From this entry you will learn:
- what a civil partnership is and how it works.
Advantages and disadvantages of a civil partnership in Poland
A civil partnership is an agreement between entrepreneurs (i.e. persons or entities that carry out business activities) who decide to conduct business activities jointly. A civil partnership is not an entity – it is not a legal person or even a legal entity with a legal disability and is not subject to registration in the Register of Entrepreneurs of the National Court Register like all other commercial companies (including, inter alia, a limited liability company, which we write about here). Subjectivity is vested in its partners. “Establishment” of a civil law partnership takes place through the conclusion of an agreement by the partners and the filing of a notification of this fact in the CEIDG. As a rule, therefore, it is a quick and inexpensive process, similar to sole proprietorship (which we discuss here). Partners of a civil partnership are taxed once, with income tax. The taxpayers of income tax are the partners (similar to the partners of a general partnership, which you will read about here). The conduct of the company’s affairs is not, as a rule, complicated and the partners may contribute as little as one zloty. A civil partnership is only obliged to keep full accounts in certain cases (you will read about bookkeeping below).
Similarly to sole traders, partners in a civil partnership are liable for the obligations of the civil partnership without limitation, jointly and severally, with all their assets.
Partners of a civil law partnership should remember that if real property is to be contributed to the partnership, then the contract will require the form of a notarial deed.
What taxes apply to a civil law partnership in Poland?
A civil law partnership is not subject to income tax (nor is a general partnership). In a civil partnership, income tax is paid separately by each partner on the income earned from the partnership. The partners should specify in the articles of association to what extent each of them is entitled to the profit that the civil partnership generates.
There is an exception in the case of value added tax (VAT); here, the VAT taxpayer is the company, not its partners (as in the case of partnerships, including a limited partnership, which is discussed here).
Partners of a civil law partnership may choose the form of taxation, i.e., general taxation, flat tax, tax card tax or a lump sum of registered income. As a rule, partners should choose for themselves the same form of taxation on income obtained from the civil partnership, the only exception to this being a situation in which, for example, one partner is subject to taxation under the general rules, while the other has chosen flat tax. Other ways of mixing the available settlements are not allowed.
In the case of civil partnerships of natural persons, regardless of the civil partnership, these persons are registered in CEIDG and carry out one-person economic activity (you can read about Social Security in the case of one-person economic activity here). In such a situation, the titles to social insurance coincide. The partner is therefore obliged to pay one social insurance contribution. Unfortunately, this does not apply to health insurance contributions, which in certain cases will have to be paid separately for each title (you will read about health insurance contributions below).
What accounting is applicable in a Polish civil partnership?
In a civil partnership, it is possible to keep accounts on the basis of an income and expenditure ledger. A civil partnership may also decide to keep books of account and thus to keep full accounts. As in the case of a sole proprietorship, in a situation where the net income of the partnership exceeds EUR 2 million, the civil partnership will be obliged to keep accounts in the form of full bookkeeping. Also, when a partner in a civil law partnership is a legal person, a civil law partnership is obliged to keep full bookkeeping accounts, regardless of the amount of its income, similarly to, for example, a joint-stock company (which you can read about here).
Who represents the civil partnership in Poland?
The provisions of the Civil Code stipulate that each partner may independently represent the company with respect to actions not exceeding ordinary management. In the case of actions exceeding ordinary management, the civil partnership should be represented by all partners. The articles of association may introduce other rules of representation (e.g. a provision that the action of all partners is required for all actions). However, a partner who has been deprived of the right to manage the affairs of the partnership in the articles of association is not entitled to represent the partnership. The representation of a civil partnership is therefore very similar to the representation of a general partnership (which you will read about here).
The partners of a civil partnership are responsible for complying with the rules of representation. However, they should bear in mind that if there is a breach of the rules of representation, e.g. by one of the partners taking an action that exceeds the scope of ordinary management, the action will be valid and effective. The creditor will have the right to enforce its rights under the contract concluded. On the other hand, such a partner of a civil partnership who performs an act exceeding ordinary management without obtaining the consent of the other partners may be liable for damages to the civil partnership.
The partners must also bear in mind that the rules of representation are not available to the public, as is the case, for example, with a limited liability company or a simple joint-stock company. Furthermore, there is a presumption of self-representation in relation to a civil partnership. The only way to demonstrate how the partners are to act on behalf of the civil partnership is to show the partnership agreement, but counterparties are not obliged to request it.
Who is liable for the debts of a civil partnership in Poland?
