If the contribution paid in by the municipality corresponds at least to the value of the limited partner share of liability, the municipality will not be personally liable for the company’s obligations.

The issue

The municipality intends to perform a common project with a private entrepreneur in the form of a public-private partnership. For that purpose, the municipality wishes to establish a partnership with a private partner. Will that be appropriate for a PPP project? What is the scope of liability of a municipality being a partner of such partnership?

The regulations

In accordance with Article 14 section 1 of the Act on public-private partnership, an agreement on partnership may provide that in order to perform the subject-matter of the agreement the public entity and the private partner will establish a capital company (“spółka kapitałowa”), a limited partnership (“spółka komandytowa”) or a partnership limited by shares (“spółka komandytowo-akcyjna”).

The second sentence of the provision makes it clear that the public entity cannot play the role of the general partner of such partnerships. Therefore, in order to execute a project together with a private partner the municipality may establish a limited liability company, a public company and a limited partnership, however only as the limited partner, or a partnership limited by shares as the shareholder.

The lawyer explains

Natalia Chyb, a lawyer at FKA Furtek Komosa Aleksandrowicz

In principle, the municipality concerned has discretion to select the appropriate form of a commercial company as a tool of implementation of public-private projects. Nevertheless, each time such decision should be based on a prior analysis taking into consideration the size of the project, the connected costs and risks as well as the needs of the local community.

The intended scope of operations

The economic purpose of partnerships and capital companies is completely different. The first ones are supposed to be established in order to attain economic targets on a much smaller scale than the capital companies. As a result, the costs of establishment and maintenance are lower.

Already at the stage of drafting the documentation regarding the procedure of selection of a private partner, the municipality should assess the intended scope of the planned business as well as the reasonable costs of maintenance of such a structure, appropriate to the venture and properly securing the interests of the given municipality. As a rule, the participation in a partnership is connected with the partners’ unlimited liability for the partnership’s obligations. Therefore, in order to enhance the security of the public assets owned by the municipalities, their capacity to participate in the partnerships is restricted to the role of the partner whose personal liability is limited.

Limited liability

In the case of limited partnerships, the general partner is liable for the company’s obligations with all its assets, while the limited partner is liable to the company’s creditors only up to the value of the limited partner share of liability and is free from liability within the limit of the contribution paid into the company.

Therefore, the municipality being the limited partner of a limited partnership will be liable for the company’s obligations up to the value of the limited partner share of liability specified in the articles of partnership. However, when the contribution paid in by the municipality corresponds at least to the value of the limited partner share of liability, the municipality will not be personally liable for the company’s obligations. That is why the local governments should make sure that the limited partner share of liability specified in the articles of partnership is not higher than the value of the contribution to be paid in by them in accordance with the agreement on public-private partnership. As far as the partnerships limited by shares are concerned, the issue of the liability of the partners slightly differs from the above. In this case the liability of the general partner is also unlimited, while the shareholder is not at all personally liable for the obligations of the business and only bears the risk of participation in the business, within the limits of the contribution paid in order to acquire its share.

Rights of the partners

The limitations on the liability for the obligations of partnership entail certain consequences for the rights of the limited partners and the shareholders. First of all, in principle the limited partner and the shareholder are not permitted to represent the company. They may act as proxies but are required to expressly notify the other party to the legal action of such fact. Otherwise, if they perform certain legal actions on behalf of the partnership without disclosing the fact of acting as proxies, they shall be liable for the effects of the relevant actions without any limitations. The same pertains to acting without due authorisation or when the scope of such authorisation is exceeded. As a rule, the shareholders and the limited partners are not entitled to control the day-to-day operations of the business and thus they cannot directly influence the internal affairs of the partnership. However, in the case of a limited partnership it is possible to regulate the issue otherwise in the articles of partnership and to provide the limited partner with the right to participate in the daily operations. What is more, in the case of limited partnerships as provided for in the Code, the limited partner must express its consent to the actions beyond the scope of ordinary activities. Thus, to some extent the limited partner may affect the actions undertaken by the general partner.

In the partnerships limited by shares the shareholders are not entitled to take decisions on the day-to-day operations. However, on some matters only the general meeting may decide. The resolutions of the general meeting are required among others with regard to the consideration and approval of the report on the operations of the general partners and the financial statements for the previous year or the winding-up of the partnership. Moreover, according to the statutes other matters may also fall within competence of the general meeting. Thus, the municipality should be careful to properly regulate the issue in the statutes.

