Poland – Liability of company directors and Business judgement rule

11 Setembro 2022

  • Polónia
  • Empresa

A member of the management board or the supervisory board of a Polish LLC or a joint-stock company is liable to the company for damage caused by an act or omission contrary to the law or the articles of association, unless they are not at fault. In the performance of their duties, they are obliged to take the care due to the professional nature of their activities. In other words, the standard of care is high and they cannot release themselves from the liability indicating that they had no sufficient knowledge or experience.

The burden of proof of the damage and the lack of due dilligence of the board member lies with the company. A board member is liable if their conduct is culpable. However, the company does not have to prove this. It is the board member who must demonstrate that the damage caused by their act or omission was not culpable.

When running a business, board members naturally often move within the boundaries of a certain risk and make various business decisions, the consequences of which are often unforeseeable at the time they are made. They can result in both substantial gains and substantial losses for the company. However, with a high standard of due diligence, it is more difficult to demonstrate a lack of culpability.

A recent amendment of the Polish Code of Commercial Companies and Partnerships which enters into force on 13 October 2022 has articulated the so called „business judgement rule” which has already appeared to a limited extent in case law.

This rule assumes that a member of the management board and supervisory board may act within the limits of reasonable business risk. They are not in breach of their duty of professional care as long as they act in loyalty to the company.

The new law indicates that the assessment of the board member may be made on the basis of information, analyses and opinions available to them when making decisions. The new law may contribute to the collection of documentation in defence of the position (so-called defence file). The board members may protect themselves against the liability towards the company by demonstrating that their actions or omissions were based on expert’s opinions and at the time when they were undertaken they did not exceed the limits of the reasonable business jugdement.

Quick summary – Poland has recently introduced tax incentives which aim at promoting innovations and technology. The new support instrument for investors conducting R&D activity is named «IP Box» and allows for a preferential taxation of qualified profits made on commercialization of several types of qualified property rights. The preferential income tax rate amounts to 5%. By contrast, the general rate is in most cases 19%.

The Qualified Intellectual Property Rights

The intellectual property rights which may be the source of the qualified profit subject the preferential taxation are the following:

  • rights to an invention (patents)
  • additional protective rights for an invention
  • rights for the utility model
  • rights from the registration of an industrial design
  • rights from registration of the integrated circuit topography
  • additional protection rights for a patent for medicinal product or plant protection product
  • rights from registration of medicinal or veterinary product
  • rights from registration of new plant varieties and animal breeds, and
  • rights to a computer program

The above catalogue of qualified intellectual property rights is exhaustive.

Conditions for the application of the Patent Box

A taxpayer may apply the preferential 5% rate on the condition that he or she has created, developed or improved these rights in the course of his/her R&D activities. A taxpayer may create intellectual property but it may also purchase or license it on the exclusive basis, provided that the taxpayer then incurs costs related to the development or improvement of the acquired right.

For example an IT company may create a computer program itself within its R&D activity or it may acquire it from a third party and develop it further. Future income received as a result of commercialization of this computer program may be subject to the tax relief.

The following kinds of income may be subject to tax relief:

  • fees or charges arising from the license for qualified intellectual property rights
  • the sale of qualified intellectual property rights
  • qualified intellectual property rights included in the sale price of the products or services
  • the compensation for infringement of qualified intellectual property rights if obtained in litigation proceedings, including court proceedings or arbitration.

How to calculate the tax base

The preferential tax rate is 5% on the tax base. The latter is calculated according to a special formula: the total income received from a particular IP is reduced by a significant part of expenditures on the R&D activities as well as on the creation, acquisition and development of this IP. The appropriate factor, named «nexus», is applied to calculate the tax base.

The tax relief is applicable at the end of the calendar year. This means that during the year the income tax advance payments are due according to the regular rate. Consequently in many instances the taxpayer will recover a part of the tax already paid during the previous calendar year.

It is advisable that the taxpayer applies for the individual tax ruling to the competent authority in order to receive a binding confirmation that its particular IP is eligible for the tax reduction.

It is also crucial that the taxpayer keeps the detailed accounting records of all R&D activities as well as the income and the expenses related to each R&D project (including employment costs). The records should reflect the link of incurred R&D costs with the income from intellectual property rights.

Obligations related to the application of the tax relief

In particular such a taxpayer is obliged to keep records which allow for monitoring and tracking the effects of research and development works. If, based on the accounting records kept by a taxpayer, it is not possible to determine the income (loss) from qualified intellectual property rights, the taxpayer will be obliged to pay the tax based on general rules.

The tax relief may be applied throughout the duration of the legal protection of eligible intellectual property rights.In case if a given IP is subject to notification or registration procedure (the expectative of obtaining a qualified intellectual property right), a taxpayer may benefit from tax relief from the moment of filing or submitting an application for registration. In case of withdrawal of the application, refusal of registration or rejection of the application , the amount of relief will have to be returned.

The above tax relief combined with a governmental programme of grant aid for R&D projects make Polish research, development and innovation environment more and more beneficial for investors.

The sale and purchase of agricultural land under Polish law have been recurrently amended over the past few years.

For the most part legal provisions aim to protect the country’s food resources as well as to be self-sustained and independent from foreign food suppliers. Agriculture is considered to be one of the decisive economic branches and it’s the Lawmaker’s according belief that it should be accurately regulated. Consequently, the sale and purchase of land which may be used for farming are subject to various limitations, as well as the sale and purchase of company shares or business assets (fonds de commerce) holding such land.

This topic, therefore, is crucial to foreign investors. In this article, I would like to highlight some key points which should be taken into account by foreign investors in setting up a joint venture with a Polish counterpart owning a real estate or acquiring shares in an already existing entity that owns a real estate. These situations are very frequent and the legal risks related to the agricultural land cannot be neglected.

Agricultural land is defined as any land which is qualified as such in the zoning regulation. The agricultural character subsists not only when the real estate is already utilized for agricultural purposes but also if such use is merely potential. Here arises the first issue: it is a matter of facts, not law whether such utilization is conceivable and often arguable.

One may imagine a plot of land which is not used for farming at the moment but still suitable to be used in such a way in the future. Such a real estate will be subject to the legal limitations and the sale and purchase of it offer a significant legal and commercial issue. This pertains green fields in the outskirts of a city which are generally marked as agricultural land under the zoning plan and form an ideal target for investors who wish to construct a production facility (e.g. factory), warehouse or start a business far from farming. Except if planning the construction of residential buildings they will have to face severe legal requirements.

