The Act is also known under the name of ‘business constitution’, because the Act governs the undertaking, conducting and legal limitation of business activities in Poland. The Act is the source of various terms, e.g. entrepreneurship or economic activity, that remain applicable in relation to business activities. The Act also contains a list of specific licenses that have to be acquired in order to undertake certain business activities.
The rules of the Act are applicable to natural persons and legal entities. However, the Act distinguishes between the investors from EU/EFTA and other third party countries.
Natural persons and legal entities from the EU/EFTA countries, in regard to conducting business in Poland, fall under the same conditions and rules as Polish individuals or companies. Such a foreign entity may choose any legal form for their business activity in Poland freely with the same restrictions as are applicable for Polish naturals or companies, if any.
Unless international agreements state otherwise, and all requirements are fulfilled, a foreign company or natural person based outside the EU/EFTA zone may conduct business only in the form of:
- Limited Partnership (LP),
- Partnership limited by shares,
- Limited Liability Company (LLC),
- Joint-stock company/Public Limited Company (PLC).
Despite these limitations, such business entities incorporated in Poland in accordance with Polish regulations are permissible to conduct business without restriction based on the same rules as Polish and other EU companies. It follows that there are no restrictions related to the source of capital and, consequently during its performance, no administrative permit can be applied for by virtue of the mother company being the source of capital.
Instead of incorporation of a legal entity, a foreign company may create a branch or a representative office in Poland.
The branch office is restricted in conducting business activity only in the scope of the mother company. The registration process is similar to the LLC, because it has to be registered in the Entrepreneurs’ Register maintained by the court (hereinafter referred as “KRS”). The branch office has its own KRS number.
Furthermore, the representative office may only perform in the field of advertising or marketing activities for the benefit of the mother company. However, such entities are obliged to perform all activities in accordance with Polish law, includy Polish Accounting Rules. Register of Representative Offices of Foreign Companies is held by the Ministry of Economic Development in Warsaw. The representative office and branch office shall appoint the representative acting on their behalf.
Polish regulations allow domestic and foreign enterprises to operate under a wide variety of legal forms. Besides the limited liability company, which is probably the most attractive legal vehicle for foreign investors to conduct business in Poland, there are a number of other forms of business organisations.
The Polish Code of Commercial Companies sets forth six forms of commercial association as follows:
- General Partnership,
- Limited Partnership (LP),
- Limited Liability Partnership (LLP),
- Partnership limited by shares,
- Limited Liability Company (LLC),
- Joint-stock company/Public Limited Company (PLC).
Apart from the Polish Code of Commercial Companies, Polish law also provides other legal forms to conduct business activities. Below we will provide with a short description and characteristic of each of the aforementioned forms. However, we will concentrate on the limited liability company, which is often chosen by foreign investors.
Limited Liability Company
As mentioned above, the Limited Liability Company (LLC) is the most popular legal vehicle for foreign investment in Poland.
The Polish LLC remains very similar to the German limited liability company as its concept was inspired by German law. The name of the LLC emphasises the fact that the shareholders of the entity are not personally liable for the company’s debts. The main feature of the LLC is to ensure that the company is treated as the separate legal entity from its shareholders or sole shareholder.
The significant advantages of the LLC in comparison with other legal forms provided by Polish law are as follows:
- relatively low costs of incorporation of the company,
- the company may conduct business activities immediately after signing the Articles of Association,
- fast registration process at KRS,
- limited liability and low minimal share capital,
- clear and simple rules in relation to the daily management of the company,
- low operational costs.
The LLC may be incorporated by one or more person or/and entity. However, the LLC cannot be incorporated by another single-shareholder LLC governed by Polish or foreign law. Nevertheless, Polish law does not prohibit the holding of 100% of shares by another single-shareholder LLC. Therefore, the above mentioned restriction concerns only the registration process of the LLC.
The incorporation of a LLC is executed in the front of the Polish notary and the Articles of Association must be notarized. The company may also be incorporated by attorney in fact, acting upon prior given power of attorney.
The Articles of Association should specify:
- the business name of the company including the additional description ‘Spółka z ograniczoną odpowiedzialnością’ or its abbreviation ‘sp. z o.o.’,
- the seat of the company,
- the scope of the business activity,
- the amount of share capital,
- information on the number of shares along with their value, owned by each shareholder,
- whether the company has been incorporated for limited period of time.