The supervisory board

In accordance with the Act on communal services managements which applies to all the companies with participation of the local government, the supervisory body is always obligatory, and its members are appointed for a three-year term. In consequence, the supervisory board must be appointed in the case of both the capital companies and the partnerships limited by shares in which the municipalities are involved. As far as the limited partnership is concerned, the legislator did not provide for the possibility to establish such body. Furthermore, regarding the companies with participation of the municipalities, the members of the supervisory board who represent the local government entity are appointed from among persons with a university degree who have passed the state examination. The purpose of the requirement of the professionalism of the supervisory board members is to ensure appropriate protection of the public funds invested by the municipality. Together with the principle that the members of the supervisory boards of the partnerships limited by shares are appointed and recalled by the general meeting (except for the general partners holding shares in the partnership), this requirement enables the municipality to supervise the performance of the public-private project in a consistent and professional manner.

Since this is carried out as part of a public-private partnership, the private entity should be mainly responsible for the performance of the common project and in principle the limitation of the “managerial” competence of the local government unit within the partnership does not compromise its interests. In such situation it is extremely important for the municipality to constantly supervise the activities of the private entity which not only performs certain public tasks via the special purpose vehicle but also manages the public assets contributed by the municipality. For that reason it is necessary to properly formulate the provisions of the articles or statutes in order to protect the interests of the municipality and to ensure efficient performance of the project undertaken with the private partner.

Legal basis: Act on public-private partnership of 19 December 2008 (uniform text, the Polish Journal of Laws of 2015, Item 696); Act on municipal services management of 20 December 1996 (uniform text, the Polish Journal of Laws of 2011, No. 45, Item 236); Act of 15 September 2000, Commercial Companies Code (uniform text, the Polish Journal of Laws of 2013, Item 1030)

 

If the contribution paid in by the municipality corresponds at least to the value of the limited partner share of liability, the municipality will not be personally liable for the company’s obligations.

The issue

The municipality intends to perform a common project with a private entrepreneur in the form of a public-private partnership. For that purpose, the municipality wishes to establish a partnership with a private partner. Will that be appropriate for a PPP project? What is the scope of liability of a municipality being a partner of such partnership?

The regulations

In accordance with Article 14 section 1 of the Act on public-private partnership, an agreement on partnership may provide that in order to perform the subject-matter of the agreement the public entity and the private partner will establish a capital company (“spółka kapitałowa”), a limited partnership (“spółka komandytowa”) or a partnership limited by shares (“spółka komandytowo-akcyjna”).

The second sentence of the provision makes it clear that the public entity cannot play the role of the general partner of such partnerships. Therefore, in order to execute a project together with a private partner the municipality may establish a limited liability company, a public company and a limited partnership, however only as the limited partner, or a partnership limited by shares as the shareholder.

The lawyer explains

Natalia Chyba, a lawyer at FKA Furtek Komosa Aleksandrowicz

In principle, the municipality concerned has discretion to select the appropriate form of a commercial company as a tool of implementation of public-private projects. Nevertheless, each time such decision should be based on a prior analysis taking into consideration the size of the project, the connected costs and risks as well as the needs of the local community.

The intended scope of operations

The economic purpose of partnerships and capital companies is completely different. The first ones are supposed to be established in order to attain economic targets on a much smaller scale than the capital companies. As a result, the costs of establishment and maintenance are lower.

Already at the stage of drafting the documentation regarding the procedure of selection of a private partner, the municipality should assess the intended scope of the planned business as well as the reasonable costs of maintenance of such a structure, appropriate to the venture and properly securing the interests of the given municipality. As a rule, the participation in a partnership is connected with the partners’ unlimited liability for the partnership’s obligations. Therefore, in order to enhance the security of the public assets owned by the municipalities, their capacity to participate in the partnerships is restricted to the role of the partner whose personal liability is limited.

Limited liability

In the case of limited partnerships, the general partner is liable for the company’s obligations with all its assets, while the limited partner is liable to the company’s creditors only up to the value of the limited partner share of liability and is free from liability within the limit of the contribution paid into the company.

Therefore, the municipality being the limited partner of a limited partnership will be liable for the company’s obligations up to the value of the limited partner share of liability specified in the articles of partnership. However, when the contribution paid in by the municipality corresponds at least to the value of the limited partner share of liability, the municipality will not be personally liable for the company’s obligations. That is why the local governments should make sure that the limited partner share of liability specified in the articles of partnership is not higher than the value of the contribution to be paid in by them in accordance with the agreement on public-private partnership. As far as the partnerships limited by shares are concerned, the issue of the liability of the partners slightly differs from the above. In this case the liability of the general partner is also unlimited, while the shareholder is not at all personally liable for the obligations of the business and only bears the risk of participation in the business, within the limits of the contribution paid in order to acquire its share.

