Sale of shares in a Polish limited liability company: how to protect the price and allocate liability

The buyer acquires shares, not the company’s assets

A buyer of shares in a Polish limited liability company acquires the rights of a shareholder. The company remains the owner of its business, cash and other assets.

This distinction is fundamental to the risk analysis. The buyer takes over the company together with its contracts, employees, liabilities, disputes and potential irregularities. Legal, financial and tax due diligence is therefore commonly carried out before the share purchase agreement is signed.

The scope of the review should reflect the value and nature of the deal. A smaller company may not require a full-scale audit, but its corporate records, key contracts, debt, disputes and title to core business assets should at least be checked.

First verify whether the shares may be transferred

The articles of association may make a transfer conditional on the company’s consent or impose other restrictions, such as a right of first offer for the other shareholders. Further restrictions may arise under a shareholders’ agreement.

Ignoring these arrangements can delay the deal or expose the seller to claims from the other shareholders.

As a rule, a Polish share transfer agreement must be made in writing with signatures certified by a notary. The company must then be notified and provided with evidence of the transfer. The management board should update the share register and file a new list of shareholders with the National Court Register.

The price may be fixed or adjusted after closing

In the simplest model, the parties agree a final price in advance. This is clear, but it requires reliable information about the company’s financial position.

In more complex deals the price may be adjusted after closing, for example by reference to debt, cash or working capital. The agreement should precisely define:

• the date for the calculations;
• the accounting principles to be applied;
• who prepares the closing statement;
• the deadline for objections;
• the procedure for resolving disagreements;
• the date on which the adjustment is paid.

Locked box, deferred consideration and earn-out

Under a locked-box structure, the price is based on historical financial information and the seller undertakes that no prohibited value will leave the company before closing.

Part of the consideration may also be paid later or depend on the company achieving agreed results. An earn-out must define the metrics, measurement period and calculation method. It should also regulate how the buyer may run the company during that period.

Without these rules, the result may depend as much on the new owner’s decisions about costs, investments and related-party transactions as on the underlying performance of the business. The seller should have access to the information required to verify and challenge the calculation.

Representations and warranties describe the company’s condition

The seller will usually give statements concerning title to the shares, corporate records, financial statements, debt, material contracts, disputes, employment, tax, intellectual property and legal compliance.

A long list of warranties is not enough. The agreement must also set out the consequences of inaccuracy, the claims procedure, time limits and the maximum amount of liability.

A specifically identified risk may justify a separate indemnity that is not subject to every general limitation of liability.

Payment may need to be secured

If the entire price is not paid at signing, the seller should assess the buyer’s creditworthiness and agree appropriate security.

Depending on the transaction, the parties may use an escrow account, guarantee, surety, pledge or voluntary submission to enforcement. Conversely, a retention by the buyer may secure warranty claims.

The release mechanism must state when and on what basis the funds become available. Calling an amount ‘security’ does not determine who may control it while a dispute is pending.

Signing and closing may occur on different dates

If the deal requires consents, debt repayment, a reorganisation or other pre-closing steps, signing the agreement and transferring the shares may be separated.

The agreement should then identify the conditions precedent, the deadline for satisfying them and the consequences of failure. For closing, the parties should use a coordinated list of documents and actions, including payment, notice to the company, corporate resignations and transfer of records.