Shareholders' Agreement as a Supplement to Voluntary Redemption of Shares in the S24 Online System

The S24 procedure (registration of a company and subsequent changes through the S24 online system) is a common solution in commercial practice, used in particular by people starting out in business. The appeal of this procedure (low costs, a short wait for registration and the ability to adopt resolutions and make changes in the company through the online system) comes, however, with a significant limitation. All corporate acts under the S24 procedure are based on fixed templates available in the system, which makes it impossible to tailor their content beyond that framework.

This limitation becomes particularly significant when a shareholder leaves the company through voluntary redemption of shares. While the resolution on the redemption of shares and the accompanying resolutions can be adopted using a template under the S24 procedure, all other matters to be settled between the parties fall outside what can be regulated under that procedure. These include individually designed economic mechanisms (payment of the price in instalments, price adjustment, deferred payment), copyright in works created during the shareholder's participation in the company, mutual restrictions on competition, the division of intangible assets and personal security (surety, voluntary submission to enforcement).

This supplementary role can be performed by a shareholders' agreement concluded outside the online system, in which the parties set out all matters requiring individual treatment.

In this article, based on the facts of a matter handled by the Law Firm, we discuss the following issues:

1. Voluntary redemption of shares in a limited liability company (sp. z o.o.) registered under the S24 procedure;
2. The role of a shareholders' agreement as a supplement to corporate acts performed under the S24 procedure,
3. The mechanism for paying the price in instalments, with a right of deferral and price adjustment,
4. The grant to the company of a licence to works created by the exiting shareholder,
5. The mutual prohibition on taking over clients and associates,
6. Voluntary submission to enforcement under Article 777 § 1(5) of the Code of Civil Procedure and a surety from the remaining shareholder as security for payment of the price.

Facts of the Case

The client approached the Law Firm about a limited liability company registered under the S24 procedure, whose share capital was held by two shareholders with 50% of the shares each. The shareholders were also members of the company's management board. They decided to end their joint business, and one of them was to leave the company. As the exit mechanism, we used voluntary redemption of the exiting shareholder's shares out of the company's net profit, without reducing the share capital.

The particular feature of the case was that, in addition to the exit itself, a number of accompanying matters had to be settled at the same time: the rules for the company's further use of works created by the exiting shareholder, the division of so-called joint clients, the division of intangible assets and the rules for tax settlements. Because of the limits of the S24 procedure, all these matters were set out in a separate, comprehensive shareholders' agreement concluded outside the online system.

Voluntary Redemption of Shares Under the S24 Procedure

Companies registered under the S24 procedure may also use the system at a later stage of their operation. The corporate resolutions (including the redemption resolution and the resolution appointing a proxy to represent the company under Article 210 § 1 of the Commercial Companies Code (CCC)) were adopted through the S24 online system.

Redeeming the shares out of net profit, without reducing the share capital, made it possible to avoid:

1. the convocation procedure under Article 264 CCC (calling on creditors to lodge objections to the redemption of shares, after which the company would have to satisfy or secure those creditors),
2. an amendment of the articles of association as regards the amount of the share capital,
3. filing the capital reduction with the registry court under Article 265 CCC.

After the redemption, the number of remaining shares and their nominal value do not correspond to the amount of the company's share capital shown in the register. This is permissible and may be a permanent state of affairs.

We discussed other ways of shaping a company's capital structure, including recapitalisation and changing the proportions of shareholdings, in the articles Ways of Recapitalising a Limited Liability Company and Disposal of 50% of the Shares in a Limited Liability Company by Shareholders Holding an Odd Number of Shares: Discussion of the Issue and Practical Solutions.

The Shareholders' Agreement as a Supplement to Acts Performed Under the S24 Procedure

The S24 procedure, through its use of the fixed templates available in the online system, allows basic corporate acts to be performed quickly, including the adoption of a resolution on the redemption of shares.

In this case, all matters that required individually shaped content and went beyond the framework of the S24 templates were set out in a separate agreement between the shareholders. This shareholders' agreement combines elements of a classic agreement for the sale of shares to the company for the purpose of redemption and of an arrangement governing the further mutual relations of the parties (the company, the exiting shareholder and the remaining shareholder).

Because the exiting shareholder was also a management board member, concluding the agreement required the special representation provided for in Article 210 § 1 CCC: the company was represented by a proxy appointed by a resolution of the shareholders' meeting. We wrote in more detail about the formal requirements for agreements between a company and a management board member in the article Loan to a Limited Liability Company from a Shareholder Who Is a Management Board Member: Legal and Tax Requirements.