Rights of the partners

The limitations on the liability for the obligations of partnership entail certain consequences for the rights of the limited partners and the shareholders. First of all, in principle the limited partner and the shareholder are not permitted to represent the company. They may act as proxies but are required to expressly notify the other party to the legal action of such fact. Otherwise, if they perform certain legal actions on behalf of the partnership without disclosing the fact of acting as proxies, they shall be liable for the effects of the relevant actions without any limitations. The same pertains to acting without due authorisation or when the scope of such authorisation is exceeded. As a rule, the shareholders and the limited partners are not entitled to control the day-to-day operations of the business and thus they cannot directly influence the internal affairs of the partnership. However, in the case of a limited partnership it is possible to regulate the issue otherwise in the articles of partnership and to provide the limited partner with the right to participate in the daily operations. What is more, in the case of limited partnerships as provided for in the Code, the limited partner must express its consent to the actions beyond the scope of ordinary activities. Thus, to some extent the limited partner may affect the actions undertaken by the general partner.

In the partnerships limited by shares the shareholders are not entitled to take decisions on the day-to-day operations. However, on some matters only the general meeting may decide. The resolutions of the general meeting are required among others with regard to the consideration and approval of the report on the operations of the general partners and the financial statements for the previous year or the winding-up of the partnership. Moreover, according to the statutes other matters may also fall within competence of the general meeting. Thus, the municipality should be careful to properly regulate the issue in the statutes.

The supervisory board

In accordance with the Act on communal services managements which applies to all the companies with participation of the local government, the supervisory body is always obligatory, and its members are appointed for a three-year term. In consequence, the supervisory board must be appointed in the case of both the capital companies and the partnerships limited by shares in which the municipalities are involved. As far as the limited partnership is concerned, the legislator did not provide for the possibility to establish such body. Furthermore, regarding the companies with participation of the municipalities, the members of the supervisory board who represent the local government entity are appointed from among persons with a university degree who have passed the state examination. The purpose of the requirement of the professionalism of the supervisory board members is to ensure appropriate protection of the public funds invested by the municipality. Together with the principle that the members of the supervisory boards of the partnerships limited by shares are appointed and recalled by the general meeting (except for the general partners holding shares in the partnership), this requirement enables the municipality to supervise the performance of the public-private project in a consistent and professional manner.

Since this is carried out as part of a public-private partnership, the private entity should be mainly responsible for the performance of the common project and in principle the limitation of the “managerial” competence of the local government unit within the partnership does not compromise its interests. In such situation it is extremely important for the municipality to constantly supervise the activities of the private entity which not only performs certain public tasks via the special purpose vehicle but also manages the public assets contributed by the municipality. For that reason it is necessary to properly formulate the provisions of the articles or statutes in order to protect the interests of the municipality and to ensure efficient performance of the project undertaken with the private partner.

Legal basis: Act on public-private partnership of 19 December 2008 (uniform text, the Polish Journal of Laws of 2015, Item 696); Act on municipal services management of 20 December 1996 (uniform text, the Polish Journal of Laws of 2011, No. 45, Item 236); Act of 15 September 2000, Commercial Companies Code (uniform text, the Polish Journal of Laws of 2013, Item 1030)

 

 

If the contribution paid in by the municipality corresponds at least to the value of the limited partner share of liability, the municipality will not be personally liable for the company’s obligations.

The issue

The municipality intends to perform a common project with a private entrepreneur in the form of a public-private partnership. For that purpose, the municipality wishes to establish a partnership with a private partner. Will that be appropriate for a PPP project? What is the scope of liability of a municipality being a partner of such partnership?

The regulations

In accordance with Article 14 section 1 of the Act on public-private partnership, an agreement on partnership may provide that in order to perform the subject-matter of the agreement the public entity and the private partner will establish a capital company (“spółka kapitałowa”), a limited partnership (“spółka komandytowa”) or a partnership limited by shares (“spółka komandytowo-akcyjna”).

The second sentence of the provision makes it clear that the public entity cannot play the role of the general partner of such partnerships. Therefore, in order to execute a project together with a private partner the municipality may establish a limited liability company, a public company and a limited partnership, however only as the limited partner, or a partnership limited by shares as the shareholder.

The lawyer explains

Natalia Chyba, a lawyer at FKA Furtek Komosa Aleksandrowicz

In principle, the municipality concerned has discretion to select the appropriate form of a commercial company as a tool of implementation of public-private projects. Nevertheless, each time such decision should be based on a prior analysis taking into consideration the size of the project, the connected costs and risks as well as the needs of the local community.

The intended scope of operations

The economic purpose of partnerships and capital companies is completely different. The first ones are supposed to be established in order to attain economic targets on a much smaller scale than the capital companies. As a result, the costs of establishment and maintenance are lower.

