Due to an interesting question from our Client, we have decided to answer it also in this article, i.e. – may the company not adopt a resolution regarding the allocation of profit during the ASM approving the financial statement and postpone this decision until the end of the current financial year?
There is a dispute among lawyers concerning the possibility of convening the Annual Shareholders Meeting more than once in a given financial year and not passing a resolution on the distribution of profit at the ASM approving the financial statements. In connection with the dispute, in this article we will present to the shareholders the possible manner of action.
In accordance with Article 231 of the Commercial Companies Code, the subject matter of the Annual General Meeting of Shareholders should include, among others, adoption of a resolution on profit distribution or loss coverage. The decision on how to distribute the profit, i.e. whether it should be transferred for payment to the shareholders as a dividend or e.g. placed on the reserve capital, can be made only after the approval of the financial statements. However, there is no provision that requires shareholders to adopt the resolution at the ASM approving the financial statements. In one of the comments to art. 231 of the CCC, an opinion was presented that “An Annual Shareholders Meeting must be held at least once a year on the date specified in art. 231 § 1 of the CCC or in the articles of association“[1], which means that the ASM can take place more than once in one financial year. Some commentators agree with this statement. Others point out that convening an ASM several times in one financial year is only possible when shareholders have to approve the outstanding financial statements for previous years. This position, however, is not definitely grounded in Polish law, but is only a part of the doctrine.
Assuming that an ASM may be held more than once during a given financial year and the agenda may be divided between e.g. two ordinary meetings, it should be noted, however, that failure to adopt a resolution on the distribution of profit is detrimental to the shareholder’s interests and provides an opportunity to effectively assert claims against the company. This view was expressed by the Supreme Court in one of its rulings.
Therefore, due to discrepancies in the position of the doctrine, we believe that the most safe and recommended solution for the partners is not to postpone the resolution concerning profit distribution and – in case of doubts concerning the method of profit distribution between the partners – to place it e.g. on the reserve capital of the company.
Please keep in mind the tax issues, omitted from this article, which can also be decisive when deciding on the profit distribution!
Author: Oliwia Kruczyńska, Junior Associate at Kolecka
& Partners Law Firm LLP
[1] Commentary to art. 231 KSH ed. Jara 2020, 3rd edition/Stanik
