Limited liability company is one of three types of capital companies existing in Polish legal system. In my article I am describing how a limited liability company operates, which elements a company contract must have and how the liability of its shareholders looks like. I also indicate what has to be done to establish it and whether a limited liability company can enter the stock exchange.
What is a limited liability company (spółka z ograniczoną odpowiedzialnością) in Poland?
A limited liability company is a commercial company, classified as a capital company, which has legal personality. It may be established for any purpose that is legally permissible by one or more partners who are either natural persons, legal persons (however, a limited liability company may not be formed solely by another one-person limited liability company), or organizational units that are not legal persons and to which legal capacity is granted by law. Share capital in a limited liability company is divided into shares and must be at least PLN 5,000. A limited liability company is established upon its entering into the National Court Register (earlier, i.e. between concluding the articles of association and entering of the company into the register, it operates as a “company in organization”)
Functioning of a limited liability company
A limited liability company operates through its bodies, i.e. the management board, which is responsible for managing the company’s affairs and representing it; the meeting of shareholders, which is responsible for making strategic decisions concerning the company, such as, among others, disposal and leasing of the enterprise, purchase and sale of real estate, or reviewing and approving the management board’s report on the company’s activities; and – if the articles of association so provide or the company’s share capital exceeds PLN 500,000 and there are more than twenty-five shareholders – a supervisory board or an audit committee, whose task is to supervise the company’s activities. In principle, the members of the management board, the supervisory board and the audit committee are appointed by a resolution of the shareholders’ meeting.
Decision-making in a limited liability company
Decisions in a limited liability company are made in the form of resolutions passed by company bodies. In principle, unless the articles of association provide otherwise, resolutions in a limited liability company are adopted by an absolute majority of votes. It should be highlighted, however, that a dissenting majority is statutorily required to perform certain actions. This applies to resolutions of the shareholders’ meeting relating to, among other things: amendments to the articles of association, dissolution of the company and disposal of the company’s enterprise or its organised part (a two-thirds majority of votes is required for the adoption of such resolutions), as well as resolutions concerning a material change in the company’s business (a three-quarters majority of votes is required for the adoption of such resolutions).
The articles of association may set stricter conditions for passing these resolutions, but importantly, they cannot relax them. It is also worth noting that if an amendment to the articles of association involves an increase of benefits to be paid by the shareholders or a reduction of participation rights granted personally to some of them, the consent of all the shareholders concerned is required to adopt a resolution amending the articles of association.
Representation in a limited liability company
The management board is the body responsible for representation in a limited liability company, and the rules of representation are set forth in the articles of association. Under the articles of association, a limited liability company may adopt different models of representation, i.e. the model of sole representation (one member of the management board acting alone), joint representation (at least two members of the management board acting together) and mixed joint representation (one member of the management board acting together with a proxy). It is also possible to assume a different model of representing the company, assuming, among others, the model of self-representation in actions up to a certain amount and joint representation above this value. However, in the absence of contractual provisions on representation, it is assumed that if the management board has more than one member, two members of the management board or a member of the management board together with a proxy are entitled to represent the company.
A partnership agreement of a limited liability company
A partnership agreement must be concluded in writing under the pain of nullity. The partners may also use a template of an agreement available in the S24 system. It must specify:
- the company’s name and registered office;
- define the subject of the partnership’s activity;
- the amount of share capital;
- whether a shareholder may own more than one share;
- the number and nominal value of shares taken up by individual shareholders;
- the duration of the partnership, if it is fixed;
The articles of association are amended by a resolution of the shareholders’ meeting (the issue of the required majority for adopting a resolution was discussed above), which should be included in the minutes drawn up by a notary public (in the case of an agreement concluded using a model agreement, an amendment using a model resolution is also possible). Importantly, an amendment to the articles of association must be filed by the board of directors with the registry.
Liability for the limited liability company debts
In the case of unsuccessful enforcement of a claim from the assets of a limited liability company, the liability is transferred to the members of the company’s management board. Importantly, however, if the prerequisites set forth in the Polish Commercial Companies Code are met, management board members may free themselves from such liability. At this point, it should also be emphasized that, with two exceptions, the partners are not liable for the company’s obligations.
The first exception concerns the obligations of a limited liability company in organization, for which the company and the persons who acted on its behalf are jointly and severally liable. It is worth noting, however, that in such a case a shareholder is liable only up to the value of the contribution not made to cover the acquired shares. The second exception concerns a situation in which a partner is also a member of the management board.
Differences between a limited liability and a joint-stock company
The extent to which it is difficult to establish each individual company is a very important difference. A limited liability company requires share capital of PLN 5,000, whereas a joint-stock company requires share capital of as much as PLN 100,000. It is also worth noting that, unlike a limited liability company, a joint-stock company cannot be established using the template agreement available in the S24 system. Other differences include the division of share capital. In a limited liability company it is divided into shares, whereas in a joint-stock company it is divided into stock (shares in a limited liability company may be both divisible and indivisible. Their nominal value must be at least 50 PLN. Stock in a joint stock company, on the other hand, is always indivisible and may have a minimum par value of as little as 1 grosz. The ability to operate in the stock market is also very important. This is because a joint-stock company can be listed on the WSE, which is impossible for limited liability companies.
How to establish a limited liability company in Poland – a to-do list
- The articles of association must be concluded in writing under the pain of nullity. The partners may also use a template available in the S24 system.
- Shareholders must make a contribution to cover the entire share capital.
- If it is required by law or by the articles of association, a board of directors must be appointed and a supervisory board or an audit committee must be established
- Filing an electronic application for company registration (as of July 1, 2021, registry courts in Poland will no longer accept paper applications). If the agreement is in paper form, the request is made through the Court Records Portal. If the agreement was concluded using a template, the application must be submitted through the S24 IT system.
- Registration of the company in the National Court Register by a registry court.