The Commercial Companies Code (Act of September 15, 2000; Journal of Laws 2000, No. 94, item 1037 - hereinafter referred to as "CCC") refers in many places to the issue of valuation of companies and assets - a very important issue from the point of view of economic transactions. Moreover, the Commercial Companies Code introduces, directly and indirectly, Avalue standards, which, as should be reasonably assumed, are the basis for valuation. Let's analyze this wealth of diversity... What terms and value standards appear in the Code of Commercial Companies? Let's list the terms used in the Commercial Companies Code below:

• marketable value

• actual value

• fair value

• fair price

• price determined by an expert and fair repurchase price.

Let us also note that for merger and division processes, the Commercial Companies Code does not use any term to properly define the exchange parity - in this case there is no standard of value.

Sales value - valuation of enterprises and companies in the Commercial Companies Code

This term appears in the regulations for:

• capital companies - general provisions,

• general partnership,

• limited liability companies,

• joint-stock company.

Art. 14 par. 2 of the Commercial Companies Code, which deals with the general principles of making non-cash contributions, states that if a partner or shareholder has made a non-cash contribution with defects, he or she is obliged to compensate the capital company for the difference between the value assumed in the company's agreement or statute and the marketable value of the contribution.

For a general partnership we have Art. 65 par. 1 of the Commercial Companies Code, which stipulates that in the event of a partner leaving the company, the value of the partner's (or his heir) capital share is determined on the basis of a separate balance sheet, taking into account the market value of the company's assets, and in accordance with par. 2, the balance sheet date should be:

• in the case of termination - the last day of the financial year in which the notice period expired

• in the event of the death of a partner or declaration of bankruptcy - the day of death or the day of declaration of bankruptcy

• in the event of excluding a partner by a final court decision - the date of filing the lawsuit.

For the sake of clarity, the above article 65 par. 1 of the Commercial Companies Code refers to the provisions of Art. 61 par. 1 of the Commercial Companies Code (termination of the partnership agreement) and Art. 63 par. 2 of the Commercial Companies Code (exclusion of a partner).

For a limited liability company, we have Art. 175 par. 1 of the Commercial Companies Code, which stipulates that if the value of non-cash contributions has been significantly overstated in relation to their market value on the date of concluding the partnership agreement, the partner who made such a contribution and members of the management board who, being aware of this, registered the company in the register, are obliged to compensate the company for the missing value jointly and severally. . Moreover, par. 2 of this article says that from the obligation specified in par. 1 shareholder and members of the management board cannot be dismissed. Generally, this article refers to the situation when we make non-cash contributions to a limited liability company (upon its establishment) in the form of: real estate, machinery and equipment, but also stocks, shares, organized parts of enterprises (or entire enterprises) and intangible assets .

Additionally, in the regulations regarding limited liability companies we have Art. 281 par. 3 of the Commercial Companies Code, which states that in the event of liquidation of a limited liability company, the liquidators should prepare an opening balance sheet for the liquidation. All assets should be included in the liquidation balance at their market value. For a joint-stock company, we have exactly the same provision in Art. 467 par. 3 - all assets should be included in the liquidation balance according to their market value.

For a joint-stock company, we also have a specific equivalent of Art. 175 par. 1 – art. 481 of the Commercial Companies Code. It states that whoever, in connection with the establishment of a joint-stock company or an increase in its share capital due to his own fault, provides himself or a third party with a payment that is excessively excessive over the market value of non-cash contributions or purchased property, or remuneration or special benefits disproportionate to the services provided, is obliged to compensation for the damage caused to the company.

The question is, what is "marketable value"? Unfortunately, the legislator does not define this term in the Commercial Companies Code. There is no definition of this term in the Accounting Act of September 29, 1994 (hereinafter referred to as the Accounting Act) and, to the best of my knowledge, in tax regulations. Jokingly, it should be added that even the Word dictionary does not know the term "salvageable" - emphasizing the word in red and suggesting the word "saving" as one of the possibilities... 

I once wrote in one of my articles that it should be reasonable to assume that this term should be identified with fair (market) value. But is it really true?

Firstly, the term sales value itself may suggest that the seller intends to sell the asset; this way, his increased readiness - compared to the standard situation - to sell a given asset is emphasized. The fair value standard for business valuation assumes determining the price between the parties to the transaction under the following conditions:

- unrelated standard/typical market participants;

- interested but not under duress;

- having an appropriate and symmetrical level of information about the subject of the transaction.

It is reasonable to ask whether in such a situation the second condition - interested but not under duress - applies.

Secondly, the provisions of Art. 14 par. 2, art. 175 par. 1 and art. 481 of the Commercial Companies Code, using the term marketable value, refer to non-cash contributions. The issue of non-cash contributions in joint-stock companies is also regulated by Art. 312 par. 1 of the Commercial Companies Code and the phrase "fair value of non-cash contributions" is included there. The question then arises why the legislator decided to use two different terms in relation to non-cash contributions - marketable value and fair value. Moreover, why does the legislator use two different terms for the joint-stock company itself in relation to non-cash contributions?