Another point is that in Poland not every region has a zoning plan. Often there is none and the legal character of a given land has to be determined on the basis of other sources; such as a land register or a general concept of zoning plan adopted by a single municipality. Oftentimes the data arising from the two sources are contradictory.

Issue concerns only out of city real estate

The upside is that these strict regulations do not apply to agricultural land situated within the administrative city limits.

Minimum surface: 1 ha and 5 ha

The statutory limitations apply only in case if the land exceeds a certain surface.

For share deals (transactions where the shares in a company or rights in a partnership are transferred) the minimum surface required is 5 ha. If a company or a partnership owns an agricultural land below 5 ha the share deal can be done without further complications.

For asset deals (simple transactions resulting in a transfer of land property) the relevant figure is 1 ha (see below).

Transfer of land

The transfer of agricultural land having a surface exceeding 1 ha to a non-farmer, requires the approval of the State. This is given through an administrative decision.

If the surface is less than 1 ha, transfer approval is not mandatory, but the State has a right of first refusal with respect to such land. As mentioned earlier, these rules do not apply to the real estate situated within the cities.

For these reasons an asset deal in Poland may produce complications.

Transfer of shares in a capital company

The share deals are comparatively easier, even if the company owns an agricultural real estate. They do not require the approval of the State.

However, the State has a right of first refusal with respect to shares in a company (limited liability company or joint stock company) which owns an agricultural land having a surface of at least 5 ha. It has a right to examine the company’s papers and books as well as to request data from the company in order to establish the legal and financial state of the real estate.

The shares owner can only enter into a conditional share sale and purchase agreement with a third party. Such an agreement is conditioned by the mentioned right to a first refusal within a statutory time period of 1 (one) month. However, there is a very important deviation from the regular right of first refusal. If the State considers the contractual price does not meet the market value of the shares it may demand that the share price which the State itself will pay is set by a court. Such price revision does not extend to regular share deals or asset deals. And therein we see the significant risk for the seller.

Transfer of shares in a partnership and accession of a new member

Different rules apply if the sale and purchase agreements relating to the rights in a partnership (general partnership, limited partnership, a partnership limited by shares or professional partnership) owning an agricultural land of at least 5 ha surface.

In such a case, if a current member transfers his/her rights to a third party or a new member adheres, the company is obliged to inform the State of such transfer or adhesion. Subsequently, the State has a right take over the property of the land and to set a price for it unilaterally. Such a price should reflect the market value of the concerned real estate. However, in many cases, the partnership may find the price too low and wishes to challenge it. The partnership thus has to go to court asking for a price revision.

Real estate or shares in a company or a partnership as a non-cash contribution

It is not possible to avoid the above complications if instead of selling the shares or a real estate we transfer them to a purchaser through a different legal act. For example, one may wish to confer it as a non-cash contribution to a different company, exchange it for some other asset or donate it to a third party.

In those cases, very strict rules apply too. The State may take over respectively the land or the shares. The State sets the price unilaterally. The land- or shareowner may challenge the price in court but he has to apply within 1 month from take-over.

Mergers, divisions, and transformations of companies and partnerships

The right to take over the property of a real estate applies similarly to mergers, transformations, and divisions of companies and partnerships. There is a significant legal and financial risk connected to this kind of M&A.

Null and void agreements

If an agreement related to a transfer of land, shares in a company or rights in a partnership does not match all legal requirements it is null and void. In such a case the Buyer does not acquire the rights for which he/she has paid. The value of the real estate in question or importance for the company’s business is irrelevant. Even if the entity owns a relatively small real estate which currently is useless but potentially may be used for agricultural purposes and it is not properly identified within the due diligence process – this may trigger the invalidity of the whole transaction.

Be careful!

For the above reasons the buyer craving to purchase shares in Polish companies or partnerships should carefully investigate if his/her target entity is an owner of any real estate and – if so – what legal status of it might be. If it turns out that the entity owns an agricultural land of at least 1 ha then the share sale and purchase transaction should be performed very carefully and by specialized lawyers. If the relevant procedures are omitted the current share owner may lose the ownership of the shares and the intended purchaser may lose money in case the irregularity is discovered later on, when e.g. the seller gets insolvent, has been liquidated or simply disappeared.

As I have already mentioned in my previous article, the most popular type of company set up in Poland is the Limited Liability Company (LLC). Many foreign investors choose this legal structure for its simplicity and low costs, and often – especially in the smaller ones – investors themselves wish to manage (or co-manage) the company, so they become members of the Management Board.

However, many of them do not pay due attention to legal consequences of such a decision and are not aware of the legal liability connected with this position. I am compelled to underline that many foreign clients invest in Poland in a form of an LLC being groundlessly convinced that the limited liability refers to the whole business in Poland and all the people involved in it. They think that, if something goes wrong and the business of a subsidiary fails, they can just close it, leave the debts behind and start somewhere else.

This is not the case: The members of the Management Board, indeed, could be forced to pay a high price for it. Let’s take a look at this topic.

According to the Polish company law the Management Board Members of an LLC are jointly and severally responsible for the debts of the company in case it does not satisfy its creditors.

Basically, in order to pursue a Member of the Management Board a creditor needs to sue the company first and initiate the enforcement proceedings. In case the enforcement proceedings turn out to be totally or partly ineffective for the lack of the company’s assets – this fact will be confirmed by the bailiff. On this basis the creditor is entitled to sue the member of the Management Board and demand all the amounts that the company didn’t pay to him/her as well as the interest and costs of the court proceedings, including the attorney’s fees. As you may imagine, the amount at stake is high.

How can a Member of the Management Board defend from the liability for the company’s debts? By proving one of the following:

  1. he/she filed for company’s bankruptcy in a due time;
  2. the court declared the restructuring proceedings towards the company in a due time,
  3. it is not his/her fault the non-filing for the bankruptcy or restructuring proceedings in a due time;
  4. the creditor did not incur damage due to the fact that the aforementioned procedures were not initiated in a due time.

The burden of proof shall lie with the Manager. In other words, if he/she needs to prove at least one of those circumstances, while the plaintiff only needs to prove the existence of an unpaid company’s debt.

Establishing the “due time” is a crucial point. It is considered appropriate to file for bankruptcy when:

  • the company for 3 consecutive months has problems with invoices paying; or
  • the company is indebted above the value of its assets for more than 2 years; or

Often an appalling event proving that the company is in serious trouble arises when the bank refused to continue the financing or worse, terminates the loan and no other bank is wishing to provide the company with the financing. .

By contrast, the restructuring may be initiated when the company is still in a relatively good condition: through an agreement with creditors for the deferment or reduction of some payments together with the implementation of certain business improvements, the restructuring agreement may bring the company back into business. Despite the restructuring being relatively expensive, it allows to maintain the company alive, overcome difficulties and get back into the game.

