A limited liability company (LLC) is one of the most common forms of business in Poland. The Commercial Companies Code governs its functioning. The contract of such a company is also very important. The LLC contract specifies e.g. company’s main goals. It also defines the rules of conduct between the partners. What should the company’s contract contain to be legally effective? What if it does not regulate certain issues? Is it possible to include provisions that are not specified in the Commercial Companies Code? You will know the answers after reading this article!
Table of Contents
- What is the form of the contract of LLC in Poland?
- The basic content of the company’s agreement (obligatory)
- How much freedom do you have in the basic content of an LLC agreement in Poland?
- Additional provisions of the limited liability company’s agreement (optional)
- Contract of LLC in Poland -summary
What is the form of the contract of LLC in Poland?
Before we get to the substance, one crucial remark. You can conclude a contract of LLC in the form of a notarial deed or via the S24 System. The S24 System is an online portal provided by the Ministry of Justice. Using it, you can sign the LLC contract with the use of electronic signatures. However, such a contract may only be concluded on a simple template available in the system. This form of contract only provides some basic solutions. There is no possibility to change it and include more complex provisions. Such changes are often necessary in the case of bigger investments.
The basic content of the company’s agreement (obligatory)
Provisions of the Commercial Companies Code regulate the minimum content of the contract. It must specify:
- the name and seat of the company
- scope of activity;
- the amount of the share capital;
- whether the shareholder may have more than one share;
- the number and nominal value of shares owned by each shareholder;
- initial capital contributions of the partners;
- the duration of the company, if defined.
Below we discuss each of these elements of the limited liability company’s agreement.
1. Company’s name
You can choose the company’s name freely, as long as it does not mislead other business participants. The registry court does not resolve such allegations at the moment of registration. Yet, the registry court may refuse to register an entity if another company has an identical name. Even though the provisions do not specify it directly.
The company’s name must include its legal form. Thus, it must include the phrase “limited liability company”. The use of the abbreviation “Sp. z o.o.” or “spółka z o.o.” is also possible for the company in Poland. The abbreviation cannot be replaced by its equivalent in another language.
2. Seat of the company in Poland
The seat of the LLC stated in the contract is a place in Poland. You need to specify only a city or a village. A detailed, full address is not obligatory. This is very important. Changing the company’s seat will require changing the contract of the LLC in Poland. This means that you will need to adjust the notarial deed. The change of the company’s seat is valid after entering it into the register. Changing the company’s registered address (within one town or village) does not oblige to change the agreement. The new address is valid upon the decision of the company’s management board.
The seat of the LLC is also important for the meetings of the company’s governing bodies. The sittings should take place in the seat of the LLC. Namely, on the territory of the city or village indicated in the contract. The company falls under the jurisdiction of competent public authorities based on its location. This refers to administrative bodies and tax authorities.
3. Scope of the activity of LLC in Poland
The scope of the activity determines what the company will do in the business market. The Commercial Companies Code does not say how precisely it must be specified in the agreement. Yet, the description must be precise enough to individualize the company’s activities. It is unacceptable to state that “the company may engage in anything that is not prohibited”. Such a phrase is popular in company agreements from the common law system.
In practice, the agreement identifies the subject of an LLC in Poland by PKD codes. PKD (Polska Klasyfikacja Działalności) translates into Polish Classification of Activity. The codes identify types of economic activity in Poland. They are provided by the state authorities. It is best to present the scope of the LLC’s activities as broadly as possible. Further changes (expansion of this scope) require modification of the contract of LLC. You will have to sign a notarial deed and wait for entry into the register.
4. The amount of the share capital
The LLC contract must specify the value of the share capital – it is a fixed amount. Providing the number and value of the shares of each shareholder will not be enough. Even though this allows for calculating the share capital.
The minimum value of the share capital of the LLC in Poland is 5.000 PLN. The Commercial Companies Code does not specify the maximum value. You should provide the amount of the share capital in Polish currency.
You must pay contributions to cover the share capital of the LLC in Poland in full before registering the company in the KRS.
