Anna Skowron

Agnieszka Szemiel

The sale of shares in a limited liability company often seems like a simple matter. There is a buyer, there is a price, the parties have reached an agreement – they assume that the share sale agreement is “just a formality.” And very often, this is where the problems begin.

Our experience shows that transactions can become complicated due to legal issues that were overlooked at the outset. In today’s post, we will highlight the 3 most common “blockers” that we see in our clients’ share sale transactions.

1. Articles of association – what a partner is really allowed to do

Before preparing a share sale agreement, it is necessary to look at the articles of association. Why? Because they very often say “stop” or impose significant restrictions on the sale of shares.

In practice, it happens that:

• shareholders have the right of first refusal,
• the consent of the shareholders’ meeting or the management board is required for the sale of shares,
• the agreement imposes additional conditions on such a sale.

If these issues are overlooked, the sale of shares may prove ineffective, and instead of a transaction, there will be conflict between the shareholders and legal risks. And that is usually not what anyone planned.

2. Special provisions that are easy to forget

Not every sale of shares ends with compliance with the rules set out in the Commercial Companies Code and the articles of association. Sometimes other provisions come into play — and they can complicate the situation very effectively.

This is most often the case when:

• the company owns agricultural land (in which case the Agricultural Property Agency may have certain rights),
• the transaction is subject to review by the Office of Competition and Consumer Protection,
• the shares are to be acquired by a foreigner.

These issues often only come to light “in the middle” — when the parties have already held talks and are focused on quickly closing the deal. Meanwhile, the above issues can delay the transaction by up to several months. In certain situations, they may also prevent the effective completion of such a transaction.

3. Encumbrances on shares — a problem that is sometimes identified too late

Another thing we always check is whether the shares are encumbered, e.g., with a pledge in favor of a bank or a tax lien.

It happens that a partner is not fully aware that his shares are used as collateral for a loan. Without the bank’s consent, the sale may be impossible or very risky.

Only later — formalities…

Only when the above three issues have been verified and secured can we proceed to the formal closing of the transaction and the drafting of the share purchase agreement. But there are pitfalls here too.

Share sale agreement:

• requires notarized signatures,
• must be reported to the company,
• and changes must be entered in the National Court Register.

It seems standard, but it is at this stage that mistakes resulting from haste most often occur.

Why is it worth planning ahead?

The sale of shares is a process, not a single meeting at a notary’s office. A well-planned transaction saves time, money, and nerves, while a poorly prepared one can drag on for months and generate a lot of risks and problems for the parties to the transaction and for the company.

If you are planning to sell shares and want to go through the process calmly and without surprises, it is worth organizing everything in advance and consulting the details with an experienced legal and/or tax advisor.

We will be happy to help you go through the sale of shares step by step — from document analysis, through transaction planning, to its safe completion. If you would like to discuss your situation and find out what to look out for, please contact us.