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A Welcome Change? Minimum Capital Requirements Lowered - International Law Office

International Law Office

Company & Commercial - Poland

A Welcome Change? Minimum Capital Requirements Lowered

January 12 2009


A relatively high minimum share capital requirement has long been considered an effective tool to safeguard the interests of creditors in dealings with capital companies. However, this approach has more recently been revised due to pressure from legal and commercial commentators and researchers, who point out that the negative impact a share capital requirement may have on an economy can outweigh its advantages. The EU legislature adopted this revised approach and in the 1976 Second Company Law Directive (77/91/EEC, amended by Directive 06/68/EC) it introduced low minimum capital requirements for establishing a company. Under EU legislation, a joint stock company must have a share capital of €25,000. There is no minimum threshold for a limited liability company. Now, changes in this direction are also being introduced into Polish law.

A new act amending the Commercial Company Code has been passed through Parliament. Among other things, the changes concern the amount of initial share capital required to establish both types of capital company (the limited liability company and the joint stock company). In line with recent EU legislation, the changes seek to reduce start-up capital requirements from PLN50,000 to PLN5,000 for a limited liability company and from PLN500,000 to PLN100,000 for a joint stock company. This marks in essence a return to the requirements that were in place before the existing requirements came into force in 2001, which are considered to be among the strictest in Europe.

The change should be warmly welcomed, particularly by small entrepreneurs that, under legislation existing thus far, find it difficult to acquire enough funds to establish a capital company. Now that the new thresholds are operational, almost any merchant will be able to afford to establish at least a limited liability company. A capital company is regarded as a desirable business vehicle, mainly because it offers its shareholders exemption from liability for the obligations of the company. Hence, by making access to this vehicle easier, the change in legislation should contribute to a general rise in entrepreneurship and a stimulated economy.

However, critics have attacked the move, contending that at least high share capital requirements provide some protection for creditors from insolvency risks. They argue that any moves to lower capital thresholds should be accompanied by measures to protect creditors. Since no such creditor protection measures have been forthcoming, the change is viewed in a negative light. Moreover, it is argued that for tax reasons, any legislative change resulting in lowering the requirements will not necessarily lead to a sudden rise in the popularity of capital companies.

Although Poland is following in the footsteps of the European Union and seeking to promote entrepreneurship, the change in minimum capital requirements thus remains controversial.

For further information on this topic please contact Marcin Paliwoda at Salans by telephone (+48 22 242 5252) or by fax (+48 22 242 5242) or by email (mpaliwoda@salans.com).


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