5. Shares and contributions of the partners
You must specify in the company’s agreement if a partner may have one or more shares. This is very important in practice. If a partner can hold only one share, the shares may have different minimal values. Moreover, the entrepreneurs can divide them (in the event of selling or succession). If the contract of LLC in Poland states that a partner may hold more shares, all the company’s shares must be equal. What is more, they are indivisible. The company’s contract must determine how many shares each of the partners owns. It must also state the nominal value of the shares.
There is also a necessity to determine the contributions of the partners to cover the shares. The contribution may be either financial or in-kind. With in-kind contributions, the agreement must specify the subject and the shareholder. It should also state the number and the value of shares owned in exchange for the contribution.
6. Duration of the LLC in Poland
Usually, you establish the LLC in Poland for an indefinite period of time. To open a limited liability company for a defined time, you must state it clearly in the agreement. In such a case, one should declare its duration in clear terms (e.g. until DD.MM.YYYY). After this time, the company will be dissolved. You will have to proceed further with the liquidation process.
How much freedom do you have in the basic content of an LLC agreement in Poland?
The elements described above are the basic, obligatory elements of the contract of an LLC. Their absence or lack of sufficient precision in the agreement will have consequences. Such a situation will result in the refusal to enter the company into the register. The duration of the LLC in Poland is the only exception. If there is no specified time, the company is established for an indefinite period.
Additional provisions of the limited liability company’s agreement (optional)
Of course, it is not forbidden to include more provisions in the contract of an LLC in Poland. It rarely happens that the partners sign a contract with only the obligatory content. What is more, if the partners do not regulate a given matter in the contract, then the code regulation will apply.
You can also include certain mechanisms related to the functioning of the company in the agreement of a Polish LLC. The Commercial Companies Code provides such mechanisms. Yet, their implementation requires an explicit declaration of the partners’ will. In the absence of relevant provisions, they will not apply. There are also solutions not regulated directly by the Code of Commercial Companies. Their use results from business practice. Below we describe some of the selected cases.
Representation of the company in Poland
The company’s representation defines how the company operates with third parties. It indicates how many people must act on behalf of the company to issue an effective statement.
The management board represents a limited liability company in Poland. It can only include natural persons. The company’s agreement may indicate that even if the management board consists of more than one person, issuing a declaration on behalf of the company still requires only one member of the management board to act.
Only the president of the management board may act on behalf of the company as a single person. Other members must act jointly. You can also restrict the value of the amounts indicated in the agreement. In the case of e.g. sole representation, a company may incur liabilities in the amount of 100.000 PLN. Consequently, liabilities above this amount require authorization by at least two members of the management board. Everything depends on the will of the partners, signing the agreement of LLC in Poland.
If the contract does not identify the company’s representation and the management board consists of several people, two members are required to issue a declaration on behalf of the company. Alternatively, it is also possible to proceed with one member and a proxy.
As the name suggests, the supervisory board is a unit that controls and supervises a company. Its appointment in the limited liability company in Poland is facultative. This means that it requires an explicit declaration in the contract of LLC. Introducing a supervisory board in a company is obligatory only in specific cases. This refers to companies with share capital of over 500 000 PLN and more than 25 shareholders. Both conditions must be met jointly.
Additional approvals for certain actions of a limited liability company in Poland
As a rule, certain actions must be regulated by the resolution of shareholders. Among them, there are:
- approval of the annual management report on the company’s operations;
- approval of the company’s annual financial statements;
- purchase or sale of a property by a company;
It is possible to determine in the agreement other actions of the company that need the approval of the partners. This refers to actions not mentioned in the Code of Commercial Companies. What is more, you can also specify that the approval of other governing bodies is obligatory.
If the consent of the company’s body results only from the company’s contract, the legal act performed without such consent is valid. It does not violate the provisions of the law. Yet, the management board exposes itself to liability for damages against the company.
Additional contributions to the limited liability company in Poland
Additional contributions are another way for a company to obtain financing. They are based on the shareholders’ obligation to contribute money to the LLC. The shareholders’ resolution should specify the contributions’ amount. The possibility to adopt a resolution about additional contributions has to be indicated in the agreement.
The company’s contract must provide limits on their value in relation to the partners’ shares. For example, it could state that the maximum value of the additional payments may not exceed 100 times the value of the shares held by the partner. The exact amount of additional contributions would be determined by a shareholders’ resolution. Obviously, within the limits provided in the agreement.
