A joint-stock company can address two major needs. First, the management board’s liability for company obligations is very limited, much more limited than in a sp. z o.o. In practice, board members generally do not bear personal liability for company obligations, apart from tax liabilities.
This feature can matter when undertaking projects with a high level of risk.
Second, a joint-stock company can raise capital by listing on a stock exchange. Its flexible share-issuance options also allow it to raise capital privately, for example through crowdfunding.
Do you already have a large company and even greater ambitions? Or are you planning to start a business with substantial capital and a large project from the outset? Perhaps you are considering a stock-market listing. A joint-stock company may be the right option.
What is a joint-stock company?
A joint-stock company is a commercial company with legal personality and relatively high share capital. Its operation is governed in detail by the Commercial Companies Code. The level of codification can be an advantage when carrying out complex undertakings.
Its bodies are the management board, the general meeting of shareholders and a mandatory supervisory board. Its owners are shareholders, who receive rights to a portion of dividends in return for their contributions and can usually vote on key company matters at general meetings.
A key advantage: limited board liability for company obligations
Raising substantial capital, carrying out major projects or pursuing a stock-market listing usually involves significant risk.
If management board members were personally liable for the company’s unpaid obligations, as they may be in a sp. z o.o., few people might agree to sit on the board of a joint-stock company undertaking a project worth millions of złoty.
For that reason, the management board of a joint-stock company is generally not liable for company obligations, subject to limited exceptions. The Commercial Companies Code does not contain an equivalent to Article 299 KSH for a joint-stock company.
If the company becomes insolvent or fails to pay its debts, the board members do not risk their personal assets for those obligations under the rule described here.
This is a key feature for complex projects where the risk is difficult to assess or accept personally. It may suit activities such as issuing shares to acquire a competitor, construction or manufacturing businesses with extended supply chains, or a planned stock-market debut.
A joint-stock company can also be a sound choice for a large enterprise with many moving parts, such as complex supply chains, a specialized market or a large workforce. The main exception to the board-liability rule concerns tax obligations, for which board members may be personally liable if the company does not pay.
A unique advantage: access to the stock exchange
A joint-stock company is the only legal form admitted to listing on the Polish stock exchange. No other type of company in Poland may list, at least under the Warsaw Stock Exchange’s interpretation referenced here.
This is one reason companies form joint-stock companies or convert another business form into one. A listing may be intended to realize gains, exit an investment or raise capital for further large investments.
Public companies are more transparent and may benefit from greater public trust. A listing brings visibility, the possibility of issuing additional shares and an opportunity to raise funds for growth.
A listing also requires substantial capital and compliance with additional formal requirements, and may lead to share dilution. The process is complex and requires meeting further conditions.
A joint-stock company does not have to be listed. It may operate entirely outside the public market.
Raising capital through a private share issue
A joint-stock company can also raise capital through a private share issue, outside the stock exchange.
In practice, the company may announce a share issue, for example online or in the press, and investors may subscribe by paying capital into the company. A joint-stock company can be suitable for crowdinvesting.
An issue may in theory involve any amount, but above certain thresholds notification to or approval by the Polish Financial Supervision Authority (KNF) is required.
This can give a joint-stock company an advantage over a sp. z o.o. A sp. z o.o. may also issue new shares and bring in investors, but subscribing for its shares requires a notarial form, which makes the process harder.
Imagine 2,500 small investors each going to a notary to subscribe for shares worth, for example, PLN 500. In practice, that is nearly impossible, and the combined costs would be only slightly below the value of the issue. In a joint-stock company, subscribing for shares requires only documentary form, so investors may subscribe by email, for example.
A newer option is the simple joint-stock company (P.S.A.), which also makes issuing and subscribing for shares easier. Unlike a joint-stock company, however, it does not exclude management board liability.
For a small, low-risk share issue, a P.S.A. may be enough (read more here). For a larger business, a joint-stock company may be worth considering.
Activities that must be conducted as a joint-stock company
Some activities must be conducted in the form of a joint-stock company where the applicable rules require it.
