court.

2. Dividends will be paid out immediately after the annual general meeting takes place unless the shareholders decide otherwise
 

The changes specify when the profit intended for the distribution should be paid to the shareholders of the limited liability company, if they did not decide otherwise. So far, if the shareholders did not act, the right to set the date of the pay-out was transferred to the board. There was no provision regarding limitations of this right. Therefore, the board had a lot discretion in exercising this right and could set very distant date of the dividends’ pay-out.

According to the proposed changes, if the shareholders do not set the date of the dividends’ pay-out in a resolution, dividends will be paid out immediately after the dividend day (i.e. on the day indicated in the shareholders’ resolution concerning the distribution of the profit set within two months of the adoption of this resolution). However, if the dividend day is not set in the resolution, dividends will be paid out on the day of the annual general meeting. The amendments eliminate a phenomenon of excessive delaying of the profit’s pay-out day which was disadvantageous for the shareholders.
 
The provisions concerning interim dividends are also changed. According to the new regulations, the conditions of the payment of interim dividends will not be based only on the profit shown in the company’s approved financial statement, but also on the financial result in the current accounting year in which the dividends are to be paid out.
 
While planning the payment of the interim dividend, the amount of the future dividend should be estimated carefully. It is caused by the fact that the Commercial Code contains an obligation of returning the received interim dividend (entirely or partially), if, despite of the interim dividend payment, the company shows a loss or a profit that is not sufficient.
 

 
Until 1 March 2019, the procedure of resignation by the only remaining member of the board (or by all members at one go) was a source of numerous controversies. It was not clear to whom the letter of resignation should be filed.
 
Under the new rules, the member of the board will have to file the resignation letter with the shareholders (in a limited liability company) or with the supervisory board (in a joint stock company) through the special procedure specified in the code, unless the Articles of Association or the statute provide otherwise.
 

 
The hitherto provisions of the Commercial Code excluded the possibility of adopting resolutions by circulation voting at the annual general meeting of shareholders. The resolutions which have to be adopted during this meeting are related to the closing of the accounting year (examination and approval of the board report on the operations of the company and the financial statements for the previous financial year, distribution of profit or coverage of losses and acknowledgement of the fulfilment of duties by members of the company's authorities).
 
New provisions allow adopting these resolutions by a circulation voting. Using this way of voting will require the consent of all the shareholders.