Since Polish law introduced family foundations in 2023, enabling individuals to concentrate assets in one organisation, the solution has grown in popularity. Familiar tax advantages are a major reason, but establishing a foundation can offer other benefits, including succession planning.
Less attention is paid to contributing company shares. The foundation replaces the previous owner as shareholder. This may be especially useful where the founder plans a future M&A sale.
The foundation as shareholder
The legislation expressly permits family foundations to join commercial companies and conduct business involving acquisition and disposal of securities.
A foundation holding shares enjoys all other shareholders’ rights: attending meetings and voting, receiving dividends, appointing officers through personal rights and exercising rights under the articles and Commercial Companies Code. It may also lend to companies in which it holds shares. Its management board represents it; the founder usually influences appointments and removals and may sit on the board. Contributing shares therefore does not deprive the founder of control.
Taxation of the foundation-shareholder
A founder’s contribution of shares is tax neutral: the foundation pays no corporate income tax (CIT). For now, income from activities permitted under the Family Foundations Act is also generally tax neutral.
Tax rulings issued in 2024[1] expressly confirm CIT exemption for dividends from securities held.
Income from receiving liquidation assets of a company, including a foreign company, in which the foundation was a shareholder is also exempt. Thus liquidation assets acquired by the foundation generate no CIT liability.
The foundation will be the M&A party
Holding shares indirectly through a foundation also offers advantages when selling them.
As seller, the foundation, rather than the founder, signs transaction documents. The obvious benefit is that contractual duties and obligations fall on the foundation, which bears direct liability for breach.
For representations and warranties, this buffer can be invaluable to the indirect seller.
Even if the buyer expects founder security, such as a surety, liability will generally be subsidiary: the founder performs only if the foundation fails.
No spousal consent is needed
Contributing shares may simplify the transaction because parties need not investigate the founder’s marital status and property regime.
Where an individual is a party, the counterparty usually seeks spousal consent. Reasons vary with transaction structure, but the aim is generally to eliminate matrimonial property risks. Experience shows this is sensitive and often uncomfortable both for the person asking their spouse and disclosing significant transaction terms, and for the party requesting consent.
If the foundation participates instead, consent is generally unnecessary: it, not the founder, incurs obligations or disposes of shares. The former owner’s marital status is generally irrelevant to completing the deal. Guarantees concerning share title and the foundation’s authority to sell are reflected in representations and warranties as with any seller.
Changes affecting parties will not disrupt the transaction
Participation through a foundation can also streamline the process and reduce obstacles from unforeseen changes in the parties.
Complex transactions have successive stages, sometimes months between the first document and completion, for example because of due diligence or closing conditions such as UOKiK approval, security or financing.
The longer the process, the greater the risk of changes affecting a party, such as corporate transformation or ownership changes, or an individual’s death. Corporate changes do not automatically stop a deal, but death can prevent it entirely.
If an individual transaction party dies, the counterparty has legal tools to secure completion, including the promised final contract, because heirs generally inherit contractual rights and obligations, including preliminary agreements. Enforcement against heirs may nevertheless be lengthy and costly, including legal fees. Succession must be formally established to determine who is bound and who owns or must buy the transaction asset. Numerous conflicting heirs may significantly prolong matters.
Where the individual participates through a foundation, the risk falls substantially. The founder’s death during the transaction does not affect the foundation’s ability to acquire or sell on schedule, because it alone owns the assets. This is particularly significant for an individual founder who would otherwise be the seller.
Selling shares through a foundation is tax advantageous—for now
Tax rulings and protective opinions[2] confirm that income from selling shares is exempt until benefits are distributed to a beneficiary. The sale itself therefore does not immediately attract CIT.
CIT at 15% arises only when benefits are paid. The founder and beneficiaries in the founder’s “tax group zero”—spouse, descendants, ascendants, siblings, stepchildren, stepfather and stepmother—also pay no personal income tax on those benefits.
By comparison, an individual’s direct sale would immediately attract 19% personal income tax and a further 4% solidarity levy on income above PLN 1 million.
Authorities warn, however, that this optimisation must not be artificial or undertaken for a specific transaction to avoid tax. Establishing a foundation immediately before or during a deal may be considered an artificial act solely intended to obtain a tax advantage and challenged.
The earlier shares are contributed, for example for succession planning, the lower the risk of artificiality in a later sale. The founder may also seek an individual tax ruling or protective opinion.
The Ministry of Finance plans to tighten taxation
If these advantages seem too good to be true, they may soon prove so: the ministry plans changes. In an August interview with PAP, deputy minister Jarosław Neneman announced a need to tighten the system, including taxing asset sales and extending the solidarity levy to beneficiaries.
The announcement deserves criticism given its scope and the Act’s provision for review and potential amendment only three years after entry into force.
No bill has yet been presented, and the deputy minister describes this as only an opening for discussion. Nevertheless, future restrictions cannot be excluded. Unless the ministry and Parliament heed criticism, this may be the last opportunity to use current rules.
Conclusion
To recap:
- Contributing shares is lawful, and the foundation enjoys all shareholder rights.
- Using a foundation may streamline M&A by avoiding marital-status and property-regime enquiries and stabilising the parties.
- Tax advantages currently exist, although the ministry plans to limit them.
For a comprehensive account, see our family foundations newsletter (PDF, in Polish).
[1] Tax rulings 0114-KDIP2-1.4010.690.2023.1.MW of 4 March 2024; 0114-KDIP2-1.4010.105.2024.1.KW of 22 March 2024; 0111-KDIB1-2.4010.230.2024.1.EJ of 20 June 2024.
[2] Tax rulings 0111-KDIB1-2.4010.626.2023.2.DP of 28 December 2023; 0114-KDIP2-1.4010.86.2024.2.KW of 12 April 2024; protective opinion DKP3.8082.8.2023 of 12 February 2024.