When it is too late or there is no good recovery plan, the only remaining solution is the liquidation of the company within the insolvency proceedings. However, also these proceedings provoke expenses: the insolvent company needs to have resources to finance the judicial fees, the accountants, the receiver’s fees, the attorney’s fees, the employee’s salaries and all other costs during the insolvency process.

If the company does not have enough assets, the court will not even open the insolvency proceedings and if, during the proceedings a shortage of funds arises, the proceedings will be closed.

If the demand for opening of the insolvency or restructuring proceedings is filed too late, the Manager cannot release himself/herself from the liability for the debts of the company and all the damages incurred by the company’s creditors as a result of a belated opening of the insolvency proceedings. As the damage is often equivalent of the unpaid debt, the creditors have two separate legal bases to sue the Management Board Members and get back from them the money they didn’t get from the company.

In extreme cases, when the negligence of the Management Board is truly gross and the damage caused to creditors due to the belated filing for bankruptcy is very high, the court may impose on the Management Board Members a prohibition of running enterprise and holding positions in enterprises.

My advice is to accept the position of Management Board Members with extreme caution and, when the first signs of corporate difficulty arise, to react immediately and contact a lawyer expert in the matter: not only for the company’s sake, but also to protect their own assets and interest.

In my previous post I wrote about the provisions of Polish law on companies and partnerships related to the non-competition of managers in the limited liability companies.
With this post I will look more deeply into the subject, focusing on the shareholders.

Often investors want to enter into a joint-venture with a partner who is already active on a particular market. It produces a synergy effect and allows avoiding the expensive and time consuming development phase. In such cases, it is important to negotiate and agree on the rules which will apply to the following question: “will shareholders be allowed to set up new (or continue to manage existing) businesses that are (or could be) in competition with the company?”.

Needless to say, unfair competition is prohibited at all times and regardless of the content of the Articles of Association. The real crux of the matter is fair competition.

Polish law does not contain any explicit legal provision prohibiting the shareholder from conducting an activity that is (or may be) competitive towards the Company’s business. This is particularly surprising for German and American clients, as their jurisdictions there are rules – more or less – in this sense.

In Poland, despite the absence of any explicit legal provision, the obligation to refrain from competitive activity derives from the general loyalty that the shareholders owe to the Company. However, they are obliged to a different extent, depending on the company share held. It is consistent with common sense and equity principle that the majority shareholder – which effectively controls the company – should refrain from any competitive activity. On the contrary, the loyalty obligation which rests on a minority shareholder – which only holds a little fraction of the share capital and practically has no influence on the Company – is significantly limited: he/she should not be prohibited from investing in other businesses, even if competitive.

It is worth mentioning that Polish company law provides for a disciplinary instrument that aims to protect the Company from unfair shareholders. All remaining shareholders, who together represent more than 50% of the share capital, can jointly initiate a court proceeding against a shareholder who is acting in an unfair manner. During such proceeding the court examines the case and determines whether the shareholder was obliged to refrain from the competitive activity and, if so, whether he/she violated it. As a result of such proceeding, the court may exclude this unfair-shareholder from the Company. The downside of this solution is that the shares of the excluded unfair-shareholder must be bought back by the remaining shareholders or by a third party, at their actual value. Furthermore, the procedure is expensive and lasting: on the top of this, unless the court issues an interim injunction, the shareholder may continue his/her competitive activity, causing damages to the Company. For these reasons, in many cases this tool will be inefficient, especially if the unfair-shareholder holds a stake of a significant value.

 

As we have just seen, Polish law does not provide a clear rule related to the non-competition by the shareholders and the statutory disciplinary procedure (forced buy-out) in many cases may be inefficient.

Considering that each shareholder of an LLC – even holding only the 1% of shares – has access to all information and documents of the Company, while drafting the Articles of Association, it is crucial to consider the risk deriving from the performance of competitive activities by the shareholders of the Company itself.

The non-competition cause should contain: (i) a precise description of the activity which will be deemed competitive; (iii) its territorial application area; and (iii) its duration. With regard to this last aspect, the clause may provide that a shareholder remains bound even after the sale of his/her shares.

It is advisable to introduce a disciplinary procedure for the violation of this obligation. I suggest a forced redemption of shares, so it is the Company paying the excluded shareholder and not the remaining shareholders. The shares value of this forced redemption may be significantly lower that the market value (e.g. nominal value).

This clause should be inserted also in the Shareholders’ Agreement and it should preferably contain contractual penalties (liquidated damages) for its breach, in favour of every other shareholder.

Obviously, if a shareholder is also member of the Board of Directors, he/she will also be subject to the obligations provided for the members of the Board of Directors, even if the Article of Association does not contain a non-competition clause for shareholders.

Many foreign investors enter into joint-venture agreements with partners from other countries or with Polish entrepreneurs already active on the local market. Sometimes, instead, they establish their own 100% subsidiary and it is common that they choose a limited liability company, because it is a flexible and less expensive to manage in comparison to a joint-stock company.

One of the very important matters in a limited liability company (LLC) is the non-competition of the Management Board Members and of the shareholders.

Under Polish law, the Management Board Member of a company has a statutory obligation to refrain from any activity which might be competitive towards the activity of the company. As a consequence, such a Member cannot manage, be a member of a supervisory board of, own shares in, work for or provide any consulting services to a competitor company or partnership or any other legal entity.

All the more such a Member cannot run an individual enterprise or be a proxy in an enterprise which belongs to another person. Exceptionally, he/she can own no more than 10% shares in a capital company (LLC or joint-stock) but on the condition that he/she cannot appoint the management board members of such a company.

The non-competition prohibition is binding over the whole period when he/she holds the function in the Management Board and it expires immediately afterwards. The Company can release the Management Board Member from this obligation. The statutory rule is that the Management Board Members are nominated by a resolution of the General Assembly of Shareholders. Consequently, the General Assembly adopts a resolution on the release from the non-competition obligation. However, the Articles of Association may modify this rule and provide another procedure.

If a Management Board Member violates the non-competition obligation he does not lose automatically his/her position. However, he/she may normally be revoked by the General Assembly of Shareholders. A Management Board Member is responsible for damages caused to the Company through such a violation of the non-competition, but, in practice, the Company may encounter difficulties proving before the court that in fact it has indeed suffered damage (either actual damage of loss of profit). Only in relatively evident cases it will be simple. In many instances it will be time consuming and complicated.

