Limited liability company in Poland

Limited liability company in Poland is by far the most popular form of running a business in Poland chosen by foreign investors. As any legal form od business activity it has its advantages and drawbacks.

In this article I will focus on why do and why donts on registration of a limited liability company in Poland. Hope this will be helpful for investors willing to start their business operations in Poland.

Quick facts about limited liability company in Poland

Advantages of a Limited liability company in Poland

A limited liability company is one of the most popular forms of business in Poland. What are its advantages?

Legal personality of a limited liability company in Poland

Limited liability company in Poland (spó?ka z o.o.) has legal capacity, capacity for legal actions, and capacity to be a party in court proceedings.

It may acquire rights in its own name, including real estate and other proprietary rights. It can also incur obligations, sue and be sued.

Limited liability of shareholders

As a rule, shareholders are not liable for the company’s obligations. The company itself is responsible for them.

The liability of shareholders is limited only to the amount of their shares. It can be extended to their personal assets only in exceptional cases.

Low costs of establishing a limited liability company in Poland

Another advantage of a limited liability company in Poland is the low cost of its formation. The costs include the initial contribution,? drawing up the company’s agreement in the form of a notarial deed and registration with the National Court Register.

The cost may be even lower if you chose to register the company via the Internet. This form allows to avoid notarial costs.

A possibility to register a limited liability company via the Internet

The simplified procedure for setting up a limited liability company in Poland allows to avoid personal visits to various offices. Both sending and paying the registration application via the free S24 system takes only a few minutes.

Low minimum share capital

According to the provisions of the Commercial Companies Code, the minimum share capital should amount to 5000 PLN. The company’s agreement determines share capital.

Disadvantages of a Limited liability company in Poland

Despite many advantages of a limited liability company, it also has some disadvantages. We will discuss them below.

Formalised procedure of forming a limited liability company

According to the provisions of the CCC, the process of setting up a limited liability company consists of several steps:

1. Conclusion of a company’s agreement,
2. Contribution of share capital by shareholders,
3. Appointment of a management board,
4. Establishment of a supervisory board or an audit committee, if required by law or the company’s agreement,
5. Registration in the National Court Register.

Only after meeting these requirements, the limited liability company may be established.

The company’s agreement in the form of a notarial deed

As indicated by the provisions of the CCC, the company’s agreement for an LLC must be in the form of a notarial deed. Yet, it can also be created using a template agreement.

Why the agreement in the form of a notarial deed is seen as a disadvantage of a limited liability company? It requires:

• Additional costs for the shareholders,
• Gathering appropriate documents,
• Scheduling a visit at a notary’s office.

?In the case of a large number of shareholders, this takes more time than concluding an LLC agreement by using a template. However, it’s worth remembering that any changes to the company’s agreement will still require a visit at a notary’s office. Even if the agreement was concluded with the use of the standard template.

Double taxation of the limited liability company’s income

The double taxation of a limited liability company can be also seen as its drawback. The company’s profit is subject to corporate income tax (CIT). If the company distributes its profits to its shareholders, it is also subject to personal income tax (PIT). The tax rate for the company is either 9% or 19%.

The lower rate applies only to entities that did not generate revenues exceeding the equivalent of 2 000 000 EUR in the given accounting year. For higher revenues, the higher tax rate applies.

The obligation to submit financial statements

The management board of a limited liability company in Poland must prepare and submit an annual financial report to the court of registration. This obligation applies regardless of whether the LLC achieved any revenue in a given year.

The obligation to maintain the so-called full accounting

Another disadvantage of a limited liability company is the obligation to keep full accounting records. It is a complex and formalised system of recording economic and financial events.

In practice, this involves additional costs of accounting in Poland. Entrepreneurs are obliged to entrust accounting tasks to external entities.

Liability of management board members for obligations of a limited liability company

A limited liability company in Poland is liable for its obligations towards third parties with all its assets. However, if an LLC cannot be held liable, then creditors may demand payment from the members of the management board. In such a case, they are personally liable with all their assets without limitation.

Possibility to form a one-person limited liability company in Poland

The possibility to establish a one-person limited liability company is another advantage. It is an exception to the rule that a company must consist of at least two shareholders. The purpose of introducing such a solution was to enable entrepreneurs to run their own businesses in a way that reduces economic risk and taxes.

Long liquidation procedure

Another disadvantage of a limited liability company in Poland is the long liquidation procedure. It requires gathering appropriate documentation and appointing liquidators. When deciding to terminate the activity of an LLC, one should be aware that the liquidation process takes longer than its formation.