The shareholders' agreement was concluded in the form of a notarial deed, even though written form with notarised signatures would have been sufficient for the disposal of the shares itself (Article 180 § 1 CCC). The notarial deed was chosen because the agreement had to include declarations of voluntary submission to enforcement under Article 777 § 1(5) of the Code of Civil Procedure. Setting out all the key matters (price, security mechanisms, copyright, non-compete, division of assets) in one document made it possible to link the individual contractual mechanisms consistently (for example, making the effectiveness of the licence conditional on payment of the last instalment of the price, or automatically reducing the amount of the surety by each instalment paid).

Sale Price, Instalment Schedule and Security Mechanisms

The sale price for the shares being redeemed was divided into instalments. To protect the company's liquidity if its financial situation deteriorated, the agreement provided for a mechanism of unilateral deferral of payment of a single instalment. The company has this right only where at least one of three strictly defined financial conditions is met (the balance of the company's accounts falling below a specified threshold, a documented termination of an agreement by a client, or clients falling into payment arrears). The exiting shareholder retained the right to challenge the deferral.

The second, much more advanced mechanism is a price adjustment clause, which makes the amount of the remaining instalments dependent on the company maintaining fixed monthly subscription revenue from key clients. If this revenue is lost, the company has the right to reduce the sale price unilaterally according to an expressly specified mathematical formula set out in the agreement. The adjustment mechanism contains significant exclusions: the right to reduce the price does not arise if the client's withdrawal resulted from a decline in the quality of services provided by the company or from the company's own actions.

A Licence to Works Instead of a Transfer of Economic Copyright

Unlike the typical solutions used when a shareholder leaves a company, in this case the parties decided not to transfer the economic copyright in the works created by the exiting shareholder, but to grant the company a broad licence. The licence is non-exclusive and territorially unlimited, is granted for an indefinite period and covers all fields of exploitation specified in Articles 50 and 74(4) of the Copyright Act, with the right to grant sublicences and to transfer the licence to third parties.

Choosing a licence rather than a transfer of rights secured the company's full economic use of the works, while leaving the exiting shareholder free to use them independently for the purposes of their further professional activity. The effectiveness of the licence was made conditional on the company paying the last instalment of the sale price, which creates an additional economic mechanism encouraging the company to meet its obligations on time.

Mutual Prohibition on Taking Over Clients and the Right to References

The parties included detailed provisions on mutual restrictions on competition in the agreement. They used a mutual prohibition on taking over clients, with a clear division of the scope of services, and a division of competences corresponding to the further business profile of each party.

At the same time, the agreement gave both parties the mutual right to use completed projects in portfolio materials, together with the right to use the name and logo of the client for whom the project was carried out.

Voluntary Submission to Enforcement and a Surety from the Remaining Shareholder

The strongest security for payment of the price is voluntary submission to enforcement under Article 777 § 1(5) of the Code of Civil Procedure, both by the company and by the remaining shareholder acting as surety. The amount of the surety is automatically reduced by each instalment of the sale price paid and by each validly made price adjustment. This structure gives the exiting shareholder the possibility of quick and effective enforcement without lengthy court proceedings. We discussed mechanisms that protect a shareholder's position in more detail in the article Protecting the Interests of the Company and Existing Shareholders.

Summary

This case shows that a shareholder's exit from a limited liability company registered under the S24 procedure generally requires a two-part structure. The S24 procedure allows the corporate acts themselves to be performed quickly (including the adoption of a resolution on the redemption of shares), but because of the fixed framework of the templates available in the online system, it does not allow individual matters to be regulated. That function is performed by a shareholders' agreement concluded outside the online system, which combines elements of a classic agreement for the sale of shares to the company for the purpose of redemption and of an arrangement between the shareholders. The solutions used in this case made it possible to:

1. carry out the corporate procedure itself quickly by using the S24 online system,
2. protect the interests of the exiting shareholder through mechanisms guaranteeing payment of the price (voluntary submission to enforcement by the company, surety from the remaining shareholder),
3. protect the interests of the company through mechanisms for deferring instalments and adjusting the price if key clients are lost,
4. settle the accompanying matters (licence to works, mutual prohibition on taking over clients and associates, division of intangible assets) in one document.