Since October 2022, rules have governed relations between parent companies and subsidiaries in corporate groups. The main change is that a parent company may demand the compulsory buyout of minority shareholders’ interests, including in a Polish limited liability company, not only a joint-stock company. Minority shareholders also gained the right to demand a buyout of their own interests and the right to request an audit of the corporate group.
What the October 2022 holding-law rules changed
The amendment to the Polish Commercial Companies Code covered three areas concerning minority shareholders:
- Squeeze-out: the parent company’s right to compel the purchase of minority shareholders’ interests or shares in a subsidiary.
- Sell-out: a minority shareholder’s right to demand that their interests or shares be bought out.
- Right to an audit: the possibility of asking a court to order an examination of the accounting and operations of a corporate group.
Previously, squeeze-out and sell-out rights applied only to joint-stock companies. They now also apply to Polish limited liability companies (sp. z o.o.).
Squeeze-out: compulsory buyout of minority shareholders’ interests
What a squeeze-out means
A squeeze-out is the right to demand the compulsory purchase of minority shareholders’ interests or shares in a subsidiary. The parent company may require the subsidiary to buy those interests on the parent company’s account.
Conditions for a squeeze-out after the amendment
- The parent company must hold at least 90% of the subsidiary’s share capital.
- The shareholders’ meeting (or general meeting) adopts a resolution for the compulsory buyout of interests or shares held by shareholders representing no more than 10% of the share capital.
- The rule now also applies to Polish limited liability companies, not only joint-stock companies.
Lowering the threshold in the company’s articles
The company’s articles (or statute) may provide for less restrictive buyout conditions:
- The threshold may be lowered below 90% of the share capital.
- The lowest permitted threshold is 75% of the share capital. It cannot be lowered further.
How squeeze-out worked before the change
Before the amendment, squeeze-out applied only to joint-stock companies and required:
- Shareholders seeking the buyout to hold at least 95% of the share capital collectively.
- The buyout to concern shares held by no more than five minority shareholders, who together held no more than 5% of the capital.
Sell-out: a minority shareholder’s right to demand a buyout
What sell-out gives a minority shareholder
Sell-out is the reverse of a squeeze-out: a minority shareholder themselves demands that the company buy their interests or shares. Before the amendment, this right belonged only to shareholders in joint-stock companies. It now also covers shareholders in Polish limited liability companies.
When sell-out is available
Sell-out applies in subsidiaries participating in a corporate group where the parent company holds at least 90% of the interests or shares. The parent company may meet the required ownership threshold in either of these ways:
- Directly, through its own interests or shares.
- Indirectly, through other entities or under arrangements with other persons.
How to request a buyout
- Minority shareholders representing no more than 10% of the share capital request that the buyout be placed on the agenda of the next shareholders’ meeting.
- This right may be exercised no more than once in a financial year.
- The earliest possible date is three months after the company’s participation in the corporate group is disclosed in the National Court Register (KRS).
One-time buyout request when a corporate group is formed
A shareholder who voted against the resolution to form a corporate group may make a one-time request for the buyout of their interests or shares. The conditions are:
- Deadline: one month from the date the resolution forming the group is adopted.
- The shareholder’s share in the capital does not matter: the request is available regardless of the number of interests held.
Sell-out when the rules for binding instructions change
Sell-out is also available if minority shareholders do not consent to adding provisions to the company’s articles (or statute) concerning refusal to follow a binding instruction. In this case as well, the shareholder’s share in the capital does not matter.
The right to request an audit of a corporate group
Who may request an audit
Shareholders of a subsidiary participating in a corporate group may request an audit if they represent at least one-tenth of the share capital.
What the audit covers
The registry court appoints an audit firm to examine:
- The accounting of the corporate group.
- The operations of the corporate group as a whole.
Who bears the cost of the audit
- The audit is paid for by the shareholder who submitted the request.
- The company reimburses the cost only if the audit reveals abuse or actions detrimental to the company.
What to check in your company
If your company operates in a corporate group, as either a parent or subsidiary, check the following:
- Check the ownership structure: does the parent hold at least 90% (or 75%, if the articles provide for that lower threshold) of the subsidiary’s share capital?
- Review the company’s articles or statute: do they lower the squeeze-out threshold and set out the rules for refusing a binding instruction?
- Check the KRS entry: the deadlines for sell-out run from the date the company’s participation in the corporate group is disclosed.
- Assess squeeze-out risk: if you are a minority shareholder, check whether the parent meets the thresholds for a compulsory buyout.
- Consider whether to request an audit: if you have concerns about the group’s conduct, check whether you represent the required one-tenth of the share capital.
- Check the deadlines: the one-time buyout request after a corporate group is formed expires one month after the resolution is adopted. Do not miss this period.
Frequently asked questions
What is a squeeze-out in a corporate group, and when may the parent compel a buyout of minority shareholders’ interests? A squeeze-out is the parent company’s right to demand the compulsory purchase of minority shareholders’ interests or shares in a subsidiary, on the parent company’s account. The parent must hold at least 90% of the subsidiary’s share capital, and the buyout concerns shareholders representing no more than 10% of the capital. The company’s articles may lower the threshold, but not below 75% of the share capital.
When may a minority shareholder in a subsidiary demand that their interests be bought out? A minority shareholder may demand a buyout when the parent holds at least 90% of the interests or shares in the subsidiary. This right may be exercised no more than once in a financial year, and no earlier than three months after the company’s participation in the corporate group is disclosed in the KRS. Separately, a shareholder who voted against the resolution forming the group may make a one-time buyout request within one month of the resolution, regardless of the number of interests held. Sell-out is also available if minority shareholders do not consent to adding provisions to the company’s articles concerning refusal to follow a binding instruction.
What is the difference between squeeze-out and sell-out under the holding-law changes? A squeeze-out is initiated by the parent company, which demands the compulsory purchase of minority shareholders’ interests in a subsidiary acting in its interests as an owner. A sell-out works in the opposite direction: the minority shareholder demands that the company buy their interests or shares. This is a protective mechanism that allows the shareholder to leave the company. Since October 2022, both mechanisms have applied not only to joint-stock companies but also to Polish limited liability companies.
Who may request an audit of a corporate group, and who pays for it? Shareholders of a subsidiary participating in a corporate group may request an audit if they represent at least one-tenth of the share capital. The requesting shareholder pays for the audit. The company reimburses the cost only if the audit reveals abuse or actions detrimental to the company.
Which deadlines and thresholds should a company check after the holding-law rules took effect? Check whether the parent holds at least 90% of the subsidiary’s share capital, or 75% if the company’s articles lower the threshold. This affects whether squeeze-out and sell-out are available. Verify the date on which the company’s participation in the corporate group was entered in the KRS, because the three-month period for a sell-out request and the one-month period for a one-time buyout request after the group is formed are counted from that date. Also review the company’s articles for provisions lowering the squeeze-out threshold and rules on refusing a binding instruction.
