Polish limited liability company (pol. “spółka z ograniczoną odpowiedzialnością” or “sp. z o.o.”) is one of the often used form of running business activity in Poland. It is a simpler type of company, most commonly chosen by micro, small and medium entrepreneurs. This type of company allows to do any type of business activity, as long as it is permitted by law.
There are basically two ways of setting up a limited liability company in Poland:
- traditionally – by concluding a company agreement (articles of association) in front of the notary public;
- electronically – through the S24 Portal.
Each of these ways has its advantages and drawbacks – we describe them below. What is important is that there are no restrictions in Polish law regarding the nationality of persons establishing limited liability companies.
Traditional incorporation of a limited liability company in Poland
In order to set up a limited liability company in a traditional way, it is necessary to conclude a contract by one or more persons. It needs to be kept in the form of notarial deed, so the attendance of the notary is inevitable. The fundamental elements of the articles of association are:
- company name;
- and registered seat;
- subject of its activity and the amount of share capital (which cannot be lower than 5000 PLN).
At the moment of signing the company agreement in front of a notary, the company “in organization” is established. It is not a proper limited liability company yet (it has to be registered with business register), but it becomes a legal entity and can for example be an employer.
It should be emphasized that in order to register a limited liability company in Poland, the contributions for share capital should be paid in full by the shareholders before registration in the company register (National Court Register or simply – “KRS”).
The final stage of incorporating limiet liability company is its registration in KRS. It takes usually 2-3 weeks for the company incorporated in front of the notary to be registered in KRS.
Electronic incorporation of a limited liability company in Poland
Electronic way means that the company is incorporated through the online system provided by Polish authorities (“S24 Portal”). The articles of association may be concluded only on the simple template provided in the Portal. This kind of company agreement provides only basic solutions. It is not possible to include more complex provisions in the company agreement, which is often required by larger entities who set up a subsidiary in Poland.
The advantage is however timeframe for company registration in KRS. The company incorporated online is usually registered with the KRS within 2-3 days from filing the application.
The incorporation of a company through S24 Portal require to sign all necessary documents with qualified electronic signature or ePUAP profile. ePUAP profile is an e-identity platform provided Polish public authorities.
So to ease you deciding which way of incorporation you prefer, we show you the major pros and cons of each:
|Advantages||· possibility to create articles of association of your company more freely.
|· you can set up a company without leaving your home;
· it takes only 2-3 days to register a company in KRS;
|Drawbacks||· higher costs of incorporation (notary costs);
· longer time of a company registration in KRS.
|· necessity to use a template of the company agreement which consists only basic provisions;
· requirement of having qualified electronic signature or ePUAP profile in order to incorporate a company.
So, is there a third way?
Yes! At any time you may set up a limied liability company in Poland with the assistance of an attorney. This would require you to grant an attorney in Poland with notarized power of attorney (in the country of your residence, and then you must send this power of attorney in the original to your attorney in Poland). In that case, you don’t have to come to Poland to sign documents or apply for an electronic signature. The attorney in Poland can either set up a new company in Poland before the notary on your behalf or register a company through S24 Portal and sell you 100% shares of the company.
What is important is that the sale of the company’s shares is effective from the date of signing the sales agreement (not from the moment of registering the change in KRS). So, the new owner of the company can start his activity right away.
This third way of incorporation we call the remote procedure. At the end of this procedure, you will end up with fully functional company, ready to operate!
What you need to know about 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, a limited liability company cannot be established solely by another single-member limited liability company (a company in which there is only one 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.
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 in which shareholders are involved. Nevertheless, of course, company articles of association may impose other obligations on the shareholders.
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 were passed.
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’
a) Management Board
Just like in other types of companies, a limited liability company in Poland has its bodies. One of them is management board 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 in Poland to appoint other company as a director of limited liability company);
- 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.
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 should specify how the company should be represented. 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.
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 members of the management board. 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 member of the management board 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 board member, or
– despite not filing a bankruptcy petition or not starting the restructure proceedings, the creditor has not suffered any damage.
b) 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 Polish limited liability company 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.
c) Shareholders’ Meeting
The last one – Shareholders’ meeting is the legislative body of the company. It’s responsible for the most important decisions in the company. In practice – the company would not be able to exist without it.
We mark out two types of shareholders’ meeting: ordinary and extraordinary. The first one should be convened by management board regularly – as a rule once a year within 6 months after the end of each financial year. During the meeting shareholders need to:
- examine and approve the management report on the company’s activities and the financial statements for the previous financial year
- grant a discharge to company board members for performing their duties;
Extraordinary shareholders’ meeting is convened when shareholders need to consider an issue concerning the company and make a decision in the form of a resolution.
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.
“Estionian CIT” for limited liability company in Poland
It is a type of corporate income taxation that allows the business to be ran income tax-free as long as their owners do not consume profits on private purposes nor transfer them to their personal accounts. This solution is based on regulations previously introduced in Estonia. That’s why it is commonly called an “Estonian corporate income tax”. When choosing this regime of taxation the Polish company does not pay any income tax unless dividends are distributed to the shareholders. In this way the company itself determines the time and amount of tax to be paid.
Moreover, the rate of Estonian CIT is 10% for small taxpayers and taxpayers starting a business, and 20% for others. The application of the Estonian CIT requires the fulfilment of several conditions, among others: employing at least 3 persons during the tax year, not generating income of up to 50% of the total income of the company from specific sources (e.g. income from credits and other passives) and submitting an appropriate statement to the tax office on the choice of taxation with Estonian CIT. What has to be remembered however, is that the Estonian CIT may be applied only by companies whose shareholders are natural persons.
Do you have any further questions or need support? Our team will be happy to help you setting up your limited liability company in Poland, and advise you on the most advantageous solutions for your business. Should you be interested please feel free to contact us.