Therefore, even if the Polish law provides for a general rule related to the non-competition by the Management Board Members, it is still crucial for the investors and the Company to conclude a good non-competition agreement with these persons or introduce a respective clause to the Articles of Association.

It should contain a precise description of the activity which will be deemed competitive and its geographical scope. The timeframe of such an obligation is also crucial. The clause may state that a Member will be bound by this prohibition not only over the period when he holds his function but also over e.g. 2 years afterwards. Preferably, it should also contain a penalty clause, so, in case of breach it is easy and costly-efficient to enforce against the Management Board Members. If such an agreement is accurately drafted and adjusted to the Company’s situation, it will protect the Company very efficiently from any competition operations (whether fair or unfair).

In my next article I will elaborate more on the subject of the non-competition obligation of the shareholders in an LLC.

Limited Liability Company (LLC) is the most popular company form in Poland and is often chosen by foreign investors to access the Polish market for several reasons, such as: low initial share capital; limited liability; flexibility and simplicity in management; no social security contributions, etc.

When foreign investors buy minority shares in an existing LLC it is always a good idea to reflect the main points of the agreements between the parties in the corporate documents. In this brief post I will list seven common problems connected with the protection of minority shareholders, offering some possible solutions.

Problem 1: Polish law provides for a very basic protection for the minority shareholders.

Solution: if you want to have a strong position you should draft properly the Article of Association and preferably conclude also a side Shareholders’ Agreement.

Problem 2: Polish law provides no requirement related to the quorum of the Shareholders’ Meeting. In other words, if the Shareholders’ Meeting is properly convened, it may deliberate and adopt valid resolutions regardless of the numbers of shareholders present.

Solution: if you want the Shareholders’ Meeting to be valid only if a certain quorum is present, this should be included in the Articles of Association.

Problem 3: Polish law provides that the Shareholders’ Meeting resolutions are generally adopted with a simple majority (50% +1). Only some strategic matters it requires a qualified majority of 2/3 or 3/4. Thus the shareholder who owns at least 50% of shares dominates the company.

There may be two solutions to this situation.

Solution A: if the minority shareholder wishes to have a true influence on the company’s life, he should introduce a qualified majority for the validity of all Shareholders’ Meeting resolutions or of some of them (e.g. related to contracts of a significant value, to employment, to investments etc.).

Solution B: the minority shareholder may also negotiate that his/her shares will enjoy preference of votes. For example, each share may entitle to 2 votes. In such a way, his/her quota will have more influence. 

Problem 4: According to Polish law, the Management Board Members are appointed by a resolution of the Shareholders’ Meeting, so usually the majority shareholder decides who will manage the company.

Solution: if the minority shareholder wishes to be sure that he will have real influence of the company’s activity, he may negotiate a clause of the Article of Association giving him a personal right to nominate and revoke one (or more) members of the Management Board.

Problem 5: Under Polish law the transfer of shares in an LLC is free, so the minority shareholder risks that the majority shareholder sells all his/her shares to a third party.

Solution: minority shareholder shall negotiate restrictions to the sale of shares. Restrictions may be of different kind, covering specific shareholders needs, such as: request the consent of the company for the sale (with possible recourse to ordinary jurisdiction); right of first refusal, etc.

One last tip: it is recommendable to conclude the shareholder’s agreement in a written form with signatures certified by a public notary. It is particularly important if this agreement contains clauses such as put option, call option, priority right, as written form is necessary to enforce the transfer of shares before the court. The lifetime of the shareholders’ agreement should be at least as long as the shareholders own the shares in the company. It may, however, extend beyond the moment when a shareholder leaves the company, e.g. with regard to the non-competition clause or confidentiality clause.

Poland has recently become quite famous for its skilled and resourceful IT specialists. Each year thousands of new computer engineers (programmers, developers, testers, designers etc.) enter into the market, warmly welcomed by domestic and multinational companies. A big part of these young talents open their own firm or business as free lancers developing software for clients from European countries as well as from US, Canada, Japan, China, etc.

However, companies who want to cooperate with these partners and assign software development to a Polish IT company or freelancer should be aware that the copyright law in Poland is very strict, as it mainly protects the creator and not the client. Therefore, to be on a safe side, it is better to follow these 7 basic rules:

  1. Never start cooperation with an IT specialist or an IT company without a formal agreement. And I mean a real agreement, in a written form, with signatures of persons who can validly contract on behalf of the companies. The form is very important because – under Polish law – copyrights transfer and exclusive license agreements not fulfilling form conditions are null and void. Moreover, if there is no agreement, Polish copyright rules will apply to all intellectual property matters.
  2. Please remember that software is a creation protected by copyright law. Therefore you should consider whether you want to acquire the entire intellectual property rights or you just need a license. If you need a full IP transfer, you need to put it expressly in the agreement; otherwise you will only get a non-exclusive licence. And these, in several cases, will not be useful from a business point of view. If a license is enough, it is advisable to agree if it will be exclusive or non-exclusive.
  3. When drafting an IP clause, be detailed and clear. If you want to be able to decompile and disassembly the binary code, specify it in the IP clause. If you want to be able to introduce modifications to the source code, specify it in the IP clause. If you want to sublicense the software, specify it in the IP clause. The IP clause shall contain the description of any way you want to use the software, whether on mobile devices or on personal computers, any other electronic device or via internet (e.g. cloud computing). And believe me, when I write “specify it in the IP clause” it means that you really, really have to put it there. Otherwise it will be null and void and you may face a situation where your smart IT engineer, after getting paid, will sue you for the IP infringement.
  4. Remember that you should indicate the timeframe and the geographical scope of the license or IP transfer. If you do not specify it expressly in the agreement, you will only be entitled to a 5-year license, automatically expiring afterwards.
  5. Draft carefully a clause related to termination of the agreement. Under Polish law the licensor may terminate the license agreement granted for an indefinite period of time upon 1-year notice. If you do not want to find yourself in a situation where you lose the software IP rights in the middle of a big project, make sure that from the very beginning you are on a safe side.
  6. Make sure that your partner is obliged to transfer you upon request all software documentation and the source code.
  7. Make sure that you have a good indemnification clause with no limitation of liability. Often Polish IT companies subcontract some part of the development work to free lancers. You never know if they will conclude proper agreements with their subcontractors and if they will legally acquire the IP of the software that they will later sell you. There is always the risk that in the future some Polish IT engineer you never met will raise IP infringement claims against you, trying to prove that he/she actually developed the software. In such a situation an indemnification clause will help you recovering the costs from your partner.

