Liquidation of a Polish limited liability partnership

Liquidation of a Polish limited liability partnership
Jakub Chajdas

Jakub Chajdas

Partner / Attorney-at-law

Liquidation of a Polish limited liability partnership constitutes a process consisting in termination of a company’s operations, collection of its receivables, fulfilment of the imposed obligations, liquidation of the remaining assets, and finally removal of the entity from the Register of Entrepreneurs of the National Court Register.

Liquidation of a Polish limited liability partnership according to the Code of Commercial Companies

In Art. 98 § 1 of the Code of Commercial Companies the legislator indicated the following reasons for the partnership’s liquidation:

  • the reasons indicated in the company’s agreement;
  • a unanimous resolution of all shareholders;
  • a declaration of bankruptcy of the company;
  • loss of the right to pursue the profession by all partners;
  • a final and legally binding court decision.

On the other hand, in Art. 98 § 2 of the Code of Commercial Companies yet another reason is indicated – a passage of one year since the event as a result of which one partner remains in the partnership or when only one partner is authorized to pursue the profession related to the subject of the company’s activity.

If any of the above circumstances occurs, liquidation or bankruptcy proceedings are initiated unless the partners have agreed on a different method of terminating the company’s activity. The legislator provides such a possibility.

The reasons indicated in the company’s agreement

The partners may indicate the reasons for the dissolution of the partnership already at the stage of drafting its agreement. The occurrence of the circumstances specified in the agreement makes it necessary to initiate liquidation proceedings. However, if the company’s agreement in its original form does not specify the reasons for the dissolution of the entity, its modification in this regard requires the consent of all the partners. Nevertheless, the legislator has left a certain loophole here. Based on Art. 9 of the Code of Commercial Companies, partners may allow in the articles of association the possibility of changing the contract by a majority of votes. The most common reason for the dissolution of a company is the expiration of the time for which the company was established, or its failure to achieve a certain goal.

Liquidation of a Polish limited liability partnership in Poland by unanimous resolution of partners

Liquidation of a limited liability partnership may be initiated as a result of a unanimous resolution of the partners to dissolve the company. There are no obstacles to agree in the company’s contract on the possibility of dissolving a company by a resolution adopted by a majority of votes. However, in such a situation, it can be assumed that the reason for the company’s dissolution was indicated in the company’s agreement.

A declaration of bankruptcy of a Polish limited liability partnership in Poland

Another reason for the partnership’s dissolution is a declaration of its bankruptcy. This may occur when the company has become insolvent. Insolvency is a situation in which a company does not fulfil its obligations or the obligations exceed the value of its assets, regardless of the fact that the company performs them on an ongoing basis. Declaration of bankruptcy initiates the bankruptcy proceedings and the company exists until the moment of its removal from the register of entrepreneurs.

Loss of professional qualifications by all the partners

In the event that all the partners lose their professional qualifications, there occurs a statutory premise for initiating a liquidation proceeding. It is worth adding that this concerns a situation in which the loss of professional qualifications affects the last of the partners. Nonetheless, it is possible to prevent the initiation or continuation of a liquidation proceeding if the partners establish another way to terminate the company’s operations.

A final and legally binding court decision

Dissolution of a limited liability partnership as a result of a court decision occurs when the judgment becomes final. In this case, the court may decide to dissolve the company on a ground other than that indicated in Art. 98 and Art. 99 of the Commercial Companies Code, as the circumstances mentioned in these regulations are or may be an independent reason for the dissolution of the company. The basis for judicial dissolution of the company under this procedure may be, for example, significant reasons, i.e. premises indicated in Article 63 § 1 of the Code of Commercial Companies in connection with Arti. 89.

A passage of one year since the event as a result of which one partner remains in the partnership or when only one partner is authorized to pursue the profession related to the subject of the company’s activity

Another reason justifying the initiation of a liquidation procedure is when one year has passed since the event as a result of which only one partner remains in a company or when only one of the remaining partners has professional qualifications and this condition has not changed during that period.

The above means that after the one-year period referred to in Art. 98 § 2 of the Commercial Code of Companies, partners should initiate a liquidation proceeding, unless they have previously agreed on another way of terminating the company’s operations. This means that in order to prevent the statutory obligation to initiate the liquidation of the partnership as a result of the reason described above, it is necessary to have the remaining partners regain their professional rights and qualifications within a year of its occurrence or to provide the company with new partners.

Liquidation of a Polish limited liability partnership – other reasons

Apart from the circumstances described above, the legislator indicated In Art. 98 § 1 of the Code of Commercial Companies the following reasons for liquidation of a partnership:

  • death of a partner,
  • a declaration of bankruptcy of a partner;
  • termination of the company’s agreement by a partner or his/her creditor

unless there are grounds for the company to continue its operations.

However, in case of the occurrence of the above-mentioned reasons, the partners may stop the dissolution of a company. In Art. 64 of the Code of Commercial Companies in connection with Art. 99, the legislator indicates the possibility of preventing the liquidation proceeding if the partners have taken certain actions in this regard. And so, they can pass a unanimous resolution expressing their willingness to continue the company’s operations. Then the company will continue to function between the remaining partners, excluding the partner who died, went bankrupt, terminated the agreement or whose creditor terminated the partnership agreement. They may also specify in the company’s agreement that despite the death of a partner, his bankruptcy, and termination of the partnership agreement by him or his creditor, the partnership will continue to exist, taking into account the Art. 98 § 1 item 4 of the Code of Commercial Companies and Art. 98 § 2 of the Code of Commercial Companies. Additionally, the partnership agreement may provide for the possibility of the heirs of a deceased partner to join the partnership provided that the person is qualified to perform a given profession in compliance with the partnership’s business profile.

Does the occurrence of a cause for a company’s liquidation in Poland always lead to its termination?

In general, the occurrence of a cause for liquidation of a company does not necessarily lead to the end of its existence. Only the final and legally binding court decision results in unconditional liquidation of the entity. For all other reasons, the company may continue operating as long as the partners take certain measures to maintain its existence. If there occurs a reason for a dissolution of the company provided for in the contract, then an appeal should be made against Art. 59 of the Code of Commercial Companies, which will comply with Art. 89 of the Code of Commercial Companies. This is because a company’s existence is considered to be extended for an indefinite period of time when, despite the occurrence of the reasons for its dissolution, as indicated in the contract, it continues to operate with the consent of all partners. It is also possible to pass a resolution in which the partners negate the consequences of the resolution to dissolve the partnership.

The liquidation procedure aims at ending the company’s interests, selling its assets, repaying debts, collecting debts, and dividing the remaining assets of the company among the partners. During the liquidation procedure, the company retains its legal personality, which means that it may acquire rights and incur liabilities.

It should also be remembered that on the day of starting and finishing the liquidation, it is necessary to prepare an opening and closing balance sheet. If the liquidation process lasts longer than a year, it is necessary to prepare a financial statement for the day ending each financial year.

Dissolution of a company is effective from the moment of its removal from the register, which simultaneously means that it has a constitutive nature. At this point, the limited liability partnership that is subject to liquidation loses its legal existence and ceases to be an entrepreneur. After the removal of the entry from the register, former liquidators or partners should pass the books and documents for safekeeping to a partner or third party for a period of at least five years.

If you have any questions, feel free to contact us. Our lawyers will be eager to answer your questions and support you during the whole liquidation procedure.

We also encourage you to read our previous articles concerning the liquidation of a general partnership.

Featured expert

Jakub Chajdas

Partner / Attorney-at-law
Accounting