Thirdly, the provisions of Art. 281 par. 3 and art. 467 par. 3 of the Commercial Companies Code, which uses the term sales value, overlaps with the provisions of the Act on Commercial Companies. And so Art. 29 section 1 of the Act stipulates that if the assumption of a going concern is not justified, "the entity's assets are valued at the net selling prices that can be obtained, not higher than their purchase prices or production costs, less any existing depreciation or amortization write-offs, as well as write-offs due to permanent loss of value. Pursuant to Art. 29 section 2 of the Act, such valuation of assets at net selling prices takes place in particular in the event of liquidation or bankruptcy of an entity. From this we can draw the conclusion that the sales value can be identified with the net selling price.

At this point, let us quote in full the definition of net sales contained in Art. 28 section 5 UoR:

"The net sales price (value) of an asset is the sales price obtainable as at the balance sheet date, net of value added tax and excise tax, less rebates, discounts and other similar reductions as well as costs related to adapting the asset for sale. and making this sale, plus the relevant subsidy due. If it is not possible to determine the net selling price of a given asset, its fair value as at the balance sheet date should be determined in another way. It should be noted that "costs related to adapting an asset for sale and making this sale" are the element differentiating between the net sales price and fair value - the former includes, the latter does not include these costs.

Actual value - valuation of enterprises and companies in the Commercial Companies Code

This term was used in Art. 266 of the Commercial Companies Code. Paragraph 1 of this article states that for important reasons relating to a given partner, the court may order his exclusion from the limited liability company at the request of all other partners, if the shares of the partners requesting exclusion constitute more than half of the share capital. Paragraph 2 releases the condition about one excluded partner and states that the partnership agreement may grant the right to bring a lawsuit to a smaller number of partners (i.e. not all partners except the excluded partner), provided that their shares constitute more than half of the share capital and that the defendants the exclusion should be all other partners (which excludes the existence of "neutral" partners - whoever is not us is against us...). The takeover price of the excluded partner is determined by the court based on the actual value on the date of delivery of the lawsuit - generally, in such a situation it is appointed by the court expert in order to determine the takeover price. The shares of the excluded partner must be taken over by the partners or third parties - i.e. these shares are not acquired by the company itself.

The term "actual value" used in Article 266 of the Commercial Companies Code is unfortunately undefined. A purposive interpretation may suggest that the task of the court and the nominated expert is to estimate the fair value - identified with the actual value - of the shares of the excluded partner and appropriate valuation approaches and methods should be used to determine fair value.

Fair value - valuation of enterprises and companies in the Commercial Companies Code

In the event of establishing a joint-stock company or increasing its share capital, when the non-cash contribution is (among others) shares, shares, organized part of the enterprise, real estate, machinery and equipment and trademarks, it is necessary to determine the value of the contribution, i.e. conduct a valuation. Article 311 par. 1 of the Commercial Companies Code states that if contributions in kind are planned, the company's founders prepare a written report which should present in particular (among others):

• the subject of non-cash contributions and the number and type of shares and other titles of participation in the company's income or in the division of the company's assets issued in exchange for them,

• persons who make in-kind contributions, sell property to the company or receive remuneration for services,

• the contribution valuation method used.

In the next step, in accordance with Article 312 par. 1 of the Commercial Companies Code, the founders' report should be audited by one or more certified auditors for its truthfulness and reliability. In particular, the purpose of the audit is to issue an opinion on the fair value of non-cash contributions and whether it corresponds to at least the nominal value of the shares acquired for them or a higher price. issue share. Par. Article 4 of this article states that the auditor's opinion should assess the method of valuing in-kind contributions adopted in the founders' report. Regardless of the ambiguity as to the required scope of the auditor's work - paragraph 1 suggests that the auditor should himself value the in-kind contribution, and paragraph 4 talks about issuing an opinion on the valuation included in the founders' report, and specifically on the methodology for valuing in-kind contributions - fortunately, we have the term fair value defined in the Act. Fair value was already discussed in the first part of my article on standards of value.

Fair price - valuation of enterprises and companies in the Commercial Companies Code

Pursuant to Art. 345 of the Commercial Companies Code, the company may directly or indirectly finance the purchase or subscription of shares issued by it. In such a situation, financing is to be provided on market terms. Additionally, if a company finances the purchase or subscription of shares issued by it, such purchase or subscription takes place in exchange for a fair price.

Fair price – unfortunately, the legislator has not defined this term. It is common sense to assume that the legislator had fair value in mind and that the purchase or subscription of shares should take place on the basis of fair value.