Agata Adamczyk

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    Poland – Intellectual Property (IP) Box

    18 Janeiro 2020

    • Polónia
    • Propriedade intelectual

    A member of the management board or the supervisory board of a Polish LLC or a joint-stock company is liable to the company for damage caused by an act or omission contrary to the law or the articles of association, unless they are not at fault. In the performance of their duties, they are obliged to take the care due to the professional nature of their activities. In other words, the standard of care is high and they cannot release themselves from the liability indicating that they had no sufficient knowledge or experience.

    The burden of proof of the damage and the lack of due dilligence of the board member lies with the company. A board member is liable if their conduct is culpable. However, the company does not have to prove this. It is the board member who must demonstrate that the damage caused by their act or omission was not culpable.

    When running a business, board members naturally often move within the boundaries of a certain risk and make various business decisions, the consequences of which are often unforeseeable at the time they are made. They can result in both substantial gains and substantial losses for the company. However, with a high standard of due diligence, it is more difficult to demonstrate a lack of culpability.

    A recent amendment of the Polish Code of Commercial Companies and Partnerships which enters into force on 13 October 2022 has articulated the so called „business judgement rule” which has already appeared to a limited extent in case law.

    This rule assumes that a member of the management board and supervisory board may act within the limits of reasonable business risk. They are not in breach of their duty of professional care as long as they act in loyalty to the company.

    The new law indicates that the assessment of the board member may be made on the basis of information, analyses and opinions available to them when making decisions. The new law may contribute to the collection of documentation in defence of the position (so-called defence file). The board members may protect themselves against the liability towards the company by demonstrating that their actions or omissions were based on expert’s opinions and at the time when they were undertaken they did not exceed the limits of the reasonable business jugdement.

    Quick summary – Poland has recently introduced tax incentives which aim at promoting innovations and technology. The new support instrument for investors conducting R&D activity is named «IP Box» and allows for a preferential taxation of qualified profits made on commercialization of several types of qualified property rights. The preferential income tax rate amounts to 5%. By contrast, the general rate is in most cases 19%.

    The Qualified Intellectual Property Rights

    The intellectual property rights which may be the source of the qualified profit subject the preferential taxation are the following:

    • rights to an invention (patents)
    • additional protective rights for an invention
    • rights for the utility model
    • rights from the registration of an industrial design
    • rights from registration of the integrated circuit topography
    • additional protection rights for a patent for medicinal product or plant protection product
    • rights from registration of medicinal or veterinary product
    • rights from registration of new plant varieties and animal breeds, and
    • rights to a computer program

    The above catalogue of qualified intellectual property rights is exhaustive.

    Conditions for the application of the Patent Box

    A taxpayer may apply the preferential 5% rate on the condition that he or she has created, developed or improved these rights in the course of his/her R&D activities. A taxpayer may create intellectual property but it may also purchase or license it on the exclusive basis, provided that the taxpayer then incurs costs related to the development or improvement of the acquired right.

    For example an IT company may create a computer program itself within its R&D activity or it may acquire it from a third party and develop it further. Future income received as a result of commercialization of this computer program may be subject to the tax relief.

    The following kinds of income may be subject to tax relief:

    • fees or charges arising from the license for qualified intellectual property rights
    • the sale of qualified intellectual property rights
    • qualified intellectual property rights included in the sale price of the products or services
    • the compensation for infringement of qualified intellectual property rights if obtained in litigation proceedings, including court proceedings or arbitration.

    How to calculate the tax base

    The preferential tax rate is 5% on the tax base. The latter is calculated according to a special formula: the total income received from a particular IP is reduced by a significant part of expenditures on the R&D activities as well as on the creation, acquisition and development of this IP. The appropriate factor, named «nexus», is applied to calculate the tax base.

    The tax relief is applicable at the end of the calendar year. This means that during the year the income tax advance payments are due according to the regular rate. Consequently in many instances the taxpayer will recover a part of the tax already paid during the previous calendar year.

    It is advisable that the taxpayer applies for the individual tax ruling to the competent authority in order to receive a binding confirmation that its particular IP is eligible for the tax reduction.

    It is also crucial that the taxpayer keeps the detailed accounting records of all R&D activities as well as the income and the expenses related to each R&D project (including employment costs). The records should reflect the link of incurred R&D costs with the income from intellectual property rights.

    Obligations related to the application of the tax relief

    In particular such a taxpayer is obliged to keep records which allow for monitoring and tracking the effects of research and development works. If, based on the accounting records kept by a taxpayer, it is not possible to determine the income (loss) from qualified intellectual property rights, the taxpayer will be obliged to pay the tax based on general rules.

    The tax relief may be applied throughout the duration of the legal protection of eligible intellectual property rights.In case if a given IP is subject to notification or registration procedure (the expectative of obtaining a qualified intellectual property right), a taxpayer may benefit from tax relief from the moment of filing or submitting an application for registration. In case of withdrawal of the application, refusal of registration or rejection of the application , the amount of relief will have to be returned.

    The above tax relief combined with a governmental programme of grant aid for R&D projects make Polish research, development and innovation environment more and more beneficial for investors.

    The sale and purchase of agricultural land under Polish law have been recurrently amended over the past few years.

    For the most part legal provisions aim to protect the country’s food resources as well as to be self-sustained and independent from foreign food suppliers. Agriculture is considered to be one of the decisive economic branches and it’s the Lawmaker’s according belief that it should be accurately regulated. Consequently, the sale and purchase of land which may be used for farming are subject to various limitations, as well as the sale and purchase of company shares or business assets (fonds de commerce) holding such land.

    This topic, therefore, is crucial to foreign investors. In this article, I would like to highlight some key points which should be taken into account by foreign investors in setting up a joint venture with a Polish counterpart owning a real estate or acquiring shares in an already existing entity that owns a real estate. These situations are very frequent and the legal risks related to the agricultural land cannot be neglected.

    Agricultural land is defined as any land which is qualified as such in the zoning regulation. The agricultural character subsists not only when the real estate is already utilized for agricultural purposes but also if such use is merely potential. Here arises the first issue: it is a matter of facts, not law whether such utilization is conceivable and often arguable.

    One may imagine a plot of land which is not used for farming at the moment but still suitable to be used in such a way in the future. Such a real estate will be subject to the legal limitations and the sale and purchase of it offer a significant legal and commercial issue. This pertains green fields in the outskirts of a city which are generally marked as agricultural land under the zoning plan and form an ideal target for investors who wish to construct a production facility (e.g. factory), warehouse or start a business far from farming. Except if planning the construction of residential buildings they will have to face severe legal requirements.

    Another point is that in Poland not every region has a zoning plan. Often there is none and the legal character of a given land has to be determined on the basis of other sources; such as a land register or a general concept of zoning plan adopted by a single municipality. Oftentimes the data arising from the two sources are contradictory.

