From this entry you will find out:
– why a limited liability company is one of the most popular forms of business in Poland.
When is a Polish limited liability company formed?
The moment the articles of association are signed, the so-called “limited liability company in organization” is created. This state lasts until the company is entered in the Register of Entrepreneurs of the National Court Register. At the moment of entry, the Polish limited liability company acquires its legal personality. A limited liability company in organisation essentially (apart from the exceptions provided for in the provisions of the Commercial Companies Code) has the same rights and obligations as a company which is entered in the Register of Entrepreneurs of the National Court Register.
Model articles of a limited liability company in Poland
The establishment of a limited liability company in Poland is possible through the s24 system (electronic registration system). For small companies with few partners, the template agreement and its limited modification options which is available via s24 system are most often sufficient. If the partners wish to make contributions in kind (i.e. in the form of real estate or a business) at the very beginning of the company’s existence, it will not be possible to use the template agreement. In this case, visit in the notarial office will be required.
When establishing a limited liability company in Poland through the s24 system, shareholders must remember to pay the PCC, the amount of PCC depends on the share capital established in the articles of association (if the contract is concluded before a notary – the notary collects the PCC right away and completes all related formalities).
Advantages and disadvantages of a limited liability company in Poland.
Among many advantages of a Polish limited liability company are: the possibility of its quick registration via s24 using Model articles (which you will read about below), relatively low set-up costs, low share capital and, above all, the complete exclusion of liability of the shareholders for company’s obligations. In addition, unliken in a general partnership (of which you may read more here) and a limited partnership (of which you may read here), there can only be one partner in a limited liability company. Another important added value is that in the case of a multi-member limited liability company, its shareholders do not have to pay Social Security contributions by virtue of their participation in the company (you will read about Social Security in a limited liability company below).
The most important disadvantage of a limited liability company in Poland, is the fact of double taxation (CIT at the level of the company and PIT at the level of the shareholders) and the fact that this limited liability company is obliged to keep full accounts and prepare financial statements. If the shareholders do not like the template agreement available in s24, they muay go to a notary to sign tailor made articles of association. Consequently, any subsequent changes also involve a visit to the notary. While the shareholders are not liable for the company’s debts, the managers of a limited liability company (its board members) may in certain cases be liable for its obligations.
It may be formed by one or more persons. One shareholder may have more shares in the share capital. The shareholders are entitled to amend the articles of association, to inspect the share book, to share in the profit resulting from the annual accounts. They are also entitled to dividends for the financial year, i.e. remuneration for the capital put in. The shareholders have equal rights and obligations in the company. They are the controlling body of the limited liability company. They may dispose of their shares in whole or in part and may pledge them in writing with notarised signatures.
Who represents a Polish limited liability company?
In a limited liability company in Poland, the board of directors is the representative body. The board of directors may consist of one or more persons. In the articles of association of a limited liability company, the shareholders may specify the method of representation. They may stipulate, for example, that each member of the management board has the right to represent the company independently or that the president of the management board has independent representation, while the other members of the management board must act jointly. If no such provision is included in the articles of association, the limited liability company will be governed by the so-called code method of representation. In such a case, two members of the management board acting jointly or one member of the management board acting jointly with a proxy will be required to submit declarations on behalf of the company. The method of representation specified in the company is subject to disclosure in the Register of Entrepreneurs of the National Court Register. The management board of a Polish limited liability company may also grant powers of attorney to shareholders and third parties. It is also possible to appoint a proxy in a limited liability company.
Supervisory body of the limited liability company in Poland.
Limited liability company in Poland may establish a supervisory board or an audit committee as a body that is to supervise the company. According to the Polish Commercial Companies Code this body should be established in companies where the share capital exceeds PLN 500,000 and there are more than 25 shareholders. It is not possible to be a member of the supervisory board and the audit committee at the same time.
