20.09.2019 Company law

Family Foundation – solving the succession problem of large companies in Poland

On 13 September 2019 the Ministry of Entrepreneurship and Technology has published and sent to public discussion the so-called “Zielona Księga” (the Green Paper) presenting preliminary solutions for the introduction of a new legal entity in Poland – a family foundation. Its main objective is to enhance the chances of companies to accumulate capital in the long term and to prevent them from the dispersion of assets in the event of death of the company’s owner.

Family foundation – what is it and how does it work?

Family foundations operate successfully in both continental legislation and in common law system, and are based upon a trust fund. They constitute convenient solution for the succession problem of capital companies and have been used for a long time by many Western countries such as Germany, Austria or the Netherlands.

In Poland, the issue of inheritance of companies has been for the first time adequately addressed in July 2018, when the Act on the Succession Management of a Natural`s Person Company entered into force. It lays down the rules of temporary management of a natural`s person enterprise after the death of the entrepreneur who in his or her own name ran the business.

In September 2019 the Ministry of Entrepreneurship and Technology has presented the proposal to introduce family foundations in Poland, and the main solutions and questions to experts in this respect have been included in the Green Paper (Zielona Księga) published on September 13th. “By submitting the Green Paper for consultation, we are launching the discussion on legal solutions which shall support multigenerational succession while respecting the elder`s will and preserving the values of the family. Our goal is to promote the accumulation of domestic capital” – Deputy Minister Marek Niedużak emphasizes.

Family foundation institution meets the general objective to optimise the succession process in large companies, such as joint-stock companies and limited liability companies. By establishing a family foundation, a company or company`s assets are transferred to it, and the foundation becomes the owner of this company, its shares, movable and immovable assets and securities. The family receives the profit of a family foundation.

Thus, a family foundation is a legal entity that combines the interests of both business and family, and also promotes domestic capital and, most importantly, prevents its dispersion and ensures the continuity of company`s operations in the event of death of its owner. “The main objective of a family foundation is to increase company`s chance for longevity” – highlights Adrianna Lewandowska Ph.D., Strategy and Succession Advisor and the President of Family Business Institute.

Key issues concerning the Polish model of a family foundation

The Green Paper promotes discussion on key issues concerning family foundations. The fundamental problem is the location of new regulation in Polish legal system. The question is whether it is necessary to establish a new legal act, expand the Commercial Companies Code or insert new provisions to Law on Foundations.

Another problem is the legal personality and the establishing rules of family foundations. It is known that it would be established by a notarial deed or a last will and it would be registered within the territory of the Republic of Poland. Who, however, would be entitled to establish it, who would represent it, and who finally would run the foundation?

Moreover, the issue of foundation`s entry into the National Court Register and the designation of beneficiaries entitled to manage and dispose the foundation`s assets and also allocate its profit should be properly addressed and considered. The new regulations should additionally unify the mechanisms of winding up foundations` activities. Furthermore, new entities` taxation constitutes a separate problem requiring extensive consultation.

These and all other concerns and key issues are addressed in the questions submitted for public consultation by the Ministry of Entrepreneurship and Technology. The Ministry is waiting for answers until 14 October 2019, and the replies should be sent to the following e-mail address: fundacjarodzinna@mpit.gov.pl

Family businesses in Poland

Family businesses are becoming more and more popular and common form of the economic activity in Poland. According to the data presented by the Polish Agency for Enterprise Development (PARP) family-owned businesses in 2009 generated over 10% of the Polish GDP (over PLN 121 billion) and in 2017 they generated 18% of gross domestic product of Poland (about PLN 322 billion). Moreover, they have the largest share in trade sector in which they constitute 32% of all enterprises, and the majority of them is registered in Mazovia, Silesia, Lower Silesia and Greater Poland (Wielkopolska) Voivodeships.

Furthermore, until now family businesses have usually operated as natural person`s enterprises. More than 70% of all family entities belong to this group. However, in Poland there is a relatively high number of limited liability companies (10.1%) and the idea of introducing family foundations is addressed mainly to them. The number of family-owned joint-stock companies still remains low, but they may also benefit from the numerous advantages of a family foundation institution and avoid many problems related to the traditional process of company`s succession.

Source: Ministry of Entrepreneurship and Technology

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