Liquidation of a Civil law partnership (Spółka cywilna) in Poland

⟨⟨ Back

A civil partnership is one of the forms of business that entrepreneurs can choose. Its name may be misleading, as a civil partnership is not a company under commercial law, but actually a civil law contract between shareholders. What happens when the shareholders forming a civil partnership decide to wind up the business. What does the liquidation of a civil law partnership look like, step by step, in Poland?

When does a civil partnership dissolve?

Unlike the regulation of partnerships contained in the Commercial Companies Code, the Civil Code does not contain a systematised list of events that trigger the dissolution of a civil partnership and justify its liquidation. In the case of a civil partnership, the reasons are spread in articles 860 to 875 of the Civil Code and require a thorough analysis of the regulations. What situations trigger the dissolution of a civil partnership? First of all, it will be:

  • termination of the participation by the shareholder or his personal creditor;
  • expiry of the time for which the civil partnership was concluded (only applicable to partnerships concluded for a fixed period);
  • death of the shareholder or declaration of his/her bankruptcy;
  • attainment of the purpose for which the partnership was established (e.g. completion of a planned investment);
  • one shareholder remaining in the partnership;
  • dissolution of the partnership by the court for valid reasons at the request of a shareholder;
  • the situation when it has become objectively impossible for the partnership to achieve its intended objective.

Of course, nothing stands in the way of including other grounds justifying the dissolution of the company in the articles of association. This may be, for example, when the company achieves a lower financial result than assumed.

Shareholder forming a civil law partnership may also always adopt a resolution on dissolution of the partnership pursuant to Article 3531 of the Civil Code and the principle of freedom of contract expressed therein. It does not matter what financial condition the company is in at the time the resolution is adopted, as this action has a completely autonomous dimension.

When can shareholders request the dissolution of a civil partnership by the court?

It is worth noting that it will not always be straightforward to assess whether the premise for the dissolution of the partnership has been met. A good example is, for instance, a demand made by a shareholder to the court, which must be based on valid reasons. The articles of association should contain an enumerative list of reasons when referring an action to court is justified.

The case law of the Supreme Court indicates that the premises justifying the court’s interference in the existing legal relationship include, inter alia, a decision-making stalemate which makes it impossible to take actions in the company and a conflict between shareholders (vide: the Supreme Court’s judgment of 10 April 2008, ref. IV CSK 20/08). Although the ruling was made in relation to the operation of commercial law companies, it is also applicable in the context of a civil partnership.

What does the partnership’s inability to achieve its objective consist of?

Another premise that often raises doubts among shareholders is the impossibility of achieving the economic objective set out in the agreement. An example of such a situation is when shareholders agree to carry out transport activities for which it is necessary to obtain a licence.

If the competent authority refuses to issue the licence, the partnership agreement loses its purpose. A similar situation was judged by the Supreme Court in the judgment of 15 May 2009, ref. II CSK 18/09. A similar reason will be the failure to obtain credit necessary to conduct business activity in a situation where the shareholders do not have their own funds with which to finance the business.

How is a civil partnership liquidated in Poland?

When a premise justifying the opening of the liquidation of a civil partnership occurs, the shareholders must take care to comply with the necessary formalities such as:

  • repayment of the liabilities of the civil partnership;
  • repayment of the contributions made by each shareholder;
  • the distribution of any surplus assets remaining after the payment of debts and the return of shares in proportion to each shareholder’s share of profits.

The return of contributions and the payment of the surplus should be made in cash except for funds that have been brought into the partnership in kind (e.g. IT equipment, premises). If the value of the company’s assets proves to be insufficient to cover the debts, the shareholders are liable for the debts. They may then claim settlement against each other on a recourse basis.

Depending on whether the partnership kept full or limited accounts, it will be necessary to prepare either a final balance sheet or a final inventory respectively.

Termination of a civil partnership from the formal side

The division of assets of a civil partnership is not the end of the liquidation procedure. Co-entrepreneurs should submit an application for deleting individual business activity from the CEIDG register, pursuant to the wording of art. 15 section 1 item 2 of the act on the Central Register and Information on Business Activity and the Entrepreneur Information Point. The deletion can be reported either by letter, online or physically at the municipal office.

In addition, the company may need to be deleted from other registers, e.g. in connection with regulated activities. This could be, for example, the RPT for telecommunications entrepreneurs or the register of entrepreneurs providing training for road transport drivers. If the company was a Social Security payer under a VAT taxpayer, the relevant changes must also be notified to the Social Security Office and the tax office.

Liquidation of a civil partnership and the VAT tax

A civil partnership that has been a VAT payer must account for turnover tax on goods of its own manufacture and goods that have been acquired but not resold.

The list of goods is prepared in the form of a physical inventory and attached to the tax return filed by the company. VAT liability arises on the date of dissolution of the company.

It is worth noting that pursuant to Article 14(7) of the VAT Act, the supply of goods by former shareholders, the subject of which are goods covered by a physical inventory, is subject to tax exemption for a period of 12 months from the date of cessation of taxable activities. In practice, this means that the shareholders may sell the company’s goods for one year and not have to worry about their tax liability under the VAT Act.

Although the liquidation of a civil law partnership in Poland is somewhat simpler and less formalised than the termination of operations by a commercial law company, it is still a lengthy process, the smooth conduct of which requires knowledge and experience. Linke Kulicki Law Firm offers comprehensive support to entrepreneurs operating in the form of a civil law partnership at the stage of ongoing operation of the company, as well as the termination of business activities.