    Issue concerns only out of city real estate

    The upside is that these strict regulations do not apply to agricultural land situated within the administrative city limits.

    Minimum surface: 1 ha and 5 ha

    The statutory limitations apply only in case if the land exceeds a certain surface.

    For share deals (transactions where the shares in a company or rights in a partnership are transferred) the minimum surface required is 5 ha. If a company or a partnership owns an agricultural land below 5 ha the share deal can be done without further complications.

    For asset deals (simple transactions resulting in a transfer of land property) the relevant figure is 1 ha (see below).

    Transfer of land

    The transfer of agricultural land having a surface exceeding 1 ha to a non-farmer, requires the approval of the State. This is given through an administrative decision.

    If the surface is less than 1 ha, transfer approval is not mandatory, but the State has a right of first refusal with respect to such land. As mentioned earlier, these rules do not apply to the real estate situated within the cities.

    For these reasons an asset deal in Poland may produce complications.

    Transfer of shares in a capital company

    The share deals are comparatively easier, even if the company owns an agricultural real estate. They do not require the approval of the State.

    However, the State has a right of first refusal with respect to shares in a company (limited liability company or joint stock company) which owns an agricultural land having a surface of at least 5 ha. It has a right to examine the company’s papers and books as well as to request data from the company in order to establish the legal and financial state of the real estate.

    The shares owner can only enter into a conditional share sale and purchase agreement with a third party. Such an agreement is conditioned by the mentioned right to a first refusal within a statutory time period of 1 (one) month. However, there is a very important deviation from the regular right of first refusal. If the State considers the contractual price does not meet the market value of the shares it may demand that the share price which the State itself will pay is set by a court. Such price revision does not extend to regular share deals or asset deals. And therein we see the significant risk for the seller.

    Transfer of shares in a partnership and accession of a new member

    Different rules apply if the sale and purchase agreements relating to the rights in a partnership (general partnership, limited partnership, a partnership limited by shares or professional partnership) owning an agricultural land of at least 5 ha surface.

    In such a case, if a current member transfers his/her rights to a third party or a new member adheres, the company is obliged to inform the State of such transfer or adhesion. Subsequently, the State has a right take over the property of the land and to set a price for it unilaterally. Such a price should reflect the market value of the concerned real estate. However, in many cases, the partnership may find the price too low and wishes to challenge it. The partnership thus has to go to court asking for a price revision.

    Real estate or shares in a company or a partnership as a non-cash contribution

    It is not possible to avoid the above complications if instead of selling the shares or a real estate we transfer them to a purchaser through a different legal act. For example, one may wish to confer it as a non-cash contribution to a different company, exchange it for some other asset or donate it to a third party.

    In those cases, very strict rules apply too. The State may take over respectively the land or the shares. The State sets the price unilaterally. The land- or shareowner may challenge the price in court but he has to apply within 1 month from take-over.

    Mergers, divisions, and transformations of companies and partnerships

    The right to take over the property of a real estate applies similarly to mergers, transformations, and divisions of companies and partnerships. There is a significant legal and financial risk connected to this kind of M&A.

    Null and void agreements

    If an agreement related to a transfer of land, shares in a company or rights in a partnership does not match all legal requirements it is null and void. In such a case the Buyer does not acquire the rights for which he/she has paid. The value of the real estate in question or importance for the company’s business is irrelevant. Even if the entity owns a relatively small real estate which currently is useless but potentially may be used for agricultural purposes and it is not properly identified within the due diligence process – this may trigger the invalidity of the whole transaction.

    Be careful!

    For the above reasons the buyer craving to purchase shares in Polish companies or partnerships should carefully investigate if his/her target entity is an owner of any real estate and – if so – what legal status of it might be. If it turns out that the entity owns an agricultural land of at least 1 ha then the share sale and purchase transaction should be performed very carefully and by specialized lawyers. If the relevant procedures are omitted the current share owner may lose the ownership of the shares and the intended purchaser may lose money in case the irregularity is discovered later on, when e.g. the seller gets insolvent, has been liquidated or simply disappeared.

    As I have already mentioned in my previous article, the most popular type of company set up in Poland is the Limited Liability Company (LLC). Many foreign investors choose this legal structure for its simplicity and low costs, and often – especially in the smaller ones – investors themselves wish to manage (or co-manage) the company, so they become members of the Management Board.

    However, many of them do not pay due attention to legal consequences of such a decision and are not aware of the legal liability connected with this position. I am compelled to underline that many foreign clients invest in Poland in a form of an LLC being groundlessly convinced that the limited liability refers to the whole business in Poland and all the people involved in it. They think that, if something goes wrong and the business of a subsidiary fails, they can just close it, leave the debts behind and start somewhere else.

    This is not the case: The members of the Management Board, indeed, could be forced to pay a high price for it. Let’s take a look at this topic.

    According to the Polish company law the Management Board Members of an LLC are jointly and severally responsible for the debts of the company in case it does not satisfy its creditors.

    Basically, in order to pursue a Member of the Management Board a creditor needs to sue the company first and initiate the enforcement proceedings. In case the enforcement proceedings turn out to be totally or partly ineffective for the lack of the company’s assets – this fact will be confirmed by the bailiff. On this basis the creditor is entitled to sue the member of the Management Board and demand all the amounts that the company didn’t pay to him/her as well as the interest and costs of the court proceedings, including the attorney’s fees. As you may imagine, the amount at stake is high.

    How can a Member of the Management Board defend from the liability for the company’s debts? By proving one of the following:

    1. he/she filed for company’s bankruptcy in a due time;
    2. the court declared the restructuring proceedings towards the company in a due time,
    3. it is not his/her fault the non-filing for the bankruptcy or restructuring proceedings in a due time;
    4. the creditor did not incur damage due to the fact that the aforementioned procedures were not initiated in a due time.

    The burden of proof shall lie with the Manager. In other words, if he/she needs to prove at least one of those circumstances, while the plaintiff only needs to prove the existence of an unpaid company’s debt.

    Establishing the “due time” is a crucial point. It is considered appropriate to file for bankruptcy when:

    • the company for 3 consecutive months has problems with invoices paying; or
    • the company is indebted above the value of its assets for more than 2 years; or

    Often an appalling event proving that the company is in serious trouble arises when the bank refused to continue the financing or worse, terminates the loan and no other bank is wishing to provide the company with the financing. .

    By contrast, the restructuring may be initiated when the company is still in a relatively good condition: through an agreement with creditors for the deferment or reduction of some payments together with the implementation of certain business improvements, the restructuring agreement may bring the company back into business. Despite the restructuring being relatively expensive, it allows to maintain the company alive, overcome difficulties and get back into the game.