The Code of Commercial Companies outlines the minimum content of the Articles of Association, but it is quite common to have a wide range of additional rules which make this legal form very flexible. Under Polish law, the LLC must have a minimum share capital of 5,000.00 PLN with the minimum nominal value of 50.00 PLN per each share. Contributions may be made in cash or in kind. The contribution in kind remains at the free disposal of the management board.
Corporate bodies of a limited liability company
The limited liability company may have three governing bodies: the management board, the general meeting of the shareholders and the supervisory board. The latter is required only if the company has more than 25 shareholders and if its share capital exceeds 500,000.00 PLN. The Polish corporate governance system is basically a two-tier system with separation of the management and oversight functions carried out by the supervisory board is prescribed by law.
The Management Board is a body which deals with the affairs of the company and represents the company before the third parties. The duties and prerogatives of the Management Board differ significantly from the duties and prerogatives of the Board of Directors, which is typical for the common law sates. The Management Board may consist of one or more members (no difference whether Poles or foreigners), that can be appointed from the shareholders or from third persons. Unless the Articles of Association stipulate otherwise, members of the Management Board are appointed and dismissed by the resolution of the General Meeting of the Shareholders.
The statutory duty of the Supervisory Board is to exercise permanent control over all areas of the company’s activities, however, as stated hereinabove, there is no obligation to appoint the Supervisory Board. The Management Board is not bound by the instructions given by the Supervisory Board. The Supervisory Board consists of at least three members appointed by the resolution of the General Meeting of the Shareholders. The foreign investors usually do not appoint the Supervisory Board in their Polish subsidiaries.
The third body – The General Meeting of the Shareholders, consists of the shareholders. The Code of Commercial Companies distinguishes between the ‘Ordinary’ and ‘Extraordinary’ General Meetings. The Ordinary General Meeting of the Shareholders is held within six months of the end of each financial year. Polish law stipulates precisely which issues should be put on the agenda (e.g. consideration and approval of the management report and financial report). The Extraordinary General Meeting is called in cases stipulated in the Code of Commercial Companies or in the Articles of Association. The Extraordinary General Meeting might be also called in case any authorised person or body finds it necessary. The shareholder may be present at the meeting either in person or by representatives with the power of attorney granted in writing.
Liability in a limited liability company
The shareholders of a LLC are not liable for the company’s debts or obligations. Instead, shareholders can only lose their investment (monetary contribution or in-kind contribution invested to take up the shares in the share capital of the company). Polish law states that other persons may be liable for a company’s obligations. In regard to the company being in organization process, the liability for the company’s obligation is born jointly by the company and people acting on its behalf. To protect the economic interests of the company’s business partners and of public institutions (e.g. tax authorities), Polish law states that in certain circumstances members of the Management Board may be liable for the debts of the company.
Joint-stock Company/Public Limited Company (PLC)
A joint-stock company/public limited company is very similar to a limited liability company with regard to the liability of shareholders, governing body and taxation. However, the provisions stipulated by the Code of Commercial Companies in relation to the PLC are relatively more formalistic and provide additional obligations which must be fulfilled by the bodies of the company. This has a direct impact on the cost of incorporation and running the company. In fact, this legal form is used for business planning IPO, searching for PE/VC investors or when this form is required by Polish law (e.g. banks, pension funds and other financial institutions).
Similarly to LLC, PLC is treated as a separate legal entity from its stockholders or sole stockholder. The PLC can be incorporated by one or more person/entity. However, the PLC cannot be incorporated by another single-shareholder limited liability company governed by Polish or foreign law. The restriction concerns only the registration process. The statute of the PLC should be signed before the Polish notary. Nonetheless, the company may be incorporated by attorney in fact upon the power of attorney granted to him. The company comes into existence on the implementation of the statute. Only registration in the Entrepreneurs’ Register provides the PLC with its full legal status.
The statute should specify:
- the business name of the company, including the additional description ‘spółka akcyjna’ or its abbreviation ‘S.A.’,
- the seat of the company,
- the scope of its business activity,
- whether the company has been incorporated for a limited period of time,
- the amount of the company’s share capital and the amount paid up to cover the share capital before its registration,
- the nominal value of the shares and their number with an indication of whether they are registered or bearer shares,
- whether various types of shares are provided, and if so, the number of shares of a specific type and their related rights,
- the founder’s name,
- the number of members of the Management Board and Supervisory Board (at least the minimum and maximum number of members of these bodies with information concerning the entity authorised to define the membership),
- the gazette selected for publication of the company announcement if the company intends to publish announcements in addition to those published in Court and Business Gazette (Monitor Sądowy i Gospodarczy).
