Loan between related parties.

Today’s economic market poses many financial challenges to entrepreneurs. Although many methods of recapitalising a company can be found, one frequently used solution, in the case of a limited liability company, is for the shareholder to grant a loan. This type of transaction entails many benefits for both the company and the shareholder. Unfortunately, they also involve risks and legal requirements that must be fulfilled.

What requirements must be met to grant a loan to a company?

A shareholder loan is an agreement whereby a shareholder makes a certain amount of money available to the company for a fixed period of time, in return for which the company undertakes to repay the borrowed amount and, in the case of a fee-based agreement, to pay interest. A loan agreement should be concluded in writing. It is also possible to conclude a loan agreement verbally, but only if its value does not exceed PLN 1,000.00.

First of all, it should be pointed out that, as a general rule, anyone can grant a loan to a company. However, depending on the relationship between the entities, different requirements will have to be met. First of all, the conclusion of a loan agreement requires a declaration of will from the shareholder and the authorised representative of the limited liability company. At this point, the issue of the correct authorisation of the limited liability company’s representative must be considered. The correctness of this authorisation will depend on the specific situation:

• if the lending shareholder is not a member of the management board of the company, the company will be represented at the agreement by the management board in accordance with the rules of representation,
• if, in a multi-member company, the shareholder granting the loan is also a member of the management board, the company will be represented by the supervisory board or a proxy appointed by a resolution of the shareholders,
• if the sole shareholder is also the sole member of the management board, the company will be represented by the shareholder in the loan agreement, but it will require the form of a notarial deed.

Furthermore, in the event that in a multi-member company, the shareholder granting the loan will also be a member of the management board, the agreement of the loan will require the consent of the shareholders’ meeting.

It should also be borne in mind that, as a general rule, the incurring of an obligation by a company to provide a service with a value twice the amount of its share capital requires a resolution of the shareholders, unless the articles of association provide otherwise. This requirement will often also need to be met for relatively small loan amounts where the company’s share capital has been set at a minimum level.

Form of money transfer.

As a general rule, if the partner is a private individual, the loan may be granted in cash, by physically depositing money into the company’s cash register. However, in a situation where the partner of the company is another entrepreneur, the rules of the Entrepreneurs’ Law will apply, according to which the making or payments related to the business activity performed shall be made via the entrepreneur’s payment account, whenever:

• a party to the transaction resulting in the payment is another entrepreneur and
• one-time value of the transaction, regardless of the number of payments resulting from it, exceeds PLN 15,000 or the equivalent of this amount, while transactions in foreign currencies are converted into zlotys according to the average exchange rate of foreign currencies published by the National Bank of Poland on the last business day preceding the day of the transaction.

Safe harbour as a secure condition of the loan agreement. Loan interest rate.

First of all, it should be pointed out that the conclusion of a non-interest bearing loan agreement between a shareholder and the company will be a gratuitous, taxable benefit. The company’s income in such a situation will be the value of the interest that the company would have had to pay, if it had been granted an interest-bearing loan on market terms.

Consequently, the loan should be granted at market interest rates. The interest rate and any additional charges should be determined in a comparable way as if the company had applied for bank or non-bank financing.

This can be avoided by using one of the safest, although not very flexible, options for the conclusion of a loan agreement between the shareholder and the company, the safe harbour regulation. This regulation can be used if the following conditions are met:

• the interest rate of the loan on an annual basis as at the date of conclusion of the agreement is determined on the basis of the type of base interest rate and the margin specified in the announcement of the minister competent for public finance valid as at the date of conclusion of the agreement;
• no provision is made for the payment of fees other than interest related to the granting or servicing of the loan, including commissions or premiums;
• the loan was granted for a period not exceeding 5 years;
• during the tax year, the total level of liabilities or receivables of the related entity in respect of the capital of loans with related parties, calculated separately for loans granted and borrowed, is no more than PLN 20,000,000 or an equivalent amount;
• the lender is not an entity having its place of residence, registered office or management in a territory or country applying harmful tax competition.