Changes on the economic market, deterioration of the financial situation or new investments often force a limited liability company to raise additional funds. The Polish Commercial Companies Code provides such a possibility in the form of additional contributions from the shareholders. This is an instrument beneficial to the company in a situation where it does not want to use external sources. The Commercial Companies Code does not limit the purposes for which the funds from the additional payments can be used. However, in practice, companies most often reach for additional payments from shareholders in situations of financial difficulties. Additional funds often provide a way out of a difficult financial situation and are a necessary tool for the company to avoid a long-term financial crisis including, ultimately, bankruptcy.
Shareholder surcharges versus a loan?
Surcharges are not of a clear-cut nature, the institution being something between a shareholder loan and a shareholder contribution to the share capital. Surcharges can only be of a monetary nature and should be imposed and paid by the shareholders equally to their shares. They constitute part of the company’s assets, but it should be remembered that they do not enlarge the shares in the share capital or increase it either. Their purpose, like a loan, is to recapitalise the company, which gives it various options in its future operations. A loan is always repayable, surcharges are in principle also of a temporary and repayable nature, however, under certain conditions they may be non-reimbursable to the shareholders. Furthermore, interest is generally not charged on surcharges. The next issue that makes the difference between a loan and a surcharge is how both will be reported and treated in the balance sheet. A loan will be shown under liabilities, which may restrict the company from incurring other liabilities, whereas surcharges will be shown under liabilities as reserve capital, which does not have such restrictive consequences. If you are in doubt about which option is right for your company, it is worth consulting a law firm.
How to apply the surcharges?
Pursuant to Article 177 §1 of the Commercial Companies Code (k.s.h.), the obligation of shareholders to apply surcharges must be included in the company’s agreement. Such an obligation may be included in the original company’s agreement or may be introduced as part of an amendment to the company’s agreement. It is important to note that, in such a case, an amendment to the company’s agreement imposing a surcharge obligation on the shareholders will require the consent of all shareholders. Despite the discrepancies concerning the question of whether the obligation to make surcharges may be imposed only, on some shareholders, it should be considered that the obligation must be imposed on all shareholders. Importantly, the articles of association must specify the numerical amount of the surcharge in relation to the share. The obligation to pay surcharges is triggered by a resolution of the company’s shareholders’ meeting, except where the company’s articles of association regulate the amount and timing of surcharges to be paid. Most often, however, it is the resolution of the shareholders’ meeting that determines the amount of surcharges and the deadline for their payment. The deadline for payment of surcharges specified in the resolution of the shareholders’ meeting is very important from the point of view of the shareholder’s liability, as pursuant to Article 178 §2 of the Commercial Companies Code the company will be entitled to interest for delay if it fails to fulfil its obligation on time. The reason as a result of which the shareholder did not pay a certain amount of the surcharge remains irrelevant in this case. In addition, the company will be able to claim compensation from the shareholder for damages resulting from the delay. However, the regulations allow for other rigours of liability to be included in the articles of association, which means that it is possible to modify them by mitigating the amount of interest or waiving certain claims. When adopting a resolution on additional payments, it is advisable to seek the assistance of a law firm in order to obtain the most favourable provisions.
Surcharge recovery – how and when?
The return of surcharges is also a very important issue. As in the case of their granting, their return will require the adoption of a specific resolution by the shareholders’ meeting. However, it will not be possible in every situation. According to the Commercial Companies Code, surcharges may be returned if the surcharge is not required to cover a balance sheet loss. Reimbursement may not take place until one month has elapsed from the date of the announcement of the intention to reimburse in the Monitor Sądowy i Gospodarczy. It can be concluded that the refund procedure regulated by the Commercial Companies Code is quite time-consuming and costly, as a fee must be paid for each day of the announcement. According to the regulations, returns should be made equally to all shareholders. However, it is possible to regulate in the company’s agreement much more favourable, flexible and quicker conditions for the return of surcharges. It is advisable to seek advice from a lawyer in order to establish the best possible provisions in this regard.
Surcharges and tax consequences?
Corporate income tax (CIT)
Under the CIT Act, surcharges applied by shareholders are not treated as income if paid in accordance with the Commercial Companies Code. Therefore, the payment of surcharges will not give rise to a liability in this respect.
Personal income tax (PIT)
Shareholders who are natural persons do not have to pay income tax on the income in the form of the return of surcharges in an amount determined in PLN as at the date of their actual contribution. However, the interest earned by the partner, where interest on the surcharge has been reserved, is subject to taxation.
Tax on civil law transactions (PCC)
In the Act on tax on civil law transactions, surcharges are treated as an amendment to the company’s agreement. As such, they are taxed on the same basis as the conclusion of a company’s agreement or an amendment to that agreement. Therefore, the tax rate is 0.5% of the amount of the additional payments. The obligation to pay PCC tax on additional payments to a limited liability company rests with the limited liability company itself, which, as a taxpayer, is obliged to file a declaration on PCC, calculate and pay the tax within 14 days of the date on which the resolution on additional payments was adopted.