Under Polish law the joint-stock company must have a minimum share capital of 100,000.00 PLN and the minimum nominal value of the stock must be 0.01 PLN Contributions may be made in cash or in kind and the contribution in kind must be at the disposal of the Management Board.
Corporate bodies of a joint-stock company/PLC
The PLC company has three governing bodies: the Management Board, the General Assembly and the Supervisory Board, which is statutory. The features, duties and obligation of the Supervisory Board and Management Board are almost the same as in case of a LLC.
The General Assembly is a body created by stockholders who may exercise the rights stipulated in the Code of Commercial Companies and the statute. An Annual General Assembly must be called within six months of the company’s financial year and the items on the agenda are stipulated by law.
Liability in a joint-stock company/PLC
Just as in the case of the LLC, the stockholders of the PLC are not liable for any debts and any obligations of the company, and Polish law does not provide any exemptions from this principle. The stockholders can only lose their investment (e.g. monetary contribution or in-kind contribution invested to take up the shares in the share capital of the company). To protect the economic interests of the company’s business partners and of public institutions (e.g. tax authorities), Polish law states that in certain circumstances members of the management board may be liable for the debts of the company.
Other corporate entities
A civil partnership governed by the Civil Code is used for small businesses. A civil partnership does not have any legal personality and is considered by Polish law as a civil agreement between at least two individuals or legal entities. The partners of the civil partnership are jointly and separately liable for any debts incurred in the partnership. The partners are registered in the Business Activity Register. The profits of the civil partnership are taxed with personal income tax due to the fact that civil partnerships are perceived as transparent for tax purposes by Polish tax law. Foreign investors rarely choose this legal vehicle for their investments in Poland.
A general partnership is an association of at least two partners operating an enterprise under its own business name. The general partnership is governed by the Code of Commercial Companies. The company is registered in the Entrepreneurs’ Register (KRS). The General partnership is not a separate entity, it is a legal organisation with the capacity to acquire rights, incur debts, sue and be sued. The rights and obligations of the partners are stipulated in the partnership agreement. Each partner has unlimited liability for the debts of the General partnership, where execution from the assets of the partnership proves ineffective (subsidiary liability of the partner).
In the general partnership all partners are fully liable for the partnership’s debts, whereas in the case of the limited partnership there are general partners with unlimited liability and limited partners, whose liability is restricted to their fixed partnership contributions. The name of the general partner should be revealed in the partnership’s name. On the other hand, if the business name of the limited partnership includes the name of a limited partner in the partnership’s business name, the limited partner bears an unlimited liability as if he were the general partner. Although a partnership itself is not a legal entity, it may acquire rights and incur liabilities, acquire title to real estate and sue or be sued.
The mixed construct of the limited partnership with a LLC as a sole general partner is used quite often by foreign investors in order to limit liability and to achieve the optimal taxation model.
Limited Liability Partnership
A limited liability partnership is a partnership incorporated by professionals (such as lawyers, tax advisors or doctors), for the purpose of rendering professional services. A partner of the limited liability partnership may only be a person authorised to conduct the profession. The main feature of the limited liability partnership is that a partner is not liable for the obligation of the partnership incurred in connection with the professional activities of other partners.
Partnership Limited by Shares
A partnership limited by shares has two types of participators. It has at least one partner with unlimited liability (general partner) and at least one partner that is a stockholder. The partnership limited by shares is a mixture of a partnership and a joint stock company. This form of activity is relatively uncommon, however, it is used in atypical investments conducted by PE/VC investors. The business name of a joint-stock company should include the names of one or more general partners and the additional description (‘spółka komandtowo-akcyjna’) If the stockholders’ name is included in the partnership’s name, the stockholder has unlimited liability for any obligation of the partnership. The minimal share capital is PLN 50,000.00 and the statute must be signed in front of the Polish notary. The partnership comes into existence upon the registration in the Entrepreneurs’ Register.
The simplest form of doing small business in Poland is the legal form known as sole proprietorship. The proprietorship is created upon the registration in the Business Activity Register held by the head of the municipality. The owner has unlimited liability for any debts connected with the sole proprietorship. This legal form is used by foreign managers and directors as a platform to render their services for Polish companies.
Foreign investors may establish branches in Poland to conduct the same business as the foreign investor. From a legal point of view, the branch is part of the foreign enterprise and does not have its own legal identity. The branch is registered in the Entrepreneurs’ Register and may conduct business upon its registration.