    When it is too late or there is no good recovery plan, the only remaining solution is the liquidation of the company within the insolvency proceedings. However, also these proceedings provoke expenses: the insolvent company needs to have resources to finance the judicial fees, the accountants, the receiver’s fees, the attorney’s fees, the employee’s salaries and all other costs during the insolvency process.

    If the company does not have enough assets, the court will not even open the insolvency proceedings and if, during the proceedings a shortage of funds arises, the proceedings will be closed.

    If the demand for opening of the insolvency or restructuring proceedings is filed too late, the Manager cannot release himself/herself from the liability for the debts of the company and all the damages incurred by the company’s creditors as a result of a belated opening of the insolvency proceedings. As the damage is often equivalent of the unpaid debt, the creditors have two separate legal bases to sue the Management Board Members and get back from them the money they didn’t get from the company.

    In extreme cases, when the negligence of the Management Board is truly gross and the damage caused to creditors due to the belated filing for bankruptcy is very high, the court may impose on the Management Board Members a prohibition of running enterprise and holding positions in enterprises.

    My advice is to accept the position of Management Board Members with extreme caution and, when the first signs of corporate difficulty arise, to react immediately and contact a lawyer expert in the matter: not only for the company’s sake, but also to protect their own assets and interest.

    In my previous post I wrote about the provisions of Polish law on companies and partnerships related to the non-competition of managers in the limited liability companies.
    With this post I will look more deeply into the subject, focusing on the shareholders.

    Often investors want to enter into a joint-venture with a partner who is already active on a particular market. It produces a synergy effect and allows avoiding the expensive and time consuming development phase. In such cases, it is important to negotiate and agree on the rules which will apply to the following question: “will shareholders be allowed to set up new (or continue to manage existing) businesses that are (or could be) in competition with the company?”.

    Needless to say, unfair competition is prohibited at all times and regardless of the content of the Articles of Association. The real crux of the matter is fair competition.

    Polish law does not contain any explicit legal provision prohibiting the shareholder from conducting an activity that is (or may be) competitive towards the Company’s business. This is particularly surprising for German and American clients, as their jurisdictions there are rules – more or less – in this sense.

    In Poland, despite the absence of any explicit legal provision, the obligation to refrain from competitive activity derives from the general loyalty that the shareholders owe to the Company. However, they are obliged to a different extent, depending on the company share held. It is consistent with common sense and equity principle that the majority shareholder – which effectively controls the company – should refrain from any competitive activity. On the contrary, the loyalty obligation which rests on a minority shareholder – which only holds a little fraction of the share capital and practically has no influence on the Company – is significantly limited: he/she should not be prohibited from investing in other businesses, even if competitive.

    It is worth mentioning that Polish company law provides for a disciplinary instrument that aims to protect the Company from unfair shareholders. All remaining shareholders, who together represent more than 50% of the share capital, can jointly initiate a court proceeding against a shareholder who is acting in an unfair manner. During such proceeding the court examines the case and determines whether the shareholder was obliged to refrain from the competitive activity and, if so, whether he/she violated it. As a result of such proceeding, the court may exclude this unfair-shareholder from the Company. The downside of this solution is that the shares of the excluded unfair-shareholder must be bought back by the remaining shareholders or by a third party, at their actual value. Furthermore, the procedure is expensive and lasting: on the top of this, unless the court issues an interim injunction, the shareholder may continue his/her competitive activity, causing damages to the Company. For these reasons, in many cases this tool will be inefficient, especially if the unfair-shareholder holds a stake of a significant value.

     

    As we have just seen, Polish law does not provide a clear rule related to the non-competition by the shareholders and the statutory disciplinary procedure (forced buy-out) in many cases may be inefficient.

    Considering that each shareholder of an LLC – even holding only the 1% of shares – has access to all information and documents of the Company, while drafting the Articles of Association, it is crucial to consider the risk deriving from the performance of competitive activities by the shareholders of the Company itself.

    The non-competition cause should contain: (i) a precise description of the activity which will be deemed competitive; (iii) its territorial application area; and (iii) its duration. With regard to this last aspect, the clause may provide that a shareholder remains bound even after the sale of his/her shares.

    It is advisable to introduce a disciplinary procedure for the violation of this obligation. I suggest a forced redemption of shares, so it is the Company paying the excluded shareholder and not the remaining shareholders. The shares value of this forced redemption may be significantly lower that the market value (e.g. nominal value).

    This clause should be inserted also in the Shareholders’ Agreement and it should preferably contain contractual penalties (liquidated damages) for its breach, in favour of every other shareholder.

    Obviously, if a shareholder is also member of the Board of Directors, he/she will also be subject to the obligations provided for the members of the Board of Directors, even if the Article of Association does not contain a non-competition clause for shareholders.

    Many foreign investors enter into joint-venture agreements with partners from other countries or with Polish entrepreneurs already active on the local market. Sometimes, instead, they establish their own 100% subsidiary and it is common that they choose a limited liability company, because it is a flexible and less expensive to manage in comparison to a joint-stock company.

    One of the very important matters in a limited liability company (LLC) is the non-competition of the Management Board Members and of the shareholders.

    Under Polish law, the Management Board Member of a company has a statutory obligation to refrain from any activity which might be competitive towards the activity of the company. As a consequence, such a Member cannot manage, be a member of a supervisory board of, own shares in, work for or provide any consulting services to a competitor company or partnership or any other legal entity.

    All the more such a Member cannot run an individual enterprise or be a proxy in an enterprise which belongs to another person. Exceptionally, he/she can own no more than 10% shares in a capital company (LLC or joint-stock) but on the condition that he/she cannot appoint the management board members of such a company.

    The non-competition prohibition is binding over the whole period when he/she holds the function in the Management Board and it expires immediately afterwards. The Company can release the Management Board Member from this obligation. The statutory rule is that the Management Board Members are nominated by a resolution of the General Assembly of Shareholders. Consequently, the General Assembly adopts a resolution on the release from the non-competition obligation. However, the Articles of Association may modify this rule and provide another procedure.

    If a Management Board Member violates the non-competition obligation he does not lose automatically his/her position. However, he/she may normally be revoked by the General Assembly of Shareholders. A Management Board Member is responsible for damages caused to the Company through such a violation of the non-competition, but, in practice, the Company may encounter difficulties proving before the court that in fact it has indeed suffered damage (either actual damage of loss of profit). Only in relatively evident cases it will be simple. In many instances it will be time consuming and complicated.