A commonly cited example is banking: an entrepreneur wishing to open a bank must do so as a joint-stock company. Social insurance institutions and universal pension companies must also use this form.
There is also a restriction for lending institutions, although they may operate as either a sp. z o.o. or a joint-stock company.
Shareholder liability
A basic and important feature of a joint-stock company is its separate legal personality. The company incurs obligations in its own name and is liable for them with its own assets. Shareholders are not liable for those obligations with their personal assets, which protects them from substantial losses and allows the company to undertake greater risks.
Shareholders’ risk is limited to the amount of their contribution, which may still be substantial, for example in the case of real estate or a large cash investment. The risk is known and defined in advance.
Shareholders risk what they contribute in exchange for shares. If the company becomes bankrupt, they may lose those contributions.
Note: during the formation stage of a joint-stock company, shareholders may be personally liable.
Different share series and classes
A joint-stock company can issue shares in different series and of different types.
This provides flexibility when raising capital. The company may issue several share series with different preferences for institutional investors, existing shareholders or individual retail investors.
This lets the company tailor shares to the expectations of both investors and the company. A special type of preferred share is a non-voting share. Its holder may receive higher dividends or priority in payment, or both, in exchange for giving up voting rights at the general meeting.
Non-voting shares may encourage individual investors to invest. For small investors, a higher dividend may be more important than voting. A shareholder holding, for example, 0.01% of the shares may have little influence over company decisions.
By issuing non-voting shares to hundreds or thousands of small investors, the company can also limit their involvement in its affairs and reduce the risk that a larger entity will buy those shares to gain influence or control.
Other preferences are also possible, such as voting shares where one share carries two votes. Shares in different series may also have different values and be subscribed for in exchange for different contributions.
The joint-stock company form offers many options for structuring a business.
Disadvantages: formalities and costs
A joint-stock company may be formed only before a notary. It cannot be established through the S24 system.
Many company actions, including minutes of general meetings, also require a notarial deed and involve recurring costs. A joint-stock company must keep full accounting records and prepare annual financial statements with a mandatory auditor’s opinion.
In short, it is a highly formalized business form, designed for larger undertakings.
Accounting costs are also higher than for a sole proprietorship or a sp. z o.o. and should be included in the decision.
Share capital of a joint-stock company
A joint-stock company has the highest minimum share capital among the company forms discussed here: PLN 100,000. Before registration, at least one quarter of the shares’ nominal value must be paid up.
Share capital consists of shares, and the nominal value of one share may not be less than PLN 0.01.
Contributions may be made in cash or in kind, for example real estate or an enterprise. In-kind contributions must be valued by an auditor. This is an additional burden, but it helps establish the share capital accurately, which also serves as a guarantee for creditors and should not be overstated without backing.
These formalities and costs can be an operational disadvantage, but may also build confidence among potential investors. Mandatory audits and expert opinions on in-kind contributions can support investor confidence and encourage capitalization of the company.
Other disadvantages of a joint-stock company
Some features may be disadvantages from the perspective of simplicity or operating costs.
A supervisory board must be appointed regardless of share capital or the number of shareholders. Registration is complex and time-consuming, and may be costly, especially when contributions are made in kind.
Running a joint-stock company may require specialized legal, financial, management and accounting support. Its liquidation process is also complex.
Another disadvantage is double taxation: both the company and its shareholders are taxed. Company profits are subject to corporate income tax (CIT), and a dividend is subject to personal income tax at 19%.
The tax rules are the same as for a sp. z o.o..
Joint-stock company or sp. z o.o.?
Should you form or convert into a joint-stock company, or choose a sp. z o.o. instead?
There is no single answer. These forms serve different purposes.
A joint-stock company is intended for costly and higher-risk undertakings, and may suit businesses with substantial turnover or ambitions that value a high level of transparency. It may be more suitable in some sectors than others, and can also serve as a useful tool in less typical fields when managed by people who understand the form.
For a large and complex business, formal obligations need not be an obstacle. Companies commonly assign their handling to external providers such as law firms.
If you want to learn more about the advantages and disadvantages of a joint-stock company, write to us. We will be glad to help!