The price determined by an expert and the fair repurchase price - valuation of enterprises and companies in the Commercial Companies Code

At the end of our analysis of the wealth of terms in the Commercial Companies Code, we enter the area of ​​compulsory buyouts in joint-stock companies. This field is regulated by Art. 416 (significant change in the scope of the company's activities), Art. 418 (purchase of minority shareholders at the request of majority shareholders) and Art. 418 ¹ of the Commercial Companies Code (purchase of minority shareholders at their request).

With regard to the processes described in Art. 416 and 418, in accordance with Art. 417 par. 1 of the Commercial Companies Code, the shares are redeemed at the price quoted on the regulated market, at the average price from the last three months before the adoption of the resolution, or, if the shares are not quoted on the regulated market, at the price determined by an expert selected by the general meeting. The price determined by the expert - unfortunately, the legislator did not specify in detail what standard of value should be the basis for the expert's work.

In the case of art. 418 ¹ of the Commercial Companies Code (purchase of minority shareholders at their request), the determination mechanism is regulated in par. 6 and 7 of this article. And yes, par. 6 states that the share repurchase price is equal to the value of net assets per share, disclosed in the financial statements for the last financial year, less the amount intended for distribution to shareholders. It is worth adding here that the term net assets is defined in Art. 3 section 1 point 29 of the Act as assets of the entity less liabilities, corresponding in value to own capital (fund). If a shareholder or company participating in the share repurchase does not agree with the repurchase price specified in par. 6, may apply to the registry court to appoint an auditor to determine their market price and, failing that, a fair repurchase price.

Assuming that we use the definition of market value provided in the Corporate Income Tax Act (Article 14(2)) - market prices used in trade in goods, rights or services of the same type and grade, taking into account in particular their condition and degree consumption and time and place of sale or performance - for non-public companies it is difficult to talk about a market price. Consequently, taking into account the provisions of Art. 418 ¹ par. 6 and 7 of the Commercial Companies Code and the right to question the determination of the repurchase price based on the level of net assets, the fair repurchase price becomes the standard of value. It should be noted that the legislator did not use the term fair value. In my opinion he did it on purpose. The fair repurchase price standard is intended to ensure a fair price for the minority stake being purchased and thus ensure fair transaction conditions that equalize the situation of majority and minority shareholders from the point of view of the value of one share. In my understanding of the term used in the Commercial Companies Code, the legislator in this case placed emphasis on fair terms of the transaction, as opposed to the fair value of the subject of the transaction itself - the minority stake.

Summarizing the last three value standards jokingly, one could add that the legislator likes fair terms - we have "fair value"; a 'fair price' and finally a 'fair repurchase price'.

Lack of value standard... - valuation of enterprises and companies in the Commercial Companies Code

Does it make sense to write about the lack of a value standard when discussing value standards in the Commercial Companies Code? Definitely yes…

The issue concerns regulations for mergers and divisions of companies. Well, for both processes it is required to prepare a merger plan and a division plan, respectively. Such a plan is examined by an expert for correctness and reliability. Consequently, the expert should prepare a detailed opinion which should contain at least (Article 502(1) and Article 538(1) of the Commercial Companies Code, respectively):

1) determining whether the share or stock exchange ratio (between entities involved in a given process) has been properly determined,
2) indication of the method or methods used to determine the share or stock exchange ratio proposed in the plan (merger or division), along with an assessment of the validity of their use ,
3) indication of specific difficulties related to the valuation of shares (merging companies or divided company).

But what criteria should the expert assess - and in particular point 1) above? Unfortunately, the Commercial Companies Code is silent on this matter. Is it reasonable to say that the share exchange ratio should be based on fair values? In my opinion, no - merger and division plans are usually the result of long-term negotiations between the parties and their final result is the result of, among other things, the parties' expectations regarding the planned transaction (including expectations regarding possible synergies) and negotiation skills. Consequently, it is difficult to assume that the share exchange ratio agreed by both parties to the transaction will result precisely from the fair value ratio. In this specific situation, in my opinion, the expert should prepare the so-called fairness opinion – i.e. an opinion on the reliability of the financial terms of the transaction. Such an opinion would provide reasonable comfort regarding the reliability of the terms of the transaction from the point of view of all groups of shareholders, and in particular from the point of view of minority shareholders - who have practically no influence on the arrangements made between the companies participating in the transaction.

By the way, in many transactions (especially larger transactions), such opinions are prepared, but by professional advisors - independently of the expert who gives opinions on the merger or division plan. In my opinion, it would be advisable to specify the role of the "code" expert in the process of mergers and divisions - in accordance with my comments above. This would most likely make it possible to avoid double preparation of opinions in many transaction processes - by a "code" expert and by an advisor preparing a "fairness opinion".

The issue of the economic content of legal formulations used in the Commercial Companies Code is, for understandable reasons, very important for all participants of economic transactions in Poland. It is highly recommended that the above-mentioned definition deficiencies and ambiguities in the formulations regarding value standards be "rectified" as soon as possible, with the concerted cooperation of lawyers and valuation specialists, on the occasion of the next amendment of the Commercial Companies Code.