M&A – Main differences between Share Deals and Asset Deals in Poland

Transferability 

• Transfer of all assets and liabilities of the target company,
• Any prior shareholder or board approvals to be obtained for share transfer by seller, 
• A right of first refusal may be conferred in favour of other shareholders of the company,
• Articles of association or shareholders’ agreement may set restrictions to the free movement of quotas/shares,
• Prior Antitrust Authorities (UOKiK) notification or approval may be required,
• Polish State enjoys the right of first refusal of shares of companies owning agricultural land having the surface above 5 ha. The State has 1 month to respond. If the Polish State considers that the contractual price is not a market price for the shares then it may demand that the share price which the State will have to pay will be set by a court. The risk for the Seller is therefore significant because the price may be set at a lower level than previously agreed with the Buyer.

Due Diligence

Usually detailed in order to identify the risks and draft relevant SPA clauses.

Specificities linked to the share transfer agreement 

• The SPA needs to be carefully tailored in order to include appropriate representations, warranties and indemnities (in particular regarding labour, tax, social security and environmental matters, among others) and collateral,
• No mandatory legal requirements as to the content of the SPA,
• The SPA has to be declared to the Polish tax authorities by the Buyer within 14 days upon closing, 
• The SPA is subsequently registered with the registry court although the transfer of ownership of shares takes place already upon the SPA signature. It is possible to agree that it takes place upon the price payment, 
• Obligation to report ultimate beneficiary owner of shareholders, 
• The Management Board Members need to indicate their address for correspondence within the territory of the EU (if they reside outside of the EU they are obliged to appoint a representative).
  

Transferability

• Usually transfer of all the assets of the business as an ongoing concern (in particular clients, commercial lease rights, insurance policies) + all employees. However, the asset deal allows parties to select which elements (assets) of the business are to be transferred and exclude others,
  
• Prior Antitrust Authorities (UOKiK) notification or approval may be required,
• Any prior shareholder or board approvals to be obtained for management of transferring company to negotiate and execute an asset deal,
• Some public licences and governmental permits may not be transferred along with the business but a new one must be applied for by the buyer, 
• In case if the deal entails an agricultural land having the surface exceeding 1 ha and the Buyer is a non-farmer then the deal requires the consent of the State. It is granted through an administrative decision. If the surface if below 1 ha then the consent for the transfer is not required but the State has a right of first refusal with respect such land. The abovementioned rules do not apply to the real estate situated within the city limits.

Due Diligence

The Buyer is released from the liability for the business debts of the enterprise if they were not detected in a proper and professionally performed due diligence procedure.

Specificities linked to the transfer agreements 

• No mandatory legal requirements as to the content of the asset deal,
• If the asset deal entails the entire business it is recommended that the contract should be carefully tailored in order to include appropriate representations, warranties and indemnities (in particular regarding labour, tax, social security and environmental matters, among others) and collateral,
• The transfer does not entail the debts/liabilities. Therefore, each creditor has to agree to the transfer of a particular debt/liability, 
• In case of transfer of the entire business the Seller and the Buyer are liable on joint and several basis for all past debts related to it (see “Due Dilligence”),
• The Buyer is liable with all its assets (not only the business acquired),
• The maxiumum cap of the Buyer’s liability: value of the business at the moment of the acquisition and per the prices for the moment of the satisfaction of the creditor,
• The business transfer agreement needs to be executed before a Notary,
  
• The business transfer contract needs to be registered with the registry court, 
• The asset deal subject to registration tax has to be declared to the Polish tax authorities by the Buyer within 14 days upon closing.
  

Limited Liability Company: 

• Shares are not issued on form of documents,
• Shares can be transferred only if they are fully paid-up and registered, 
• The signatures on the SPA need to be laid down before a Notary (in case of a foreign Notary the apostile may be required),
  
• Update of Articles of Association is not needed,
• The Parties to the SPA (usually the Buyer) have to inform the Management Board of the transfer and the new share owner is entered into the Company Share Book.

Joint-stock company: 

• Shares are issued in form of documents with the Company’s seal,
• The shares issued for the contribution in-kind may only be registered shares until the approval by the General Assembly of the financial statement for the financial year in which they were covered and cannot be transferred until the approval,
• The transfer of the registered shares requires the transfer of the possession of the shares and a written endorsement placed on the document of the shares,
• The transfer of shares issued to bearer requires only the transfer of the possession of the shares or an on-line operation in case of publicly held joint-stock companies.
  

• Permits and authorisations necessary to carry on the business have to be transferred to the buyer,
• The employee notification procedure must be activated 30 days before the closing at the latest. Within 2 months after closing the employees are entitled to terminate the employment contracts upon 7 day notice period. Such termination is treated equally as the termination by the employer and therefore triggers indemnities which have to be paid to these employees.
  

Taxes to be paid by the seller:

• Taxation of capital gains: 19%.

Taxes to be paid by the buyer:

• Registration tax: 1%,
• No VAT.
  

Taxes to be paid by the seller:

• Regular taxation on income from the economic activity,
• Company Income Tax: 19%,
• If the seller is an individual entrepreneur: usually also 19%, rarely 32%.

Taxes to be paid by the buyer: 

• Registration tax: 1% or 2% if the asset entail real property,
• VAT: no VAT for the transfer of entire business or of an organised business unit (“zorganizowana część przedsiębiorstwa”),
• VAT on “selected assets” deal- usually 23%.