Challenging resolutions in a limited liability company

When Can a Shareholders' Resolution Be Repealed? A Practical Guide to Article 249 of the Polish Commercial Companies Code (KSH)

In a limited liability company (sp. z o.o.), shareholders make key decisions through resolutions. These resolutions determine the composition of the management board, the strategic direction of the company, the distribution of profits, and amendments to the articles of association. However, not all resolutions are adopted in the spirit of fairness and legality. In some cases, they violate the articles of association, ethical standards, or even serve as instruments of abuse against minority shareholders.

To protect stakeholders in such situations, the Polish legislature has introduced a legal remedy: an action for repeal of a resolution, as regulated in Article 249 of the Commercial Companies Code (KSH). When properly applied, this provision can safeguard your rights, assets, and position in the company.

Article 249 § 1 KSH

"A resolution of the shareholders that is contrary to the articles of association or good practices and infringes the interests of the company or is intended to harm a shareholder may be challenged by way of an action for repeal brought against the company."

This seemingly concise provision establishes a complex legal structure consisting of four conditions, of which one from each group must be satisfied for a court to repeal a resolution.

Conditions for Repealing a Resolution

In order for a resolution to be repealed by a court, two conditions must be jointly satisfied:

Group I – Formal/Ethical:

• Contradiction with the articles of association, or
• Contradiction with good practices;

Group II – Substantive:

• Infringement of the company’s interests, or
• Intentional harm to a shareholder.

It is important to note that the existence of only one condition is not sufficient – the court must find a combination. For example, merely violating the articles of association is insufficient unless it also results in harm to the company or shareholder.

1. Contradiction with the Articles of Association – What Constitutes a Violation?

A contradiction may concern:

• How the resolution was adopted (e.g., breach of quorum requirements, absence of authorized participants), and/or
• The content of the resolution (e.g., appointment of management board by an unauthorized body, modification of dividend rules contrary to the articles).

More nuanced scenarios may also arise, such as when the resolution aligns with the literal wording of the articles but contradicts their intent or function – for instance, disrupting the decision-making structure agreed upon by shareholders.

Importantly, not every breach will suffice. The violation must be effective and impactful, affecting the company’s operation or a shareholder’s rights.

2. Good Practices – Business Ethics as a Legal Standard

Contrary to popular belief, the concept of "good practices" is not merely a moral clause – it is a binding legal standard. Courts interpret good practices to include:

• Corporate loyalty,
• Equal treatment of shareholders,
• Fairness in commercial dealings,
• Avoidance of abuse of majority voting power.

Examples of violations:

• Awarding excessive bonuses to the management board despite financial losses,
• Scheduling a vote on Christmas Eve at 5:00 PM to prevent a shareholder’s participation,
• Imposing capital contributions aimed solely at repaying the majority shareholder’s private debts.

3. Resolution That Harms the Company – A Dynamic and Contextual Concept

The company's interest goes beyond annual financial results. A resolution may harm the company:

• Financially (e.g., asset depletion, unfavorable agreements),
• Reputationally (e.g., harming the company’s brand),
• Organizationally (e.g., destabilizing governance, impeding board functionality).

Often, majority shareholders use their advantage to enforce self-serving decisions detrimental to the company’s long-term interests (e.g., transferring assets to related companies, appointing family members to fictitious positions).

4. Resolution Intended to Harm a Shareholder – Focus on Intent

This condition centers on the purpose behind the resolution, requiring the claimant to prove an intentional act of harm. Adverse outcomes alone are insufficient without demonstrating that the decision-makers deliberately aimed to disadvantage a shareholder.

Harm may be:

• Financial (e.g., denial of profit rights, increased obligations), or
• Non-financial (e.g., exclusion from management, loss of voting rights, marginalization).

Courts may find harm even if intent is not overt, as long as the effect clearly indicates malicious intent.

Examples:

• Depriving a long-serving shareholder of influence on the board,
• Imposing contributions solely on a minority shareholder,
• Restructuring voting rights to weaken one shareholder’s position.

Courts will examine the resolution’s context, past shareholder relations, and consistency with previous corporate policies.

Who May File an Action for Repeal?

Eligible parties include:

• Shareholders who voted against the resolution and recorded an objection,
• Shareholders unjustly excluded from the meeting,
• Shareholders absent due to improper notice,
• The management board or supervisory board (and in some cases, they are required to act to avoid liability).

Time Limits for Filing an Action – Interpretation Nuances and Burden of Proof

Time is of the essence in challenging a resolution. Even if a resolution violates the law, ethics, or corporate interests, missing the statutory deadlines results in the irrevocable loss of legal remedies.

According to Article 251 KSH:

• The relative deadline is one month from:
• The adoption of the resolution (if the claimant was present and aware of its content),
• Receipt of the resolution’s content (if absent from the meeting), or
• Becoming aware of the resolution (e.g., via registry filings or corporate correspondence).
• The absolute deadline is six months from the resolution’s adoption – regardless of when the shareholder learned about it. After six months, legal action is no longer admissible.

These are substantive law deadlines, meaning:

• They cannot be restored,
• They are calculated in calendar days,
• Their expiration precludes judicial review, regardless of the merits of the case.

Practical Consequences and Strategic Use

Legal practitioners must act promptly upon receiving documents from the shareholders' meeting. Resolutions that appear neutral on the surface may contain strategic power shifts or unjust treatment of minority shareholders. Identifying and proving such violations must occur within the statutory time limits.

Challenges in determining the starting point of the deadline include:

• A present shareholder who claims incomplete information may argue the term should start upon receipt of the protocol (courts often disagree),
• In written resolutions, the term may begin from receipt or from the final signature date,
• Discovering a resolution late (e.g., via public records) makes proving the discovery date difficult.

The burden of proof lies with the claimant, and courts assess this strictly.

Practical Guidance for Shareholders and Boards

• Minority shareholders should promptly request to record objections and obtain full documentation (resolutions, minutes).
• Management boards must act if resolutions appear unlawful or harmful – they not only have the right but often the duty to initiate proceedings.
• Companies that fail to challenge flawed resolutions may suffer long-term harm, such as invalid investments, exposure to creditor claims, or weakened bargaining positions.

Final Remarks

An action under Article 249 KSH is not a mere theoretical safeguard – it is a powerful legal tool. When properly used, it protects shareholders from marginalization, preserves corporate integrity, and prevents harmful or unlawful decisions from taking effect.

If you have doubts about the legality or fairness of a resolution, timely legal action may be your best protection.

Our law firm offers comprehensive support in evaluating and litigating shareholder resolutions. Contact us to safeguard your rights and your business.