A management contract regulates the entrusting of operational control over an enterprise. It defines the relationship between a manager and an entrepreneur in this regard. In this article, we analyse everything you need to know about the management contract in 2024.
Table of Contents
- What is a management contract?
- The subject of a management contract
- Manager’s remuneration based on the management contract
- Responsibilities of the parties to the management contract
- Rights of the person working under the management contract
- Liability of the parties to the management contract
- Which agreements do not qualify as a management contract?
- Management contract versus employment contract
- Management contract and employment contract with the same employer
- Management contract and leave
- Management contract and B2B
- Management contract and Social Insurance Institution (ZUS)
- Management contract – summary
What is a management contract?
The management contract is an innominate agreement. Several legal acts regulate it. These include provisions of the Civil Code on mandate and general provisions on obligations. The contract is also subject to general regulations of the Commercial Companies Code. It is a form of cooperation between an entrepreneur and a qualified person (manager) who will be responsible for managing a company. The key assumptions of the contract include:
- management of the enterprise by a natural person
- lack of the manager’s subordination in the reporting line
- and lack of authority giving orders.
The manager has the right to take independent factual and legal actions in the management of the company. He has the authority to:
- run a company; this also concerns the choice of management method
- use his skills, professional experience, reputation and self-image.
The manager and appointing authority may shape the scope of the management contract. It cannot violate legal provisions and should specify at least:
- parties to the agreement,
- the subject of the agreement,
- terms and conditions of its performance. This includes the manager’s remuneration, duration of the contract, and rules of termination.
The subject of a management contract
The subject of a management contract is the professional management of the enterprise by a qualified and experienced individual. He acts on behalf of the principal to achieve economic goals, in exchange for payment.
Manager’s remuneration based on the management contract
The parties of the management contract negotiate remuneration in the agreement. It can take, for example, the form of:
- a specified sum paid monthly,
- a basic salary (fixed amount) supplemented by additional remuneration. Its amount may depend on the company’s profits or the manager’s performance evaluation.
The choice of remuneration form depends on many factors. It may be conditioned by the specificity of the industry or financial results. Expectations towards the manager as well as his skills and experience also matter.
Responsibilities of the parties to the management contract
The most important duty resulting from such a contract is to manage the enterprise. What is more, managers are also responsible for:
- making strategic decisions,
- representing the enterprise externally,
- maintaining confidentiality of sensitive information to prevent disclosure,
- managing assets and human resources,
- refraining from engaging in competitive activities.
The duties of the appointing authority include:
- Paying the manager remuneration. The payment must be in the amount and on time agreed upon in the contract. In case of delay, the manager is entitled to statutory interest.
- Cooperation with the manager if there is a need to enhance the efficiency of his work. This may involve providing him with information about the company. Ensuring organizational and technical support is also one of the possibilities.
The appointing authority may supervise the manager’s work and evaluate effectiveness. The manager is obliged to submit to such supervision and evaluation.
Rights of the person working under the management contract
Based on the management contract, the manager has:
- A great deal of freedom in his actions. Managers do not follow orders and have complete freedom in making managerial decisions,
- Non-standardized working hours. Managers are not bound by fixed hours or a specific workplace. Their work is evaluated based on the results.
Liability of the parties to the management contract
The parties may define the scope of their responsibilities in the management contract. Its regulations should not be in conflict with other legal provisions. In case of non-performance or improper performance of the contract, contractual arrangements apply. The absence of such arrangements allows for the application of the Civil Code. The parties may also stipulate contractual penalties for the breach of certain contract terms. This may concern for example the disclosure of company secrets. Excluding liability for any intentional damage caused by either party is not permissible.
Which agreements do not qualify as a management contract?
The management contract is not:
- an employment contract. Its scope is usually precisely defined. In the case of a management contract, the parties can shape the content of the agreement freely. They may specify the rights and obligations of the parties.
- contract of mandate. Unlike the management contract, such an agreement does not obligate the service provider to perform tasks on behalf of and for the benefit of the principal. The service provider is only obliged to perform specific tasks. He is not responsible for managing the enterprise.
- a contract for a specific task. Under such an agreement, the contractor undertakes to complete a specific task. The client undertakes to pay the remuneration for it. In a management contract, there is no specific task to be completed. The job focuses on managing the enterprise rather than completing a task.
Management contract versus employment contract
The management contract is not an employment contract due to:
- the absence of official subordination,
- the flexible working hours of the manager,
- the lack of employee entitlements, such as vacation leave,
- a broader scope of the manager’s responsibilities,
- the method of determining the remuneration.
Management contract and employment contract with the same employer
It is possible to enter into both a management contract and an employment contract with the same employer under the condition that:
- the scope of duties arising from both contracts cannot overlap,
- the manager cannot be in a subordinate relationship to the employer under the employment contract,
- the employer must pay social security and health insurance contributions for each contract.
Management contract and leave
Under a management contract, the hired person has no entitlement to paid annual leave per the Labor Code. The parties may regulate the issue of the manager’s leave in the agreement.
Management contract and B2B
A B2B agreement is a contract concluded between two businesses. Its subject may include, for example, service provision or delivery of goods. The essence of a management contract is the management of an enterprise or its parts. Therefore the scope of responsibilities is different.
Management contract and Social Insurance Institution (ZUS)
The rules set out for persons employed under a contract of mandate apply to the manager’s insurance. The manager is subject to the following types of compulsory insurance:
- old-age pension insurance
- disability pension insurance,
- accident insurance.
- health insurance.
Voluntary sickness insurance is also an option. The type of insurance a manager is covered by depends on whether he is already registered with ZUS under another title. The contribution rates for insurance under the management contract are as follows:
- old-age pension insurance – 9,76%,
- disability pension insurance – 1,5%,
- accident insurance – 2,45%,
- health insurance – 9%.
The remuneration under the management contract is taxed according to general principles. Advance income tax for the managerial contract is payable by the 20th day of the month following the month in which the remuneration was paid.
Management contract – summary
The management contract is a form of cooperation that can be beneficial for both the entrepreneur and the manager. However, it is worth remembering its disadvantages. It is a good idea to take appropriate precautions before entering into such a contract.