Shareholders of a limited liability company in Poland

A shareholder of a limited liability company in Poland can be, with some reservations, a natural or a legal person. Basically, another single-member limited liability company (a company in which there is only one shareholder) can’t establish a limited liability compay without any other shareholder.

However, nothing stands in the way of such single-member company acquiring 100% of the shares in the company after its registration in the KRS.

Obligations of shareholders in the Polish limited liability company

Shareholders’ obligations in a limited liability company in Poland are mainly financial. These are: the obligation to make a contribution (in cash or as a contribution in kind) and the obligation to make additional payments if it’s necessary to cover losses or finance expenses for which the company does not have sufficient funds.

This is the only economic risk of shareholders. Nevertheless, of course, company articles of association may impose other obligations on the shareholders.

Rights of shareholders in the Polish limited liability company

The rights of the shareholders of a limited liability company in Poland may be divided into financial and corporate rights.

Financial rights are among others:

• the right to dividends, i.e. participation in the company’s profit,;
• the right to share in the post liquidation surplus, i.e. the assets remained after satisfying the claims of the liquidated company;
• the right of priority to acquire shares in the increased share capital;
• the right to reimbursement of additional payments, if any.

Corporate rights consist of for example:

• the right to dispose of the share (e.g. to sell or to pledge the share);
• the right to vote at the shareholders’ meeting;
• the shareholder’s right to individual inspection, which includes, in general, the ability to inspect the company’s books and records at any time;
• the right to participate in the shareholders’ meeting;
• the right to contest company shareholders resolutions;
• the right to request the convening of an extraordinary shareholders’

Board of directors

Just like in other types of companies, a limited liability company in Poland has its bodies. One of them is board of directors and it primarily decides on matters which are not reserved for other bodies. To be a member of the management board it is necessary to fulfil three conditions:

• be a natural person (it is not possible to appoint other company as a director of limited liability company in Poland);
• be over 18 years old;
• have a non – criminal record.

What’s important – to become a board member it’s not necessary to be a shareholder in the company or to be Polish citizen.

Scope of authority of directors in Polish Limited Liability company

The duties of the management board members include, above all, representing the company and managing its internal affairs. Obviously, those are the duties resulting from applicable laws. However, company ?agreement or other contracts may impose other types of duties on the board members.

If there is more than one person on the board, the articles of association specify the way of representation of the company. If the articles of association do not contain any provisions on that subject, the company is represented by two members of the management board acting jointly or by one member of the management board acting jointly with the company commercial proxy.

Liability of a director in a company in Poland

The limited liability company in Poland is basically solely responsible for its debts and liabilities.? However, if it is not possible to enforce the debt from the company, the liability may be transferred to the directors.

Such liability should be confirmed by a court judgment, which awards the company’s claim in favour of its creditors and states that the execution against the company was ineffective. Nonetheless, a director may exempt himself from such liability if he proves that:

– a bankruptcy petition was filed in due time, or

– the formal restructure proceedings were initiated;

– the bankruptcy petition was not filed without the fault of given director, or

– despite not filing a bankruptcy petition or not starting the restructure proceedings, the creditor has not suffered any damage.

Supervisory Board

As mentioned earlier, each shareholder is entitled to individual control. However, the shareholders may additionally establish in the company agreement another body – a supervisory board – which will hold constant supervision over the company’s activities in all areas of its operations.

What should be noted is that in limited liability company in Poland where the number of shareholders exceeds 25 and the share capital exceeds PLN 500,000, it is mandatory to establish a supervisory board in the company.

The supervisory board must consist of at least three members. As in management board, only natural persons may be members of the supervisory board. A member of a company’s management board, a commercial proxy or a company’s chief accountant may not at the same time be a member of its supervisory board.

Taxation of limited liability company in Poland

A limited liability company is obviously, like all legal persons, a payer of corporate income tax – CIT. The CIT tax rate is accordingly: 19% or 9% in case of a reduced CIT rate. Taxpayers, who in the given tax year did not exceed the amount of revenue of EUR 2.000.000 expressed in Polish currency, are entitled to apply the 9% CIT rate.

Moreover, shareholder of the company, who is a natural person and received dividends is also obliged to pay another tax – PIT – personal income tax. In this case the tax rate is one and amounts to 19%.

It is also worth mentioning about the “Estonian CIT” – or officially corporate income tax lump sum – which is available for Polish limited liability companies.

If this article was interesting for you and you want to know more on starting business in Poland just DM me. Together with my colleagues at CGO Legal - a law firm in Poland, I will help you in all matters related to Polish business law. If you want to get details on starting business in Poland check out our article on company registration in Poland.