When concluding a contract for the sale of shares in a limited liability company, it is not uncommon to overlook legal provisions operating outside the regime of the Commercial Companies Code and the Civil Code. Wrongly.
When concluding a contract for the sale of shares in a limited liability company, it is not uncommon to overlook legal provisions operating outside the regime of the Commercial Companies Code and the Civil Code. Unjustifiably so. This is because they are often of considerable importance for the legal turnover of shares in companies. In this context, it is worth paying particular attention to the right of first refusal granted to the Agricultural Property Agency, acting on behalf of the State Treasury, to purchase shares or stocks in commercial companies that own agricultural property. Unfamiliarity with these provisions can unfortunately cost dearly not only the buyer and seller, but also the company itself.
Which limited liability companies are affected by the regulation?
All limited liability companies that own at least one agricultural property of at least 0.3 hectares are subject to the regulations in question. Therefore, the sale by a shareholder of even one share in the share capital of such a company, if it is not made to a person closest to the seller (e.g., to his spouse, parents, siblings), will actualize the right of pre-emption of the sold shares granted to the National Agricultural Support Center, acting on behalf of the State Treasury.
It is worth remembering that the right of pre-emption will update regardless of the number and value of the shares sold, regardless of the business profile of the limited liability company. (which may not be in any way related to agriculture), and regardless of whether the agricultural property is a significant or marginal asset of the company.
Restrictions will not apply to the sale of shares in the share capital of a limited liability company that is a perpetual usufructuary or lessee of agricultural real estate (as it is not the owner).
Thus, if the limited liability company in which you intend to acquire shares owns an agricultural property of at least 0.3 hectares, you must follow the rules described below in order to acquire shares in such a company effectively and not expose yourself to a challenge to the validity of the transfer agreement.
How is the right of pre-emption exercised?
The right of pre-emption of shares in a limited liability company that owns agricultural real estate is an entitlement granted in Article 3a of the Act of April 11, 2003 on the formation of the agricultural system to the National Center for Agricultural Support, acting on behalf of the State Treasury.
Granting the Center a statutory right of first refusal means that a shareholder intending to sell his share or shares in the share capital of a limited liability company owning an agricultural property will only be able to conclude a so-called conditional share sale agreement with a potential buyer of the shares. The condition stipulated in the content of such an agreement will be that the Center will not exercise its right of first refusal to purchase the shares.
After concluding the conditional agreement, the selling shareholder will be obliged to immediately notify the Center of the conclusion and content of the agreement. It will have the option to either exercise its pre-emptive right or choose not to exercise it.
If the Center decides not to exercise its right of first refusal within 1 month of notification of the conclusion of the conditional sale agreement, the transferor and the purchaser will be able to conclude an unconditional, final share transfer agreement. Under such agreement, ownership of the shares will be transferred from the seller to the buyer.
However, if the Center wishes to exercise its right of first refusal, it will notify the seller of the shares by sending its statement on the exercise of its right of first refusal, in the form of a notarized deed, by registered mail with acknowledgment of receipt, within 1 month of receiving the notice of conclusion of the conditional sale agreement. It will then additionally publish its statement on the exercise of the right of first refusal on its website in the Public Information Bulletin. Publication of the statement on the website will create a kind of presumption that the seller of the shares has read the contents of the Center’s statement.
Thus, if the Center exercises its right of first refusal, the transaction between the original buyer and the seller of the shares will not come to fruition. Instead, under the terms and conditions agreed upon in the conditional sale agreement, the shares in the limited liability company will be acquired by the Center, acting on behalf of the State Treasury. If the Center finds that the price for the shares indicated in the conditional agreement grossly deviates from the market price, it will be able to apply to the court to determine the price of such shares within 14 days of the declaration of exercise of the pre-emptive right.
…What if the Center was not notified of the share transfer agreement?
The multi-step and complexity of the described procedure may tempt some sellers of shares to avoid notifying the Center about the conclusion and content of the share transfer agreement. In particular, because the complicated procedure must also be complied with in the case of companies that have nothing to do with agriculture, and the agricultural property is an insignificant component of their assets. Failure to notify the Center, however, has very significant consequences.
Failure to notify the Center of the conclusion of a contract for the sale of shares in a limited liability company that owns an agricultural property will result in the invalidity of such a contract from the moment it is concluded.
Thus, on the basis of an invalid agreement, a new shareholder (purchaser of shares) will not join the company, will not have voting rights from the (un)acquired shares, and will not be entitled to dividends. If the invalidity of the agreement is discovered only after a long time after its conclusion (e.g., after several years, as a result of an audit conducted at the company), the problems will further pile up.
Therefore, it is worth taking care that before acquiring shares in a limited liability company, you should carefully examine whether the company happens to own an agricultural property. Basic manifestations of care for one’s own interests can protect the buyer of shares from unpleasant surprises.
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