08.08.2023

CURRENT: NEW POSSIBILITIES WHEN ESTABLISHING A COMPANY WITH VARIABLE CAPITAL

At the end of July 2023, at a plenary session of the National Assembly, changes to the Commercial Law incorporating the institution of the company with variable capital were finally adopted.

The new legal framework is a long-awaited step aimed at easing the legal regime of start-up companies and adapting the regulatory rules to the rapid pace of business development. As noted in the reasons for the bill, the establishment of our country as the center of a significant percentage of the innovative activity of companies in Europe requires bringing the regulatory framework in line with the needs of business. In this way, the aim is to provide an opportunity for the unhindered start of the activity of start-up companies (including the raising of significant investments, retention of key employees, clear settlement of relations with investors), which subsequently, without excessive administrative burden, can to develop including to the level of companies whose shares are traded on regulated markets.

What does the legal framework of a company with variable capital look like?

The legal framework partially approaches that of limited liability companies (LLC) and to a greater extent that of joint stock companies (JSC). At the same time, however, it provides significant advantages that overcome the shortcomings of the legal organizational forms already known to us and allow the legal framework to adapt to rapidly developing business relations.

The amendments provide that such a company can only be a micro- or small enterprise within the meaning of the Law on Small and Medium Enterprises. This limitation comes to show the actual legal will of the legislator, namely that the new legal organizational form is available to truly "starting" companies. The company can function both in the presence of more than one partner, and as a sole proprietor. The main body of the company remains the general assembly (or the sole owner), whose prerogatives include making the most important decisions related to the functioning and existence of the company in general.

It is interesting that the names of the elected manager or board of directors (the number of members stipulated in the partnership agreement adopted by the partners) are subject to entry in the Commercial Register and the Register of Non-Profit Legal Entities, as well as the chosen method of representation, as in the register does not publish public information about the ownership of the shares in the company with variable capital. The latter should be placed in a special book of the partners for the purpose, and it is expressly provided that in addition to the partners in the company, third parties also have access to it, but not in its entirety (but only as regards a specific partner) and on condition that prove the existence of a legal interest in receiving the information.

On the other hand, the amount of capital of the company with variable capital is also not published. The provided opportunity for its establishment is through familiarization with the decisions taken at a regularly held annual general meeting for the adoption of the company's annual financial report. At the same meeting, decisions are taken that establish the amount of capital at the end of the relevant financial year, as well as how the capital has changed compared to the previous financial year.

Given the basic nature of the regulation, a very essential element in the organization of the company with variable capital is the company agreement, which is designed to regulate all the rights and legal relations specific to the specific new business. The latter is subject to announcement in the Commercial Register and the Register of Non-Profit Legal Entities. With it, a number of deviations from the dispositive general rules can be foreseen, as well as a variety of private hypotheses to meet the needs of the specific company. Examples of similar hypotheses (which are either completely inapplicable or extremely difficult to apply in the legal organizational forms of companies we know) are:

- temporary ban on disposal of shares;

- right of preferential purchase of the shares of one of the partners by one or more of the other partners;

- opportunities to control the partners participating in the company - legal entities based on the control exercised over them and the changes in the latter;

- creation of rights to acquire company shares under certain conditions (including from employees with the aim of including them in the vision and business goals of the company).

The regulations of the new type of company speak of the distribution of its property in the form of shares. At the same time, however, they are allowed to be divided into separate classes (and in this sense also providing different privileges) and to have a different nominal value (with the legal minimum being 1 penny), as well as to be subject to acquisition by the company itself. This shows that the new regulation has borrowed established positives both from the structure of the limited liability companies we know, and from that of joint stock companies.

Thus, to a certain extent, the property rights provided by each registered share are similar to the already known property rights of partners in limited liability companies and shareholders in joint stock companies. On the other hand, the provisions of the new type of company provide completely new rights, some of which were listed above.

Of interest and a significant step in the direction of digitalization are also the provisions that implement the electronic form of communication and in general the expression of will, especially in the procedures for convening and holding the general meeting of the company. In this way, in practice, many of the difficulties and formalities in decision-making will be overcome and flexibility in communication between partners will be ensured.

In summary, the expectations of the legislative body, as well as of the business, are to respond in a more adequate way to the individual needs of each start-up high-tech and innovative company oriented to rapid economic growth, to the relationships with its investors and key employees through the new regulation. . Apart from this, the analyzes show that the establishment of such companies is associated with less administrative burden and initial costs – issues that appear to be leading in the decision to start a new business venture.