The shareholders of a limited liability company may, either at the time of the company’s incorporation or by amending the articles of association, exclude or restrict the entry of a deceased shareholder’s heirs into the company. However, the articles of association must specify the terms of payment to heirs who do not join the company, failing which the restriction or exclusion will be void. The articles of association may also exclude or restrict in a specific manner the division of shares amongst the heirs where the deceased partner held more than one share. However, if, under the articles of association, a partner was permitted to hold only one share, that share may be divided amongst the heirs, unless the articles of association exclude or restrict its division in a specific manner. The division may not result in shares of less than PLN 50. Therefore, if the partners have not restricted or excluded the entry of heirs into the partnership to replace the deceased partner in the partnership agreement, the shares will pass to those heirs who have not renounced the inheritance.
WHAT HAPPENS IF THERE ARE NO HEIRS WILLING TO TAKE OVER THE DECEASED PARTNER’S SHARES?
A problem may arise where, despite the absence of provisions restricting or excluding the inheritance of shares, there are no heirs capable of taking over those shares, or where the deceased partner left heirs but all of them have renounced the inheritance. The remaining partners are not entitled to acquire the deceased’s shares in any way. Under the Polish legal system, statutory heirs are divided into groups depending on their degree of kinship. In the situation in question, in the absence of any willing relatives or testamentary heirs, the shares will therefore be inherited by the municipality of the testator’s last place of residence or by the State Treasury, if the testator’s last place of residence in Poland cannot be determined or if that place was abroad.
HOW THEN CAN ONE PROTECT ONESELF AGAINST SUCH A SCENARIO AND THE ENTRY OF THE DECEASED PARTNER’S HEIRS INTO THE COMPANY?
It is worth considering the institution of compulsory redemption of shares. Compulsory redemption takes place by virtue of a resolution of the shareholders and does not require the shareholder’s consent (unlike voluntary redemption). It leads to the cancellation or expiry of the share and the associated corporate rights. However, the redemption of shares may only be applied if it has been previously provided for in the articles of association.
A provision regarding so-called automatic redemption of shares may also be included in the articles of association, whereby shares are redeemed without a resolution of the general meeting of shareholders upon the occurrence of a specified event (e.g. the death of a specific shareholder), in which case the provisions on compulsory redemption apply. If an event specified in the articles of association occurs, the management board should immediately adopt a resolution to reduce the share capital, unless the redemption of the share is made from retained earnings.
It is up to the shareholders to decide whether they wish the deceased’s heirs to join the company in his or her place. They may make the heir’s acquisition of shareholder status subject to specific factors, such as relevant qualifications and experience in the business, education, degree of kinship with the deceased, or the consent of all remaining shareholders or the majority shareholder.
Heirs excluded from inheritance are entitled to receive compensation. It is assumed that the compensation paid to the heir should be fair. To avoid potential disputes regarding the value of the shares due, it is advisable to clearly specify the method of calculating such compensation in the partnership agreement. For example, where automatic redemption of shares is applied, the compensation for the redeemed shares must not be lower than the value of the net assets attributable to the share, as shown in the financial statements for the last financial year, less the amount allocated for distribution among the shareholders.
Even if there is no intention to exclude the inheritance of shares, the shareholders should consider how the deceased’s shares are to be distributed amongst the heirs where the deceased held more than one share, and particularly where the deceased was a majority shareholder, i.e. held more than half of all the shares. This will help avoid a situation where a new, unknown entity becomes the de facto partner with the greatest influence over the company’s decisions.
Specializes in corporate services for business entities and personal data protection. Assists the firm's clients in the preparation of all corporate documentation, including the registration of commercial companies and the further registration of changes, and provides ongoing and comprehensive advice on business. Provides advice in carrying out transformation processes of commercial companies, including transformations and mergers. Prepares and gives opinions on contracts, regulations and current documentation…
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