Exit of a minority shareholder from a limited liability company – what is changing?

A minority shareholder in a Polish limited liability company (sp. z o.o.) currently cannot exit the company on their own initiative. This is about to change.

A minority shareholder in a Polish limited liability company is, in the vast majority of cases, in an exceptionally weak position: they have no influence over the management board, no say on dividends, and any transfer of shares may be blocked by the company's or the board's refusal to consent. In extreme cases, such a shareholder becomes a "prisoner" of the company – unable to exit even when the majority shareholders are flagrantly violating their rights.

Until now, the Polish Commercial Companies Code (KSH) provided no mechanism that would allow a shareholder to unilaterally initiate their own exit from the company. The existing exclusion mechanism under Art. 266 KSH operates differently – it is the remaining shareholders who apply to the court to exclude an inconvenient shareholder; it is not a voluntary decision by the departing shareholder.

The Codification Commission's Current Draft

The Civil Law Codification Commission at the Minister of Justice proposed sweeping reforms. Two key elements concerning shareholder exit deserve particular attention:

1. New holding law – opt-out rather than opt-in model. Group company provisions are to apply automatically wherever the statutory definition of a group is met – without the need for registration. Sell-out rights and additional protection instruments (including a damages claim and a special audit) will become a practical reality rather than a theoretical construct.

2. Action for withdrawal from a limited liability company. This is a novelty without precedent in Polish company law. The draft introduces the possibility for an aggrieved shareholder of a sp. z o.o. to independently bring a court action for the compulsory buyout of their shares. The condition: demonstrating gross prejudice caused by the majority shareholders or the company. The court will determine the fair value of the buyout.

When Can Changes Be Expected? State of Legislative Work

The draft has left the expert commission stage and is awaiting formal entry into the governmental legislative process (RCL). In a broader perspective, the very availability of such an action may have a preventive effect: majority shareholders will need to reckon with the real risk of a compulsory buyout at a fair price.

By way of comparison, it is worth noting the "exit option" already available to shareholders of a simple joint-stock company (prosta spółka akcyjna – PSA), namely the institution of shareholder withdrawal. Upon the request of a PSA shareholder, the court may order their withdrawal from the company if there exists an important reason justified by the relations between shareholders, or between the company and the withdrawing shareholder, resulting in gross prejudice to the departing shareholder (Art. 300⁵⁰ § 1 KSH). The case for introducing a similar mechanism for minority shareholders of limited liability companies merits the legislature's attention.

Who Benefits from the New Solutions

Regardless of the final form of any future legislation, minority shareholders of limited liability companies can already take stock of their situation and assess whether any newly enacted provisions might offer them a lawful route out of the company. This applies in particular to companies in which persistent conflicts arise between shareholders – for example over access to information or the taking of operational decisions.

Questions? Feel free to get in touch.

Jan Matusiak

Attorney at Law