Significant changes for the development of startups in Poland will come into effect on November 10, 2023. On that day, four new provisions of the commercial companies code will come into force, which will eliminate the possibility of using equity crowdfunding by limited liability companies.
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Equity crowdfunding, popular in recent years, is nothing more than an alternative way of financing a business. It is most often used in newly established companies. The individual investor engages financial resources in a limited liability company by taking up its shares. The company raises capital, and the investor becomes its shareholder.
What for some is an attractive method of financing, for others appears as a chance to multiply capital. However, this model carries both advantages (mainly related to a small number of formalities) and disadvantages (focused around a significant investment risk). Additionally, for years it was not subject to any regulations.
The indicated Act mainly implements the Regulation of the European Parliament and the Council of the EU of October 7, 2020 on European providers of community financing services for economic ventures. And while the intention of the EU legislator was to create universal solutions for the entire EU, some issues were left to the discretion of the national authorities of the community countries. The Polish legislator regulated the issues of crowdfunding in relation to limited liability companies in a surprising way.
Jakub Rusak
The anticipated solutions prohibit the promotion and advertising of the acquisition of shares and the subscription of new shares in limited liability companies. Both the offer to acquire and the subscription of new shares cannot be made to an unspecified addressee. The acquisition itself, as well as the subscription of new shares, cannot be promoted by directing advertising or other forms of promotion to an unspecified addressee. A fine is provided for violation of the above prohibitions, restriction of liberty or imprisonment for up to 6 months.
The indicated regulations effectively close to limited liability companies the previously existing possibility of easily raising funds within the framework of equity crowdfunding. This change is therefore of key importance for many startups, as these are usually high-risk ventures that also require substantial financing. This means that the optimal legal form for their operation are capital companies, in particular a limited liability company. Raising new funds is key in the development process, especially in the early stages of the project.
This is not an easy task, and starting from November 10, 2023, its difficulty will increase even more. Therefore, looking from the perspective of a startup, which is focused on development with the help of external capital, the limited liability company will lose its attractiveness. Therefore, it is worth analyzing today whether a joint-stock company or a simple joint-stock company will not be a better formula for a new business.
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