    Therefore, even if the Polish law provides for a general rule related to the non-competition by the Management Board Members, it is still crucial for the investors and the Company to conclude a good non-competition agreement with these persons or introduce a respective clause to the Articles of Association.

    It should contain a precise description of the activity which will be deemed competitive and its geographical scope. The timeframe of such an obligation is also crucial. The clause may state that a Member will be bound by this prohibition not only over the period when he holds his function but also over e.g. 2 years afterwards. Preferably, it should also contain a penalty clause, so, in case of breach it is easy and costly-efficient to enforce against the Management Board Members. If such an agreement is accurately drafted and adjusted to the Company’s situation, it will protect the Company very efficiently from any competition operations (whether fair or unfair).

    In my next article I will elaborate more on the subject of the non-competition obligation of the shareholders in an LLC.

    Limited Liability Company (LLC) is the most popular company form in Poland and is often chosen by foreign investors to access the Polish market for several reasons, such as: low initial share capital; limited liability; flexibility and simplicity in management; no social security contributions, etc.

    When foreign investors buy minority shares in an existing LLC it is always a good idea to reflect the main points of the agreements between the parties in the corporate documents. In this brief post I will list seven common problems connected with the protection of minority shareholders, offering some possible solutions.

    Problem 1: Polish law provides for a very basic protection for the minority shareholders.

    Solution: if you want to have a strong position you should draft properly the Article of Association and preferably conclude also a side Shareholders’ Agreement.

    Problem 2: Polish law provides no requirement related to the quorum of the Shareholders’ Meeting. In other words, if the Shareholders’ Meeting is properly convened, it may deliberate and adopt valid resolutions regardless of the numbers of shareholders present.

    Solution: if you want the Shareholders’ Meeting to be valid only if a certain quorum is present, this should be included in the Articles of Association.

    Problem 3: Polish law provides that the Shareholders’ Meeting resolutions are generally adopted with a simple majority (50% +1). Only some strategic matters it requires a qualified majority of 2/3 or 3/4. Thus the shareholder who owns at least 50% of shares dominates the company.

    There may be two solutions to this situation.

    Solution A: if the minority shareholder wishes to have a true influence on the company’s life, he should introduce a qualified majority for the validity of all Shareholders’ Meeting resolutions or of some of them (e.g. related to contracts of a significant value, to employment, to investments etc.).

    Solution B: the minority shareholder may also negotiate that his/her shares will enjoy preference of votes. For example, each share may entitle to 2 votes. In such a way, his/her quota will have more influence. 

    Problem 4: According to Polish law, the Management Board Members are appointed by a resolution of the Shareholders’ Meeting, so usually the majority shareholder decides who will manage the company.

    Solution: if the minority shareholder wishes to be sure that he will have real influence of the company’s activity, he may negotiate a clause of the Article of Association giving him a personal right to nominate and revoke one (or more) members of the Management Board.

    Problem 5: Under Polish law the transfer of shares in an LLC is free, so the minority shareholder risks that the majority shareholder sells all his/her shares to a third party.

    Solution: minority shareholder shall negotiate restrictions to the sale of shares. Restrictions may be of different kind, covering specific shareholders needs, such as: request the consent of the company for the sale (with possible recourse to ordinary jurisdiction); right of first refusal, etc.

    One last tip: it is recommendable to conclude the shareholder’s agreement in a written form with signatures certified by a public notary. It is particularly important if this agreement contains clauses such as put option, call option, priority right, as written form is necessary to enforce the transfer of shares before the court. The lifetime of the shareholders’ agreement should be at least as long as the shareholders own the shares in the company. It may, however, extend beyond the moment when a shareholder leaves the company, e.g. with regard to the non-competition clause or confidentiality clause.

    Poland has recently become quite famous for its skilled and resourceful IT specialists. Each year thousands of new computer engineers (programmers, developers, testers, designers etc.) enter into the market, warmly welcomed by domestic and multinational companies. A big part of these young talents open their own firm or business as free lancers developing software for clients from European countries as well as from US, Canada, Japan, China, etc.

    However, companies who want to cooperate with these partners and assign software development to a Polish IT company or freelancer should be aware that the copyright law in Poland is very strict, as it mainly protects the creator and not the client. Therefore, to be on a safe side, it is better to follow these 7 basic rules:

    1. Never start cooperation with an IT specialist or an IT company without a formal agreement. And I mean a real agreement, in a written form, with signatures of persons who can validly contract on behalf of the companies. The form is very important because – under Polish law – copyrights transfer and exclusive license agreements not fulfilling form conditions are null and void. Moreover, if there is no agreement, Polish copyright rules will apply to all intellectual property matters.
    2. Please remember that software is a creation protected by copyright law. Therefore you should consider whether you want to acquire the entire intellectual property rights or you just need a license. If you need a full IP transfer, you need to put it expressly in the agreement; otherwise you will only get a non-exclusive licence. And these, in several cases, will not be useful from a business point of view. If a license is enough, it is advisable to agree if it will be exclusive or non-exclusive.
    3. When drafting an IP clause, be detailed and clear. If you want to be able to decompile and disassembly the binary code, specify it in the IP clause. If you want to be able to introduce modifications to the source code, specify it in the IP clause. If you want to sublicense the software, specify it in the IP clause. The IP clause shall contain the description of any way you want to use the software, whether on mobile devices or on personal computers, any other electronic device or via internet (e.g. cloud computing). And believe me, when I write “specify it in the IP clause” it means that you really, really have to put it there. Otherwise it will be null and void and you may face a situation where your smart IT engineer, after getting paid, will sue you for the IP infringement.
    4. Remember that you should indicate the timeframe and the geographical scope of the license or IP transfer. If you do not specify it expressly in the agreement, you will only be entitled to a 5-year license, automatically expiring afterwards.
    5. Draft carefully a clause related to termination of the agreement. Under Polish law the licensor may terminate the license agreement granted for an indefinite period of time upon 1-year notice. If you do not want to find yourself in a situation where you lose the software IP rights in the middle of a big project, make sure that from the very beginning you are on a safe side.
    6. Make sure that your partner is obliged to transfer you upon request all software documentation and the source code.
    7. Make sure that you have a good indemnification clause with no limitation of liability. Often Polish IT companies subcontract some part of the development work to free lancers. You never know if they will conclude proper agreements with their subcontractors and if they will legally acquire the IP of the software that they will later sell you. There is always the risk that in the future some Polish IT engineer you never met will raise IP infringement claims against you, trying to prove that he/she actually developed the software. In such a situation an indemnification clause will help you recovering the costs from your partner.

    Agata Adamczyk

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