Dematerialisation of shares – new obligations for non-public companies

On 1 January 2020, the amendment to the Commercial Companies Code concerning dematerialisation of shares came into force. In 2020, major challenges await non-public joint-stock companies (S.A.) and limited joint-stock partnerships (S.K.A.) related to gradual converting of physical shares into electronic format.

Mandatory digitalisation of shares

On 6 September 2019, the President of the Republic of Poland singed the law amending the Commercial Companies Code which introduced an obligation to digitalise (dematerialise) bearer and registered shares in joint-stock companies and limited joint-stock partnerships. The objective of the amendment is to prevent money laundering related frauds. In practice, it means that companies will have to convert their physical shares into electronic format. Full digitalisation will have to be effected by 1 January 2021.

The amended law provides for the following:

• introduction of a mandatory register of shareholders or a deposit of securities kept by the National Depository for Securities (KDPW) to register electronic shares,
• obligation to maintain a website via which communication with shareholders will take place and to report address of the website to the National Court Register,
• obligation of the management board to call shareholders five times to submit physical shares to the company,
• fines of up to PLN 20,000 for failure to conclude an agreement to keep the register or failure to call the shareholders.

Registration of shares and call to submit share instruments

According to the amended law, the shares of non-public joint-stock companies and limited joint-stock partnerships will be subject to mandatory registration in a deposit of securities kept by the KDPW (National Depository for Securities) or in a register of shareholders kept by a brokerage house or a custodian bank. It will be up to the companies to choose the option, however, it should be remembered that choosing KDPW will involve the need to convene the general meeting on the same conditions as for a public company, excluding the provisions on publication of current reports.

The companies have until 30 June 2020 to:

• conclude the agreement to keep the register of shareholders with an entity authorized to keep securities accounts or conclude an agreement to keep the record of shares in the deposit of securities,
• making the first call to shareholders to submit shares in a paper form (where the subsequent four calls must not be made at an interval of more than one month or shorter than two weeks).

Operating a website – 1 January 2020 

From 1 January 2020, the joint-stock companies and limited joint-stock partnerships must operate their own websites and publish in a space dedicated to the communication with shareholders, the company’s announcements required by law or their articles. The website address must be entered in the National Court Register.

Fines – in what amount, from when and for what?

On 1 January 2020, the provisions introducing fines for failure to comply with the obligations imposed by the amendment related to the calling of shareholders to submit the instruments of shares and to concluding the agreement to keep the register of shareholders or an agreement to keep the record of shares in the deposit of securities, came into force.

The maximum fine is PLN 20,000.

From 1 March 2020, there will start to apply the restriction of freedom or imprisonment of up to 6 months for management board members or liquidators of a simple joint-stock company who allowed the company to issue share instruments, subscription warrants, or other instruments of participation in profits or distribution of company’s assets.

Dematerialisation of shares – benefits for companies

The amendment to the Commercial Companies Code involves not only obligations and additional costs for companies, but also a number of measurable benefits. One of such benefits is the elimination of the existing problem of anonymity of bearer shares in joint-stock companies and limited joint-stock partnerships.

Mandatory digitalisation and registration of shares in non-public companies will also increase the security and efficiency of trading in shares, diminish the risk of their loss, unify the rules for convening a general meeting and lift the dualism of transferring registered shares and bearer shares. These changes in the company law will also facilitate the payment of dividends by engaging an entity which keeps the register of shares.

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