Transformation of a company or a partnership – issues to which special attention should be paid

The process of business transformation is not the simplest one and presents a number of challenges, therefore it should be carefully planned. There are many issues that should be thoroughly analysed to avoid negative consequences. At the same time it is worth drawing attention to the most common mistakes, which are presented below.

Inappropriate choice of the form of the transformed company’s or partnership’s activities and imprecise analysis of the legal situation of company or partnership under transformation

Before the commencement of the transformation procedure, first of all it is necessary to determine the optimal form in which the activities are to be conducted after the business transformation. It requires the analysis of all possible variants and individual needs of each activity. It is also worth remembering about carrying out a detailed analysis of the legal situation of the company or the partnership under transformation. As a rule, all rights and obligations (agreements, loans, decisions, licences, etc.) are transferred to the transformed company or partnership by law.

However, sometimes specific legal regulations or provisions of agreements impose the obligation to inform competent authorities or contractors about the transformation. In order to perform successful business transformation this issue should be thoroughly analysed before the transformation to avoid possible negative consequences.

Improper name of the company or partnership

Upon the transformation, it is recommended for the shareholders and managers to pay attention to the name of the transformed company or partnership, which is to some extent regulated by law. Together with the transformation, it is possible to change only the addition determining the legal form (e.g. from ABC limited liability company to ABC limited partnership) or the entire name (e.g. from ABC limited liability company to XYZ limited partnership).

The Polish Commercial Companies Code contains precise regulations concerning the construction of company or partnership names. Therefore, depending on the chosen legal form of activities conducted, the company or partnership name will be different. It is worth paying special attention to the rules concerning the construction of partnership names, which should contain the last name or company name of at least one partner (in the case of a limited partnership and limited joint-stock partnership, it is necessary to indicate the last name or company name of the general partner). The incorrect choice of the name may sometimes result in the extension of liability of individual partners.

Random selection of the statutory auditor

Since 1 March 2020, the participation of a statutory auditor has become an exception, not a rule. Many entities were released from the obligation to appoint a statutory auditor for the examination of the transformation plan. However, pursuant to the changes introduced in law, the opinion of a statutory auditor on the correctness and reliability of the transformation plan will still be required in the case of the transformation of any company or partnership into a joint-stock company and in the case of the transformation of a sole proprietorship into a company.

In the case of the transformation, it often happens that a random statutory auditor from the list kept by the court is appointed to examine the transformation plan. The effectiveness of the auditor’s operations, good contact with the shareholders (partners) of the transformed company (partnership) and experience in these matters have an impact on the speed of the entire transformation procedure. Due to this, when submitting the application for the appointment of a statutory auditor who will examine the transformation plan, it is recommended to indicate a specific auditor in the application. Although the court is not bound by this suggestion, it usually appoints the statutory auditor indicated in the application.

Lack of the application of simplifications that allows speeding up the transformation process

In the case when the partnership under transformation is a general partnership or a private partnership in which all partners deal with the management of the partnership’s matters, it is worth applying the simplified transformation procedure, which allows shortening significantly the entire transformation process. It enables the omission of many formalities extending the entire transformation process, for example the preparation of the transformation plan.

It is worth underlining that also partnerships or companies that do not meet all the above-indicated conditions for the application of the simplified transformation procedure may significantly shorten the entire transformation process, resigning from the double notification of partners or shareholders required by the provisions of law.

Incorrect preparation of the articles of association (partnership agreement) of the transformed company (partnership)

An important stage of the transformation process is the preparation of the articles of association (partnership agreement) of the transformed company (partnership). Mistakes or irregularities in this scope may result in many practical complications. To repair them, it is often necessary to re-visit a notary, which is connected with incurring additional costs. Therefore, the content of the articles of association (partnership agreement) of the transformed company (partnership) should be thoroughly analysed and consulted with a lawyer.

First of all, it is worth remembering about proper description of contributions. A frequent fault that occurs during the description of contributions made to the transformed company or partnership is lack of the indication of the source of their origin. The articles of association (partnership agreement) of the transformed company (partnership) quite often do not explain when the contributions were made, and hence – where they originate from. Later, it may cause serious doubts as to whether the determined contributions were made before the transformation or after it.

Selection of an improper transformation date

The selection of the proper transformation date is of great (even strategic) importance, as it is the date of the establishment of the transformed company or partnership, which entails the benefit of accounting operations as well as the necessity to make in the correct manner the settlement of obligations of a public law nature. These operations become even more complicated if the transformation date falls in the middle of a month. However, if the transformation is registered on the first working day of a given month (or alternatively on the last working day of a month), the above operations will be considerably facilitated.

The above recommendations concerning the process of the transformation of commercial law companies and partnerships apply accordingly to the transformation of a sole proprietorship into a company.

Successful business transformation with the assistance of an experienced lawyer

If you are planning to carry out the business transformation and would like to do it efficiently, contact us. We will advise you how to do it quickly and smoothly and how to avoid frequent mistakes made by shareholders and partners of most companies (partnerships).