As we indicated at the beginning of our text, a civil partnership is in fact a contract between partners, and as such a civil partnership has no legal entity.
The obligations of a civil partnership are in fact the obligations of its partners. The partners are therefore liable for the obligations without limitation, in the same way as a sole trader (which you will read about here). The liability of the partners is joint and several, which means that the creditor has the right to direct his claims to the partners as he sees fit. The creditor has the right to demand fulfilment from only one of the partners, from several or from all of them. If one partner performs for the creditor, such partner has a recourse claim against the rest of the partners. The partners in a civil partnership thus have a wide range of liability, unlike the partners in a limited liability company. (which you can read about here).
When is a Polish civil partnership formed?
A civil partnership is formed when a contract is concluded. As a civil partnership is a contract, the company must have at least two partners at the time of incorporation and throughout its duration. The partners in a civil partnership may be natural persons, so-called legal disabilities (e.g. a limited joint-stock partnership, which you can read about here) as well as legal persons. Within the framework of a civil partnership agreement, the partners undertake to act together for a specific purpose.
Just as the obligations of a civil partnership are the obligations of its partners (as you will read above), the assets of a civil partnership are actually the assets of its partners. At the same time, these assets are held on a joint basis. The assets of a civil partnership include both the contributions made by the partners and anything acquired in the course of the business. The ownership of assets on a joint basis means that the partners’ shares are not separate and that none of the partners may dispose of a share in the assets of the partnership.
How does one dispose of the business of a Polish civil partnership?
The disposal of a civil partnership business is similar to the disposal of a sole proprietorship business (which you can read about here). It is therefore permissible to dispose of, with the consent of all the partners, the business of the civil partnership or an organised part of the business.
The sale of the business of a civil partnership is a sale of the partners’ common property, and as such it may be disposed of in whole or in part (i.e. part of the assets of the civil partnership and not of the partner’s share). A partner’s share in a civil partnership, unlike a share in a limited liability company. (which you will read about here), cannot be sold or encumbered.
Another way to dispose of an s.c. business is to convert the civil partnership into a capital company, so, for example, into a limited liability company (we write about conversions here), and then sell the shares.
How to exit a civil partnership in Poland?
As indicated above, a partner in a civil partnership cannot sell his share in the partnership. He or she is not entitled to a separate set of rights and obligations that can be traded as, for example, a partner in a limited partnership (which we write about here). This does not mean, however, that there is no possibility of exiting the partnership, in particular when all partners agree to it. It is therefore possible to conclude an annex to the agreement by virtue of which a partner will leave the civil partnership. Most often, such an exit will involve some sort of repayment obligation to the exiting partner, but of course a partner may agree to leave the civil partnership free of charge. Partners may also decide jointly, by an appropriate agreement, to terminate the s.c..
Withdrawal from a Polish civil partnership, termination of the contract
Any partner in a civil partnership, like partners in a general partnership (which you can read about here), has the right to terminate the civil partnership agreement. Termination may be with notice or for good cause without notice.
In the case of termination with notice, the civil partnership agreement does not have to provide for such a partner’s right if the civil partnership is concluded for an indefinite period. If the civil partnership is concluded for a fixed term, termination by the partner is possible if there are so-called valid reasons. Termination for good cause is possible in the case of a partnership agreement concluded for an indefinite as well as a fixed term. The law does not define what valid reasons are, so each time it will be assessed whether such valid reasons actually exist. An important reason may be, for example, a loss of confidence in the other partner, even if he performs acts of representation of the civil law partnership contrary to the rules set out in the contract.
What is the amount of the health contribution in a Polish civil partnership?
As indicated above, when running a sole proprietorship and a civil partnership, there is an obligation to pay social security contributions and health insurance contributions. Social contributions are paid on a single title. With regard to health contributions, there may be an obligation to pay them from each title. This depends on whether the income from both activities (i.e. a partnership and a JDG) is taxed under one or two forms of taxation. If one form of taxation is chosen, the health contribution is one determined on the sum of income or on the basis of the sum of income (in the case of a flat rate). If the income from both activities is taxed under different forms of taxation, the health contribution is determined separately from each of the forms of taxation. The amount and method of the health contribution depends on the form of taxation chosen.
Inheritance of a Polish civil partnership
The death of a partner is, in principle, the end of membership in a civil partnership. However, it may be stipulated in the articles of association (and this is most often the case in practice) that the deceased partner will be succeeded by his or her heirs.Read more about a successor administrator in the event of the death of one of the partners of a civil partnership.