From this article, you will learn:
- What are the greatest advantages of running a limited liability company?
- In what situations can shareholders of a limited liability company be held liable?
- What are the operating costs of running a limited liability company?
A limited liability company is the company most often chosen by entrepreneurs to conduct business in Poland. What is the reason for this choice? Is it lower costs of running it, limited liability of partners or relatively little formalism? In this article, we will briefly present the characteristics of a limited liability company and point out its greatest advantages.
What is a limited liability company?
A limited liability company (Ltd company, Ltd. company, LLC) is a capital company under commercial law with legal personality. This means that it is an entity separate from its owners (partners).
A limited liability company has legal capacity, capacity for legal action, and judicial and procedural capacity. It can acquire rights, incur obligations, sue and be sued in its own name. Its operations are based on the share capital contributed by the partners, which is divided into shares. Liability for the debts and obligations of the limited liability company are generally borne solely by the company itself and are liable for them with all of its assets.
Importantly, capital companies – including limited liability companies – unlike partnerships, they can be established for any legally permissible purpose. They may be of a profit-making nature (their purpose may be, for example, running a business), or they may not be of a profit-making nature (e.g., when their purpose is to conduct a non-profit activity).
A limited liability company, like any capital company, may be established by one or more people. The only exception is the inability to establish a limited liability company by another single-member limited liability company. Interestingly, however, there are currently no legal obstacles to a single-member limited liability company becoming the sole shareholder of another limited liability company in the future - e.g. by purchasing all its shares.
Establishment and registration of a limited liability company
The company is established by a founding act (in the case of one partner) or a partnership agreement (in the case of more than one partner) in the form of a notarial deed or via the IT system called System S24.
After concluding the limited liability company agreement, the so-called company in organization. This special legal form lasts from the moment of establishment until the company is registered in the National Court Register (hereinafter referred to as KRS). The company in organization can already acquire rights and incur liabilities, but it does not yet have legal personality, which is acquired at the end of the process, when the application for entry in the KRS is positively considered by the court. Therefore, in order to distinguish this specific state, under the provisions in force until registration in the KRS, a limited liability company is obliged to use the additional designation in organisation in the content of its company (its name).
Importantly, this state of affairs cannot last forever – the deadline for submitting an application for registration of a limited liability company in the KRS expires after 6 months from the date of its establishment. After this deadline, the limited liability company ceases to exist by operation of law and can no longer be registered.
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The greatest benefits of establishing a limited liability company – limited liability of partners and little formalism
As we have already mentioned, a limited liability company is liable for its obligations independently, with all its assets (current and future) and without limitation. Contrary to the suggestion in the company's name, the limitation of liability does not apply to the company itself, but to its partners. Upon registration of the limited liability company in the KRS, it becomes a separate legal entity, solely responsible for its obligations to third parties - which means that potential creditors can only seek payment from the company. The partners are not personally liable for the liabilities of the limited liability company, but they bear the risk related to the value of the contributions made, which become the property of the company once they are made.
Running a business in the form of a limited liability company, it is worth knowing the Code of Commerical Partnerships and Companies well
A law would not be a law if it did not provide for exceptions to the rules. The regulations provide for special cases in which shareholders of a limited liability company are personally liable for its obligations. We can include:
- situations in which liabilities were incurred before the company was entered in the KRS (Article 13 § 1 of the Code of Commercial Partnerships and Companies – hereinafter referred to as the CCPC) – then the shareholder is liable for the liabilities of a capital company in organisation jointly and severally with the entities that acted on behalf of the company, up to the value of the unpaid contribution coverage of the acquired shares (Article 13 § 2 of the CCPC);
- a situation in which there was a significant overstatement of the value of non-cash contributions made to the company in relation to the market value of the contributions on the day of concluding the partnership agreement – in such a case, the shareholder who made such a contribution and the members of the management board who, knowing this, registered the company in the register, are obliged to compensate the company for the missing value jointly and severally (Article 175 § 1 of the CCPC);
- benefit related to the share (Article 184 § 1 of the CCPC), for which the joint holders of the share or shares are jointly and severally liable;
- unfulfilled benefits due to the company from the sold share, part thereof or fractional part of the share (Article 186 § 1 of the CCPC) - in this situation, the purchaser (new partner) is jointly and severally liable with the seller (partner);
- causing damage to the company during the process of its formation – if the actions taken were inconsistent with the law and the action was culpable (Article 292 of the CCPC).
Separate exceptions to the general rule of exclusive liability of a limited liability company for its obligations apply to members of the management board, but due to the specificity of this issue, we will discuss it in a separate publication.