Increase of share capital of a limited liability company in Poland
Essentially, the increase of share capital in LLC requires changes in the agreement. Yet, you can increase the share capital without changes in the contract of LLC in Poland if it states:
- the upper limit of such an increase in the company’s share capital and
- the date up to which such an increase may take place.
Such increases in share capital under the company’s agreement can be made more than once. Yet, there is a condition – the limits set in the company’s agreement cannot be exceeded. In such a situation, there is no need to engage the notary public to increase the share capital. This significantly reduces the costs of the procedure.
Redemption of shares in an LLC in Poland
Redemption of a share means its revocation. This may be a way, for example, to exclude some shareholders from the company. This happens when someone decides to part with the company. Or when there is a conflict between partners that is not resolvable. The redemption of shares is possible only if the contact of an LLC allows for such a possibility.
There are 3 types of redemption of shares:
- voluntary – carried out with the consent of the shareholders and on the basis of their resolution;
- compulsory – carried out without the consent of the shareholder. Possible if the company’s contract allows for such redemption. It means that the contract must provide conditions to be met in order for the share to be redeemed. For example, the shareholder undertakes activities rivalling those carried out by the company. The contract must also specify the manner of adopting the resolution. It should e.g. specify a majority for voting on the adoption of a resolution about the redemption of shares;
- automatic – used in the event of specific circumstances indicated in the agreement. In this type of redemption, there is no need to adopt a resolution by the shareholders.
The redemption is subject to compensation. Unless the shareholder agrees to a free redemption.
Restrictions on the disposal of shares of the LLC in Poland
Shares in a limited liability company are property rights and as such are tradeable. Still, shareholders often want to have control over the composition of the company. Thus, the contract of an LLC in Poland may limit the possibility of selling or pledging the shares. Such a decision may be subject to the consent of the shareholders. The consent (in the absence of other provisions) is expressed by the management board. It is worth noting that the agreement may limit the right to dispose of the shares. It is not possible to completely exclude the right to sell the shares.
What is important, it is also possible to stipulate other rules in the company’s agreement. One of them is the preemptive right for the existing shareholders of the company. This is the right to buy shares that another shareholder intends to sell by the current shareholders of the company. It is also possible to implement more complex clauses, such as Drag Along right. It allows a partner who found a potential buyer to force the remaining partners to sell their shares on identical terms. One can also introduce a Tag Along right. This is the right to demand from a shareholder that the buyer of his shares makes the same offer to other partners.
Preferential rights to shares
As a rule, shareholders in an LLC in Poland have equal rights and responsibilities. Still, the company’s contract may provide for special rights of the partner resulting from the holding of shares in the company. Such preference may relate, in particular, to the voting right, the right to dividends or the participation in the property’s division in the event of liquidation. Preference about voting rights may not grant the entitled person more than three votes per share.
Privileges or additional obligations of individual shareholders
Regardless of preferential rights, the agreement may grant individual shareholders other special rights. They may also charge them with other (non-cash) responsibilities in favour of the company. This refers to contributionsother than the ones to cover share capital. For this to be effective, the contract of the LLC in Poland must precisely describe the additional right or obligation of the shareholder.
Such rights may include the right to appoint and dismiss members of the company’s management board. They may also determine the requirement to obtain a partner’s consent for a specific activity of the company (e.g. purchase of real estate). Additional obligations may include advisory services or cyclic delivery of certain trade resources. The shareholder’s payment for fulfilling obligation should comply with market rates.
Contract of LLC in Poland -summary
As you can see, the correct structure of the contract of LLC in Poland allows for flexibility in the company’s operations. It can also help in resolving a conflict that may arise between the partners of the company. Yet, to properly and effectively formulate many provisions of the contract, the help of a specialist is necessary. If you want your company’s contract to be professionally constructed and to protect your interests, do not hesitate to contact us!
If this article was interesting for you and you want to know more on the topic it concerned we encourage you to contact us. Specialists from our law firm in Poland, Warsaw, will be happy to help. If you are interested in company registration in Poland visit our dedicated landing page.