The liability of board members in a limited liability company concerns various issues. We can distinguish between civil liability, tax liability and even criminal liability. The aim of regulations related to the liability of board members in LLC is to secure the interests of both company’s creditors and shareholders.
Table of Contents
- Liability of board members in a limited liability company. The organizational structure of a company
- Liability of board members in a limited liability. The civil liability
- Liability of board members in a limited liability company. The tax liability
- Liability towards the Social Insurance Institution (ZUS)
- Liability of board members in a limited liability company. The criminal liability
Liability of board members in a limited liability company. The organizational structure of a company
An LLC is a commercial capital company that has a legal personality. It can be formed for any legally permissible purpose by one or more shareholders. Only another single-member limited liability company cannot establish it. Creating a limited liability company requires a capital of at least 5000 PLN.
The company’s bodies of a LLC are:
- the general meeting of shareholders,
- the management board, and
- the supervisory board or the audit committee.
When considering daily operations of an LLC, the management board has a key role. It may consist of one or more members. The shareholders may represent the management board but persons from outside this group also can be members. If the company’s agreement doesn’t state otherwise, the resolution of shareholders establishes the management board. Its members can hold the function for an unlimited period of time. The main tasks of the board are to manage the company’s affairs and represent it externally. Therefore, the members of the management board of an LLC in Poland are responsible for its obligations.
Liability of board members in a limited liability. The civil liability
The Commercial Companies Code regulates provisions related to the civil liability of board members in an LLC.
Board members in an LLC are responsible for the company’s operations already at the stage of its organization. According to the CCC, a company at the organization stage may acquire rights. It can also incur obligations. The company is liable for those rights and obligations with its own assets. If obligations cannot be covered, responsibility for them falls on the individuals who incurred them on behalf of the company. In most cases, this means members of the management board. The liability of board members in an LLC concerns also providing false information. If the board members provided false data while registering the entity in the KRS, they are jointly liable with the company to the creditors for 3 years from the moment of the company’s registration.
The liability of members of the management board in a limited liability company looks differently after the company acquires legal personality. The provisions of the CCC state that board members are liable to the LLC for damages caused to the company. This concerns damages resulting from certain actions or omissions of board members. The actions or omissions that are contrary to the law or the company’s agreement. Each board member is also liable to the company for making unjustified payments to the shareholders.
If execution against an LLC proves to be ineffective, the board members are jointly liable for its obligations. A creditor who wants to satisfy his claim must prove that he has an unsatisfied obligation. There must be an enforcement title that confirms this fact. The creditor must also prove that the execution based on the company’s assets is not possible.
Board members in an LLC can release themselves from this liability if they show that:
- a bankruptcy petition was filed at the proper time,
- arrangement proceedings were initiated at the right time,
- the failure to file a bankruptcy petition or initiate an arrangement proceeding occurred without their fault, or
- despite not filing a bankruptcy petition or initiating an arrangement proceeding, the creditor did not suffer any damage
Liability of board members in a limited liability company. The tax liability
The board members of an LLC also have liabilities resulting from the Tax Ordinance Act. They are jointly liable with their assets for the tax arrears of the company and company in organization. This applies to situations where enforcement against the company’s assets is ineffective (either in whole or in part) and a board member:
- failed to demonstrate that a bankruptcy petition was filed at the proper time;
- failed to demonstrate the initiation of the arrangement proceedings;
- didn’t prove that the failure to file a bankruptcy petition or to start arrangement proceedings was not his fault;
- doesn’t identify the company’s assets from which enforcement would enable the settlement of the company’s tax arrears to a significant extent.
The liability of board members in a Polish limited liability company includes:
- tax arrears for obligations whose payment deadlines expired during their term as a board member.
- arrears incurred during their term as board members.
Liability towards the Social Insurance Institution (ZUS)
According to the Act on the Social Insurance System, the provisions of the Tax Ordinance Act apply to the liability of board members for unpaid social insurance contributions. Therefore, board members in an LLC may be liable for contributions to:
- the Labour Fund,
- the Guaranteed Employee Benefits Fund (Polish: FGŚP), and
- health insurance contributions
that have not been paid by the company on time.
To release themselves from liability towards ZUS, board members in an LLC must prove the same circumstances as in the case of the tax liability.
Liability of board members in a limited liability company. The criminal liability
Board members in an LLC also bear criminal liability. Based on the criminal code they are liable for example:
- for causing property damage to a natural person, legal entity, or non-legal entity organization, by not keeping proper records of business activities or conducting them in an unscrupulous or false manner;
- when, by abusing their powers or failing to fulfil their obligations, they cause significant damage to the company;
- when they demand or accept a material or personal benefit or a promise thereof, in exchange for abuse of their powers. Also, when they demand it in exchange for failing to fulfil their obligations. This concerns situations which may cause material damage to the company or be an act of unfair competition or an unacceptable preferential act.
The role of a board member of an LLC brings a huge responsibility. The company’s board members must take into account not only their own decisions but also liability for the actions of other board members, as well as some employees. The rules of liability of the LLC’s board members are regulated by various legal acts.
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