As you can see, the liability of a partner in a limited liability company is not completely excluded - although situations in which a partner is actually liable for the company's obligations are individual. Generally speaking, after establishing a limited liability company, partners do not have to worry about potential depletion of their personal assets.
It is worth emphasizing here that the issue of limited liability of the company's owners is an attribute of every capital company – not only a limited liability company, but also a joint-stock company and a simple joint-stock company. So what is an additional advantage of a limited liability company compared to other types of capital companies? This issue is primarily less formalism, which facilitates the current operations of the limited liability company.
Both a limited liability company, a joint-stock company and a simple joint-stock company must be established by preparing a notarial deed (in the case of a limited liability company and a simple joint-stock company, this form is required for the company's articles of association/incorporation act, while in the case of a joint-stock company - for company statute). This form is also reserved for making any changes to the company's agreement/statutes.
Formal differences occur when the meeting of shareholders of a limited liability company or the general meeting of shareholders of a simple joint-stock company or a joint-stock company adopt resolutions that do not lead to an amendment to the company's articles of association. In the case of a limited liability company and a simple joint-stock company, it is sufficient to adopt a resolution in writing, while in the case of a joint-stock company, the form of a notarial deed is required. All resolutions approving the financial statements, regarding the distribution of profit or coverage of losses, as well as the appointment and dismissal of members of the management board and granting them a vote of approval (or e.g. the issue of the refund of additional payments made by partners) may be adopted by the meeting of shareholders of a limited liability company in ordinary written form.
Another important informalization regarding the functioning of a limited liability company is the lack of the need to create a register similar to the shareholders' register, requiring the involvement of a professional entity. In the case of this form of business, it is sufficient that the management board of the limited liability company will prepare a list of partners.
Another important difference regarding the functioning of a limited liability company is the issue of the wording of the company agreement/statutes of the company itself.
In the case of a joint-stock company, in accordance with the provisions of Art. 304 § 3 of the CCPC, the content of the statute may differ from the provisions of the Act only if the Act itself allows it. Provisions of the regulations of the CCPC do not contain a similar requirement in relation to a limited liability company - what is more, in accordance with the common views of the doctrine and case law, in the case of a limited liability company the situation is quite the opposite: in its case, the provisions of the company agreement may be shaped in any way, the content of the Act (of the Code of Commercial Partnerships and Companies) opposes this.
What about the Polish LLC's operating costs?
The operating costs of a limited liability company are not too high, which is due to the more lenient formal requirements regarding its operation. Compared to a joint-stock company and a simple joint-stock company, a limited liability company does not have to incur fees for maintaining a register of shareholders and recording all resolutions of the meeting (of shareholders) notarially, which is often associated with quite significant costs.
Moreover, the minimum share capital of a limited liability company is only PLN 5,000. The amount that partners can contribute in the form of cash or a non-cash contribution (contribution in kind) is sufficient to establish a limited liability company. For comparison: in the case of a joint-stock company, the minimum amount of share capital is PLN 100,000.
A lower minimum amount of share capital is also associated with lower costs of preparing the company's agreement/act of incorporation by a notary, as well as with a lower amount of tax on civil law transactions. Moreover, in the case of a limited liability company (as well as some other types of companies), the regulations provide for the possibility of establishing it via an IT system, which completely eliminates the fees for preparing the company's agreement/incorporation act.
However, the issue of court fees for registration and changing the company's data is the same as in the case of other commercial law companies.
The total fee for the application for company registration - and the obligatory announcement in the Court and Economic Monitor - is PLN 600. If the data of an already registered company is changed, the fee decreases to PLN 350. Lower fees apply to companies (including limited liability companies) whose agreement was drawn up via an IT system - in such a case, the total fee for registering the company is only PLN 350, and for changing its data - PLN 300.
It is worth adding here that if any application is submitted by a professional attorney, you should be aware of the need to pay an additional PLN 17 each time as stamp duty for the power of attorney, in addition to the above-mentioned fees.
Why is it worth establishing a limited liability company while doing business in Poland?
The main arguments for establishing a limited liability company are:
- the legal capacity and capacity to perform legal acts of the company (i.e. legal personality), which in practice result in the assets of the limited liability company being separate from the assets of its partners,
- the possibility of conducting both business and non-profit activities in this form,
- less formalism than in the case of other capital companies,
- relatively low costs of running a business.
All this makes a limited liability company an extremely attractive form of running a business and can be used by both entrepreneurs preparing for small ventures, as well as large capital groups and other entities not interested in running a business.
Running a business in the form of a limited liability company, on the one hand, ensures protection of the partners' personal assets, and on the other hand, flexibility guarantees the efficient and uninterrupted functioning of the company itself, which is particularly desirable in the case of companies with a small staff, where the most important thing is the ability to quickly respond to dynamically changing market conditions.