Members of the supervisory board are appointed for a one-year term of office (unless the company’s articles of association state otherwise) and may be dismissed at any time. The supervisory board consists of at least three members, appointed by shareholders’ resolution. The tasks of the supervisory board include supervising the company’s activities, evaluating the financial statements, assessing the management board’s proposals on the distribution of profit or coverage of loss and submitting an annual written report on the results of this evaluation to the shareholders’ meeting. As a rule, each member of the board may exercise the right of supervision independently, and the company’s articles of association provide for the extension of the powers of this body. The competence of the supervisory board also includes the adoption of resolutions. The members of the supervisory board receive remuneration in the amount specified in the articles of association. The audit committee is governed by the same rules as the supervisory board described above.
The shareholders’ meeting consists of the shareholders of the company. This body adopts resolutions on the agreement to acquire real estate or an interest in real estate for the company. The disposition of a right or the incurring of an obligation to provide a service exceeding twice the share capital of the company requires a resolution of the shareholders. There are two types of shareholders’ meetings: ordinary and extraordinary. An ordinary meeting should be held within six months after the end of each financial year. An extraordinary meeting, on the other hand, is convened by the management board/audit committee/supervisory board in cases specified in the law or the articles of association. Shareholders’ meetings are held at the registered office of the company or at another location in the territory of the Republic of Poland.
Who is liable for debts in a Polish limited liability company?
The shareholders are not liable for the debts of a Polish limited liability company. Creditors must in the first instance direct their claims directly to the company and seek satisfaction from its assets. In certain cases, however, a creditor will be able to direct his claims to the members of the company’s management board. Such a possibility will arise primarily if the enforcement against the company’s assets is ineffective and if the members of the management board have not filed a timely petition for the company’s bankruptcy. In such a case, a management board member may be liable for the company’s obligations with all his or her assets.
Amendment of the articles of association of a limited liability company in Poland
Any amendments to the articles of association of the company require a resolution of the shareholders and the entry of such amendments in the register. Amendments to the register shall be reported by the company’s management board.
What taxes apply to a limited liability company in Poland?
The company is a payer of corporate income tax (CIT). As a general rule, corporate income tax is 19%, but in certain cases, upon meeting the requirements set out in the law, it is possible for a limited liability company to settle this tax at the rate of 9%. Such a possibility exists in the case of companies which do not exceed the amount of revenue of EUR 2 million in a given financial year. After the CIT is paid by the limited liability company and the profit is distributed to the shareholders, the shareholders are obliged to pay personal income tax (PIT). The rate of this tax is 19%. In addition, limited liability companies in Poland have the possibility to benefit from lump-sum taxation on corporate income. This is the so-called Estonian CIT and its essence, in the simplest terms – the company is not obliged to pay income tax until the profit is distributed to its shareholders. In Estonian CIT, the effective taxation of the company (i.e. taking into account CIT and PIT) and the shareholders is lower than under general taxation – in a company that is a small taxpayer and in relation to other taxpayers, the taxation of distributed profits will be a maximum of 20% or 25%, respectively.
What kind of Social Security is applicable in a limited liability company in Poland?
Partners of partnerships are obliged to pay social security contributions (of which you may read more here). The shareholders of a Polish limited liability company are not subject to compulsory social insurance provided that the company is multi-member. In recent years, jurisprudence has developed the position that multi-membership cannot be apparent, and this is considered to be the case when, for example, one partner holds 99% of the shares and the other 1%. In the case of a one-person limited liability company, its shareholder is obliged to pay Social Security contributions.
As regards members of the management board of limited liability companies in Poland, as of 1 January 2022, persons appointed to perform this function on the basis of a shareholders’ resolution and who receive remuneration on this account have been covered by mandatory health insurance. If a member of the management board is employed by the company on the basis of an employment contract, the obligation to pay the Social Security contributions specific to this contract arises.
What is the amount of the health contribution in a Polish limited liability company?