Foreign investors are also allowed to establish representative offices, which in their simplest form only regard the involvement of international business in Poland. Despite this, the representative offices may not conduct business activities in Poland and can only carry out activities regarding the advertising and promotion of a foreign investor.
On October 8th, 2004 the council regulation (EC) No. 2157/2001 on the Statute for the European Company (SE) entered into force. The European Company is regulated by the European Economic Interest Grouping and the European Company Act dated on March 4th, 2005. A European Company may be formed in one of four ways: the merger of at least two joint-stock companies, the formation of a holding company, the formation of a joint subsidiary, or the conversion of a joint-stock company under the additional conditions prescribed by law. The SE must have a minimum subscribed capital of 120,000.00 EUR. Monetary contributions and inkind contributions are permissible. In case of a cash contribution, at least one quarter of the nominal value should be covered before the registration. Shares subscribed for in-kind contributions must be covered in full no later than one year after the date of the company’s registration.
The Statutes of the SE must constitute as governing bodies the General Meeting of the Shareholders and either a Management Board and a Supervisory Board (known as two-tier system) or an administrative board (known as one-tier system). Under the two-tier system, the SE is managed by the Management Board. The member or members of the Management Board are empowered to represent the company. They are appointed and dismissed by the Supervisory Board. No person may be a member of both the Management Board and the Supervisory Board of the same company at the same time. Under the one-tier system, the SE is managed by an administrative board. The member or members of the administrative board have the power to represent the company. Under the single-tier system, the administrative board may delegate the power of management to one or more of its members.
European Economic Interest Grouping
Apart from the European Company, Polish law provides a second supranational form of business organisation, known as the ‘European Economic Interest Grouping’. The main feature of the EEIG is that its purpose is not to make profits but to develop the economic interests and activities of its members.
Establishing and registering an entity
The first step in incorporation an entity is to choose the appropriate legal form. This has a significant effect on the further proceedings. The LLC or PLC are probably the most attractive legal vehicles for foreign investors conducting business in Poland. Therefore, the following explanations will focus on the hereinabove. The formation of LLC and PLC is executed before the Polish notary and the Articles of Association must be notarized. In effect, the company as an entity is incorporated. The company in an organization (before the documents are submitted to the Court) may, in its own name, acquire rights, including ownership of immovable property and other rights in remit, incur obligations, sue, and be sued. The company must also choose their business address. In the registration process, the address is confirmed by the lease agreement or the title of ownership of the real estate. The initial capital of the company must be paid in full by the LLC and at least in 25% by the PLC before the moment of submitting the documents to the Court. All companies in Poland are required to open a bank account. The documents required for the opening of an account may be different at every bank (e.g. articles of association/statute, and the specimen signatures of those authorized to represent the company). It is also possible to open an account for the company in the organization. The next step is to submit an application to the National Court Register (KRS).
Apart from an application form (KRS-W3), the following attachments are required upon registration of LLC:
- articles of association,
- documents appointing the company’s governing body (the Management Board),
- a statement from all members of the Management Board that the contributions towards initial capital have been made by the shareholders in full,
- consent to the appointment of a company’s representatives,
- a list of the shareholders, the number and nominal value of shares held.
The following attachments to the application form (KRS-W4) are required upon registration of the PLC:
- a company’s statute,
- notary deeds on incorporation of a company on the subscription of stocks,
- documents appointing the company’s governing bodies (the Management Board and the Supervisory Board),
- consent to the appointment of a company’s representatives,
- a statement from all members of the Management Board that the stock payments and contributions in kind envisaged by the charter have effected lawfully,
- a confirmation for the stock payments from bank or an investment company.
The court fee for the registration is 500.00 and 100.00 PLN for the publication in Monitor Sądowy i Gospodarczy.
As of 1st December 2014, changes to the Act national Register Court have been introduced aiming at speeding up the registration procedure of a new company. REGON identification number (assigned by the Central Statistical Office - Główny Urząd , and Statystyczny) as well as Tax Identification Number (assigned by the Tax Office) are now assigned automatically after an entry of a new company to the National Register Court is made. Relevant data of a new company is also automatically transferred to the National Insurance. This solution should significantly reduce the time of the registration procedure.
From 1st January 2012, an LLC can also be established using standard articles of association available in the ICT system. The new registration procedure, carried out by filling in the registration form, articles of association and the list of shareholders - all in the ICT system, is aimed at removing barriers to start business. As of 15th January 2015 the same procedure can be used while establishing and entering into an agreement of a limited partnership as well as general partnership.
Source: Polish Investment and Trade Agnecy, Poland your business Partner. Invest in Poland, 2016.