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Financial Participation

The legal framework allows, in principle, various forms of financial participation schemes. . However, no fiscal incentives have been provided for the extension of participation schemes.

a) Share Ownership

Employee share ownership has several sources: leveraged lease-buy-outs, the issuing of employee preferential shares, NIF Programmes and employee shares in private companies.

‘Employee Companies’/Leverage-lease-buy-out (LLBO)

Employee companies emerged through Leverage-Lease-Buy-Out (LLBO) privatization as a form of the so-called liquidation privatization, where a newly established private company leases the assets of a state enterprise from the State Treasury for a maximum period of 15 years (until 2002 only 10 years). The legal regulations for LLBOs are laid down in PrivL’90 Art. 37.1.3, Art. 38 and 39 and PrivL Art. 39.1.3, Art. 50-54. The importance of the LLBO method today is fairly low, however, because the overwhelming portion of companies in Poland has been privatised in recent years. The criteria for LLBO-privatization are:1

  • relatively good financial and market condition;
  • not requiring substantial investment to modernise, replace or develop equipment etc.;
  • relatively low net value (up to USD 10 million);
  • having management and employees determined to undertake the financial risk involved in embarking on a common investment (including third parties) in a given enterprise.

These criteria were changed in the Privatization Act of 30 August 1996, which set up additional financial hurdles. From then on, liquidation privatization Art. 39 PrivL required:

  • a yearly turnover of max. EUR 6 million, and
  • not more than EUR 2 million equity.2

Art. 51.1.4 PrivL from the end of 1996 requires 20% outsider involvement in an LLBO transaction. An additional obstacle is the requirement in Art. 51.1.3 PrivL, that the members of an Employees Company should pay 20% of the lease object’s net value before the company can start doing business.

Preferential employee shares

The first part of the legal framework of preferential employee shares was adopted in 1990 (PrivL ’90), giving employees the right to acquire 20% of the shares of a privatized enterprise at half of their nominal value. The Privatisation Law (PrivL) which came into force in early 1997 modified these regulations: employees can acquire 15% of the shares for free, but these shares are exempted from free trade for two years (three years in the case of employees elected to the management board (Art. 38.3 PrivL). Employees have to state their claim within 6 months before the registration of the company, otherwise the right expires. The total value of shares allocated via such claims cannot exceed the sum of the average public sector salary over 18 months multiplied with the number of employees acquiring shares. Furthermore, the rule applies not only to commercialized companies undergoing capital privatization, but was extended to a 15% employee participation in ”direct privatization” transactions: the sale of companies as going concerns, in-kind contributions of a company (Art. 49.4 PrivL), as well as, in the case of a merger of two private companies, their subsequent de-merger or transformation (Art. 38.b.1 PrivL).3

The Mass-Privatization Programme

The Law on National Investment Funds and their Privatization regulating the mass privatization programme was first implemented in 1995. 15 National Investment Funds (NIF) were established by the state to be managed by special consortia. 60% of shares in each of the 512 companies to be privatized were transferred to these 15 National Investment Funds, with the remaining 40% going to employees (15%) and the Treasury (25%).4 The share ownership of these companies was regulated as follows: for each company, one of the 15 NIFs received 33% of shares and thus became the ‘lead fund’ for that company. All adult Polish citizens received certificates for these funds. A total of 25,657,090 certificates were distributed in 1995, each certificate entitling its owner to one share in each of the 15 funds.5

Private companies

Two important laws set the legal framework for employee share ownership: the Pre-emptive Right of Purchase of an Enterprise under Insolvency Law and the Company Law.6

The Pre-emptive Right of Purchase of an Enterprise under Insolvency Law became effective on 1st October 2003. This law offers the possibility to set up companies consisting of more than half of the indebted enterprise’s employees in the context of the liquidation procedures. These companies have, under certain restrictions (in particular the approval of the board of creditors), a pre-emptive right of purchase of the enterprise or of functioning enterprise units (Art. 324 Insolvency Law).

The Company Law (Commercial Companies Code, CCC) allows a company to acquire its own shares in order to offer them to current or retired company employees (Art. 362.1.2).7 A decision by the general shareholders assembly is needed in this case (Art. 393 No. 6 CCC), and the shares have to be transferred to the employees within a twelve-month period from acquisition. If this doesn’t happen within the allotted time period, Art. 363,5 CCC stipulates that the shares have to be sold or the share capital will be decreased respectively. The total nominal value of own shares acquired may not exceed the value of 10% of the enterprise’s equity capital and the purchase price together with transaction costs may not exceed the reserve made from the company’s own profits (Art. 362.2 CCC, Art. 348.1 CCC).

Joint-stock companies may also issue new shares which can be transferred to employees in the context of so-called conditional capital increases. This gives a company the possibility to transfer shares to employees when the latter have previously acquired rights to share in profits. The issuing of shares to be acquired by employees in this case is not considered as a public offering but a ‘private subscription’. Furthermore, in order to facilitate the acquisition of shares by employees the legislator has deviated from the general prohibition to leverage the acquisition of own stock. Thus, under certain conditions, the company may advance funds, make loans or provide security, with a view to acquisition by company employees or employees of an affiliated company. At the end of 2003 a new regulation has been introduced for joint-stock companies, where the major shareholders (not more than five owning together at least 95% of all shares and each single one not less than 5%), can make a final share buyout offer to the remaining minority shareholders (squeeze out). In such a case the minority shareholders would have an obligation to sell the shares to the major shareholder.

Employees can also received stock options, including options to acquire shares on a privileged basis (at below-par prices or even free of charge). There are however no specific regulations for this situation.

b) Profit-sharing

Current Company Law stipulates the possibility to implement profit-sharing in Art. 347.3 and 348.1 CCC for joint-stock companies (“tantiema”). Share based profit-sharing is also regulated in the context of conditional capital increases (Art. 448 CCC). The general type of a scheme linked to enterprise results referred to in Poland as a ‘bonus’ has no legal foundations.8

Wilke, Maack and Partner (2014) Country reports on Financial Participation in Europe. Prepared for www.worker-participation.eu. Reports first published in 2007 and fully updated in 2014.