Already at the stage of drafting the documentation regarding the procedure of selection of a private partner, the municipality should assess the intended scope of the planned business as well as the reasonable costs of maintenance of such a structure, appropriate to the venture and properly securing the interests of the given municipality. As a rule, the participation in a partnership is connected with the partners’ unlimited liability for the partnership’s obligations. Therefore, in order to enhance the security of the public assets owned by the municipalities, their capacity to participate in the partnerships is restricted to the role of the partner whose personal liability is limited.

Limited liability

In the case of limited partnerships, the general partner is liable for the company’s obligations with all its assets, while the limited partner is liable to the company’s creditors only up to the value of the limited partner share of liability and is free from liability within the limit of the contribution paid into the company.

Therefore, the municipality being the limited partner of a limited partnership will be liable for the company’s obligations up to the value of the limited partner share of liability specified in the articles of partnership. However, when the contribution paid in by the municipality corresponds at least to the value of the limited partner share of liability, the municipality will not be personally liable for the company’s obligations. That is why the local governments should make sure that the limited partner share of liability specified in the articles of partnership is not higher than the value of the contribution to be paid in by them in accordance with the agreement on public-private partnership. As far as the partnerships limited by shares are concerned, the issue of the liability of the partners slightly differs from the above. In this case the liability of the general partner is also unlimited, while the shareholder is not at all personally liable for the obligations of the business and only bears the risk of participation in the business, within the limits of the contribution paid in order to acquire its share.

Rights of the partners

The limitations on the liability for the obligations of partnership entail certain consequences for the rights of the limited partners and the shareholders. First of all, in principle the limited partner and the shareholder are not permitted to represent the company. They may act as proxies but are required to expressly notify the other party to the legal action of such fact. Otherwise, if they perform certain legal actions on behalf of the partnership without disclosing the fact of acting as proxies, they shall be liable for the effects of the relevant actions without any limitations. The same pertains to acting without due authorisation or when the scope of such authorisation is exceeded. As a rule, the shareholders and the limited partners are not entitled to control the day-to-day operations of the business and thus they cannot directly influence the internal affairs of the partnership. However, in the case of a limited partnership it is possible to regulate the issue otherwise in the articles of partnership and to provide the limited partner with the right to participate in the daily operations. What is more, in the case of limited partnerships as provided for in the Code, the limited partner must express its consent to the actions beyond the scope of ordinary activities. Thus, to some extent the limited partner may affect the actions undertaken by the general partner.

In the partnerships limited by shares the shareholders are not entitled to take decisions on the day-to-day operations. However, on some matters only the general meeting may decide. The resolutions of the general meeting are required among others with regard to the consideration and approval of the report on the operations of the general partners and the financial statements for the previous year or the winding-up of the partnership. Moreover, according to the statutes other matters may also fall within competence of the general meeting. Thus, the municipality should be careful to properly regulate the issue in the statutes.

The supervisory board

In accordance with the Act on communal services managements which applies to all the companies with participation of the local government, the supervisory body is always obligatory, and its members are appointed for a three-year term. In consequence, the supervisory board must be appointed in the case of both the capital companies and the partnerships limited by shares in which the municipalities are involved. As far as the limited partnership is concerned, the legislator did not provide for the possibility to establish such body. Furthermore, regarding the companies with participation of the municipalities, the members of the supervisory board who represent the local government entity are appointed from among persons with a university degree who have passed the state examination. The purpose of the requirement of the professionalism of the supervisory board members is to ensure appropriate protection of the public funds invested by the municipality. Together with the principle that the members of the supervisory boards of the partnerships limited by shares are appointed and recalled by the general meeting (except for the general partners holding shares in the partnership), this requirement enables the municipality to supervise the performance of the public-private project in a consistent and professional manner.

Since this is carried out as part of a public-private partnership, the private entity should be mainly responsible for the performance of the common project and in principle the limitation of the “managerial” competence of the local government unit within the partnership does not compromise its interests. In such situation it is extremely important for the municipality to constantly supervise the activities of the private entity which not only performs certain public tasks via the special purpose vehicle but also manages the public assets contributed by the municipality. For that reason it is necessary to properly formulate the provisions of the articles or statutes in order to protect the interests of the municipality and to ensure efficient performance of the project undertaken with the private partner.

Legal basis: Act on public-private partnership of 19 December 2008 (uniform text, the Polish Journal of Laws of 2015, Item 696); Act on municipal services management of 20 December 1996 (uniform text, the Polish Journal of Laws of 2011, No. 45, Item 236); Act of 15 September 2000, Commercial Companies Code (uniform text, the Polish Journal of Laws of 2013, Item 1030)