Shareholders in limited liability companies in Poland are not subject to mandatory social insurance. However, board members of limited liability companies must bear in mind that, as of 1 January 2022, the rules for reporting board members to health insurance have changed. Currently, board members of limited liability companies are subject to mandatory health insurance if they perform their function by appointment and receive remuneration on this basis. The contribution to health insurance for board members is 9% of the contribution assessment base. The contribution assessment basis of such persons is the amount corresponding to the remuneration of such persons received by virtue of their appointment.
What kind of bookkeeping applies to a limited liability company in Poland?
The law obliges limited liability companies in Poland to keep full accounts. This means that every economic event in a limited liability company must be properly recorded in the company’s books. Therefore, owning a limited liability company is most often associated with the need to entrust the bookkeeping to a specialist company. This therefore increases the day-to-day costs of doing business in this form. Furthermore, unlike for example in the case of sole proprietorships , the payment of funds from a limited liability company is only possible if there is a legal basis for doing so (e.g. as an advance payment of dividends).
As a general rule, the disposal of shares in a Polish limited liability company is done by means of a contract. The difference with respect to the disposal of share rights in other companies is that a contract for the disposal of shares in a limited liability company, in order to be fully valid and effective, must be concluded in writing with a notarised signatures.
Before concluding the agreement, the parties to the transaction should familiarise themselves with the articles of association of the company whose shares are being sold. It is very often the case that the consent of the management board or the shareholders’ meeting is required for the transfer of shares. In addition, the other shareholders may have a pre-emptive or priority right to purchase the shares. As a general rule, the transfer of shares is effective from the conclusion of the agreement (unless something else is stated in the agreement).
Can the Polish limited liability company’s articles of association be terminated?
It is worth noting that in a limited liability company in Poland, unlike partnerships (of which you may read here – general partnershiphttps://openacompanypoland.com/general-partnership-characteristic-features-taxes-liability/), it is not possible for a shareholder to terminate the articles of associaiton. If a shareholder wishes to ‘exit’ the company, he or she may do so by selling shares. Another way is to redeem the shareholder’s shares.
How to exit a limited liability company in Poland?
The simplest way to exit the company is to sell the shares held by the shareholder. Another way is to redeem the shareholder’s shares. In the share redemption procedure, the shares are acquired by the company and canceled. For the share redemption procedure to be possible at all, the articles of association of the Polish limited liability company must contain a provision to this effect. In the case of voluntary redemption with the consent of the shareholder, no remuneration may be paid for the redeemed shares. The Companies Code also provides for the possibility to include a provision in the articles of association allowing compulsory redemption of shares (i.e. without the consent of the shareholder). In such a case, the articles of association must describe precisely the cases when such redemption will be possible and establish the principles of remuneration for the redeemed shares.
Dissolution of a Polish limited liability company.
The Commercial Companies Code indicates, inter alia, the following circumstances that result in the dissolution of the company:
– occurrence of reasons provided for in the articles of association,
– adoption by the shareholders of a resolution to dissolve the company,
– declaration of the company’s bankruptcy.
The dissolution of the company may also take place by way of a court decision, inter alia, as a result of a request of a shareholder or a member of a body of the company, if the achievement of the company’s objective has become impossible or if there are other important reasons caused by the company’s relations.
The company may be dissolved only after liquidation, when the company is deleted from the register. The purpose of liquidation is the collection of debts, liquidation of assets or repayment of liabilities. Liquidation is a process in which the company must fulfil a number of obligations and lasts at least six months (although it is still a shorter process than the liquidation of a joint-stock company)
Shares in a limited liability company in Poland are subject to inheritance. This is because shares are a property right. Unless the articles of association provide otherwise, the heirs of a shareholder enter the company in his place by operation of law. The heirs of a shareholder do not need to make any further declaration to this effect. It is, however, legitimate to notify the company if such a situation arises. The company may request documents confirming the transfer of shares to specific persons, in particular a certificate of inheritance.
Are you planning to set up a company in Poland? Contact us
Our lawyers will advise you on which company in Poland would be best suited for your needs, whilst taking into account asset protection as well as a tax burdens.
If you wish to find out more about companies in Poland please watch our video: