The Polish Commercial Companies Code contains many interpretative challenges. One of the more recent ones concerns the wording of Article 328(9) § 1 and § 2. For reasons that are not clear, the contribution of shares to a company as an in-kind contribution (contribution in kind / non-cash contribution) is treated differently from an ordinary transfer of shares.

The first of these provisions establishes the general rule that the acquisition of shares, or the creation of a limited in rem right over shares, takes effect upon an entry being made in the shareholders’ register identifying the acquirer, pledgee or usufructuary, as well as the number and type of shares, their series and numbers (or other identifiers referred to in Article 55 of the Act on Trading in Financial Instruments) of the acquired or encumbered shares.

The second provision introduces exceptions to this rule. It states that the constitutive effect of entries in the shareholders’ register does not apply in the case of: the subscription for shares (other than shares issued under a conditional increase of share capital), succession, a vindication legacy, the contribution of shares to a company as a non-cash contribution, a merger, a division or a transformation of a company, or any other legal event resulting, by operation of law, in the transfer of shares or of a limited in rem right established over them to another person.

Where is the riddle? Why does the above list include the contribution of shares as an in-kind contribution to a company? Why should this transaction be treated differently from an ordinary transfer of shares?

I have encountered the argument that the process of making an in-kind contribution should not be hindered by the need to make an entry into the shareholders’ register. In a limited liability company (sp. z o.o.), a non-cash contribution must be made before the company is filed with the National Court Register (KRS).

In my view, however, particularly in the case of a limited liability company, for the sake of the company’s and the market’s legal certainty, the contribution in kind should be fully completed before the filing is submitted to the KRS. Only an entry showing the company as the new shareholder provides certainty that the contribution has been made effectively.

It should also be borne in mind that Article 343 § 1 applies to contributions in kind (and the other exceptions). This provision states that, vis-à-vis the company, only the person who entered into the shareholders’ register is deemed to be a shareholder. As a result, an unfavourable situation may arise – even though the contribution in kind has been made (because, under Article 328(9), an entry is not required for its effectiveness), the company is not treated as a shareholder (because there is no entry in the register). In such circumstances, can one still conclude that the contribution was made properly?

The law provides six months to contribute in kind to the company. This should be sufficient time to ensure that the appropriate entry is made in the shareholders’ register. If I were a member of the management board, I would refrain from signing the statement confirming that contributions have been made until the entry into the shareholders’ register has been obtained.

Author: advocate Szymon Kaczmarek