How to choose the right business structure in Poland

The business structure you choose influences everything from day-to-day operations, to taxes and how much of your personal assets are at risk. You should choose a business structure that gives you the right balance of legal protections and benefits.

Choosing the right business structure is a critical aspect of successful entrepreneurship. There is no one-size-fits-all and choosing the right business entity from a start increases your chances of success. Poland remains one of the most popular investment locations in Europe and this trend is going to continue. Your business structure will determine which set of rules and taxes will apply to your business in Poland. Broadly, there are three most common types of business structures available for foreign investors in Poland:

Sole proprietorship: A sole proprietorship (or a sole trader) means being in business on your own. It’s a relatively straightforward structure, where you are self-employed and, legally speaking, you and your business are considered as one. It’s the most common structure used by self-employed individuals and small businesses in Poland. This option is available without any restrictions to the EU citizens but it is not avaiable to non-EU nationals or non-EFTA nationals.

With a sole proprietorship, you are the sole owner of the business, which means there is no separation from the business entity and you as a person.

The distinct advantage of this structure is that you can make all of the decisions alone; it gives you maximum control over your business. Moreover, this simple business structure is fast and easy to set up and does not incur a lot of costs. To set up your sole proprietorship, you only need to register your trade name in order to secure the local registration.

The downside of being a sole trader is that you can be held liable for debts and contracts of the business.

Limited liability company (LLC): LLCs create a separate legal business entity that protects the business owner from personal liability, thus protecting your personal assets. This makes it an attractive proposition for a foreign investor looking to establish a business in Poland. Separate legal entity status enables the company to enter into contracts directly and offers you or your parent company protection from the subsidiary’s liabilities. It must be remembered that directors of the LLC are personally liable for the debts of the Polish company in the situation where the enforcement against the company turns out to be ineffective.

Establishing a LLC in Poland is a straightforward process which can usually be completed within two days (in the case of online registration) or within 2 weeks (in the case of traditional route and signing the deed in front of the notary public).

Joint stock company: A joint stock company has a personality that is separate from its shareholders and directors (exactly as in the case of a limited liability company). Separate legal entity status enables the company to enter into contracts directly and offers the parent company protection from the subsidiary’s liabilities. A joint stock company is intended for large businesses. It should be remembered that the joint stock company requires also substantial paperwork and administrative work therefore it is intended usually for large well-established businesses that need substantial liability protection.

Establishing a joint stock company can usually be completed within 2 weeks.

When you are evaluating which structure to choose, it is important to think through these three factors:

Potential Size and Liability Protection: With each business structure, even a sole proprietorship, you will have employees. If you intend to be a larger, more complex business, an LLC may make more sense than a sole proprietorship. Also, if you have personal assets that you would like to protect or are wary of assuming full liability for business-related debts and obligations, then an LLC may be better suited for your business.When you run a business, you’re at greater risk for a lawsuit because businesses interact with the world and usually a lot of money is involved.

In a sole proprietorship, if your business is sued and loses, your personal assets — real estate, cars, bank accounts — can be targets for the parties seeking to collect damages. The same can be said, in some cases, if you default on a business loan and you signed a personal guarantee, or the lender placed a lien on your assets. The lender can attempt to recover its investment from your personal property.

LLCs and joint stock companies limit their shareholders’ liability, so personal assets are protected.

Taxes: How you and your business are taxed is dependent on the business structure you choose. You should evaluate the different types of taxes that come with each structure. Also, do not be afraid to consult an accountant if you are not comfortable making the decision on your own based on taxes.

If your business is going to trade in more then one country, you need to plan how to fit your business structure into the complex world of international tax.

Funding and Credit Needs: Typically, lenders are wary of providing funding to sole proprietorships. These types of business structures are sometimes seen as riskier investments. If you are focused on receiving funding from an outside lender, be sure to understand the type of business structure they prefer. LLCs and joint stock companies offer more opportunities.

The table below summerizes the main features of the most common types of business structures in Poland: