The possibility of registering a Simple Joint Stock Company has existed for only a month, but from the very beginning, it has enjoyed considerable interest. Why is S.J.S.C. a facilitation for entrepreneurs? Which aspects are particularly important for newly developing startups, and which for companies with long experience?
S.J.S.C. as a response to inconveniences
The S.J.S.C. project emerged primarily because startups were encountering all sorts of problems related to their operations. Some of the most common ones include obstacles existing at the very beginning of the business. In addition to that, startups face difficulties in raising capital – or in liquidating if the venture fails.
When starting a business in the form of a capital company and taking advantage of limited liability, entrepreneurs could only choose between a limited liability company and a joint-stock company. Regulations on the establishment and operation of different types of companies, despite changes heading in the right direction, still make it difficult for startups to establish and operate.
Until now, the best option
According to the report “Polish Startups 2018” 72% of startups have so far chosen a limited liability company. The reason for this is mainly the formal and financial requirements for setting up a company. In the case of a limited liability company, they are much lower than in the case of a joint-stock company. However, it does not mean that a limited liability company is well adapted to the needs of this kind of enterprise.
As a result of the survey carried out among entrepreneurs by PARP, a vast majority of the surveyed (73%) sees the need to introduce a new type of company, which could be used in innovative activity. As many as 78.6% of respondents indicated the need to lower capital requirements for the proposed simplified company.
What do startups not want?
The building blocks of a limited liability company include share capital or fixed initial capital. The initial extent of each shareholder’s rights is determined by the ratio of the number of shares to which that shareholder is entitled to the total number of shares existing in that company. Share rights are directly connected with share capital.
This rule seriously impedes the free shaping of relations within the company. On the other hand, in the interest of startup entrepreneurs, it may be important to link the strong position not so much with the contribution of property, but with his abilities and work, i.e. with the human capital used by the company.
In addition, investing in a limited liability company can be complicated. The acquisition of shares requires a written agreement with notarized signatures, and the shares themselves cannot be incorporated in a document or an electronic record (security). The regulations also significantly limit the instruments of preference of shares. The minimum nominal value of a share in the case of a limited liability company is PLN 50, which in turn limits, among others, the possibility of using crowdfunding, which is becoming increasingly important. The contribution to a limited liability company cannot be work or services.
A big price to pay for security
Establishing and running a limited liability company is a relatively expensive and complicated undertaking. All resolutions of the general meeting need to be recorded in minutes drawn up by a notary public. And the annual financial statements of joint-stock companies, regardless of their size, must be audited by a certified auditor.
A share is a security and its minimum nominal value is 1 grosz. However, the minimum share capital of a joint-stock company is PLN 100,000 – of which at least one-fourth must be contributed before the company is registered.
All these requirements are considered excessive for small, young companies in the innovation sector. This is because in the case of such ventures there is a serious risk of not developing the business on such a large scale as initially assumed. In a joint-stock company, it is not permissible to acquire shares for contributions of work or services. What is more, the shaping of its internal structure, including share preferences, is significantly limited by the existence of upper limits for constructing privileges and the principle of the strictness of the statute. For these reasons, a joint-stock company is chosen by only 4% of startups (according to the report “Polish Startups 2018”).
Not a joint-stock company and not a limited liability company.
Both options for dynamically growing startups, which should be able to be founded by every entrepreneur with a good idea and business plan, simply do not work. A limited liability company and a joint-stock company require startups to make a financial contribution first and foremost. In a S.J.S.C., on the other hand, it is enough to contribute in the form of work or services with a symbolic cash contribution of 1 zloty. This means that the resources necessary to develop a startup can be limited only to the issues related to its operation – which each entrepreneur can adjust to his needs.
In addition, the S.J.S.C. provides for considerable freedom in shaping the shareholding structure in the company. There also appears a possibility of choosing the organizational structure, and even providing the members of the management bodies with greater decision-making freedom (based on the business judgment rule, which is new in the Polish legal order).