Purchasing an organized part of an enterprise is a capital-intensive venture. Hence the buyer must take a number of steps to assess the profitability of such an investment. He must also be aware of the possibility of taking responsibility for the obligations. Pawel Dyrduł, lawyer from law office KG Legal Kiełtyka Gładkowski Sp.p with its registered office in Krakow, discusses the issue of disposal and purchasing an organized part of the company.
The organized part of the enterprise
To define, find out what the organized part of the business should be starting with the general definition of the company, which is contained in Article 551 of the Civil Code. An enterprise is an organized set of intangible and tangible components designed to run a business. These compositions include in particular: the name of the company, real estate and movables, acquired rights, claims, cash, licenses, licenses, permits, patents, business secrets, accounting records, documents and other components. The above definition (rule) explicitly states that an enterprise is intended to run a business.
On the basis of the definition of the company, the conclusions on the definition of its organized part can be drawn. Simply put, an organized part of the enterprise will be its separated part, which will holds own set of intangible and tangible components.
A similar thinking had the legislator constructing the provisions of the Personal Income Tax Act and the Law on Value Added Tax. In both of these laws (Article 5a (4) of the PIT Act, Article 27 (27e) of the VAT Law), there are very similar definitions of an organized part of an enterprise. An organized part of an enterprise is an organizationally and financially independent group of tangible and intangible assets, including liabilities, that are intended to carry out specific economic tasks, and which at the same time could be an independent undertaking performing these tasks independently. It is worth noting that this organized part can be a de facto separate enterprise.
The organized part of an enterprise cannot in principle be a future thing. When it comes to it, when the buyer decides to buy, it must already exist in the structure of the company, i.e. it must be separated.
Purchasing of an organized part of an enterprise also has an effect on its affiliation.
Purchasing of an organized part of an enterprise by a foreigner
The rule is – under the Act of 24 March 1920 on the acquisition of real estate by foreigners – that the acquisition of organized part of the enterprise by a foreigner requires obtaining a permit. Permit is issued by the Minister of Interior and Administration. For a foreigner, the law recognizes a natural person who does not have Polish citizenship, a legal person established abroad, a person without the personality of the right company of the previously designated entities established in accordance with the law of another country, and a legal person and commercial company established in Poland but it is directly or indirectly controlled by the entities quoted. However, the law provides for an exception to the requirement to obtain authorization to acquire an organized part of an enterprise. Such permits will not require foreigners who are nationals or entrepreneurs of the EEA States and the Swiss Confederation.
Legal form of disposal
Civil Code in Art. 751 constructs the principle that the sale of an organized part of an enterprise should be made in writing with signatures notarially certified. This is one of the special forms of legal action. It consists in placing a special clause by the notary, which confirms the personal show indicated in the clause of the person. This form is intended to reduce the risk as a result of the person signing the signature trying to deny it.
Buyer – what to look for
When purchasing an organized part of a enterprise, the buyer should make every effort to properly carry out this investment. Due to the fact that it is costly, a large undertaking is required before the acquisition to pay attention to many important matters, documents relating to the pucharsed part of the enterprise. First and foremost, the interested buyer must look at the company’s accounting books, such as the balance sheet, income statement. Very often a list of affiliates is also drawn up, i.e. an accurate list of all movables included in the disposal part of the enterprise.
Due diligence is aimed at gathering all the necessary information, which from the perspective of the investor is necessary to value the value of the company. This is a comprehensive audit, survey of the company or its organized part that precedes the purchase. It is outsourced by the interested buyer to an inwestor and is performed by external specialists. The due diligence study is a comprehensive analysis of the condition of the company in terms of financial, commercial, legal, tax and technological aspects.
A disclosure letter is also a recognized practice in the disposal of an organized part of an enterprise. This is a document attached to the sales contract. The seller specifies in his company all the information on the state of the enterprise, and also points out circumstances that differ from the complex assurances. By submitting such document, the seller relinquishes responsibility for providing false information in the sales contract.
In the case of dispose of an organized part of enterprise, there is a problem with the employees who have been employed there. Article 231 of the Labor Code dispels any doubts on this point. The buyer of the organized part of the company ex lege becomes a new employer for its employees. This means that employees should not lose their jobs in the event of such a transaction. However, the new employer is obliged to propose new terms and conditions of work and wages paid to the organized part of the enterprise if they provide services under a contract other than a contract of employment. New terms are introduced on the date of acquisition, and employees are advised to read the new terms and answer them if they accept or not need to be scheduled for not less than 7 days.
The rule is that the purchaser of an organized part of the enterprise must bear joint and several liability with respect to the obligations arising out of the business. However, he is relieved of liability if he did not know about his obligations despite due diligence. His liability is limited to the value of the purchased part of the enterprise at the time of acquisition and at the price at the time the creditor is satisfied. Without the assent of the creditor, no liability can be limited or excluded. (Article 554 of the Civil Code)
On the issue of liability for tax arrears the legislator constructs the provisions of the Tax Ordinance Act similar principles as to liability for obligations assumed in the Civil Code. The purchaser of the organized part of the enterprise is liable jointly with the taxpayer (the seller) for the tax arrears that are related to the business conducted until the date of acquisition. However, he can not be held liable in circumstances where, despite due diligence, he was unable to find out about the arrears (Article 122 of the Tax Ordinance Act).
Disposal of the organized part of the enterprise, and VAT
The VAT Act in Art.6 section 1 indicates that it does not apply to this legal act. This is the same as the statement that the disposal of an organized part of an enterprise is not subject to VAT.
Abstract: Business law, enterprise, purchasing of organized part of the enterprise
The article was prepared by KG LEGAL KIEŁTYKA GŁADKOWSKI based in Cracow, Poland, specialising in cross border cases, with its focus on new technologies, IT and life science. It discuesses the issue of disposal and purchasing an organized part of an enterprise, the liability of contract parties and the most important elements.
Paweł Dyrduł, lawyer (specializing in banking law, financial law) from KG LEGAL KIEŁTYKA GŁADKOWSKI – PARTNERSHIP office in Cracow, specializing in cross border issues and servicing life science and IT companies, discusses the issue of disposal and purchasing an organized part of an enterprise, the liability of contract parties and the most important elements.