Characteristics of a limited liability company, who is responsible for the company's liabilities, what are its accounting and tax matters?
The limited liability company is the most popular commercial company in Poland. It is an appropriate form of activity, e.g. for shareholders who want to maintain direct supervision over the company's affairs and limit the risk only to their contribution (no liability with personal assets).
Characteristics of the limited liability company
It is a commercial company with legal personality. It may be established by one or more shareholders, but it may not be established solely by another single person limited-liability company. Its founders may be either natural persons or legal persons, regardless of their nationality or place of establishment. In order to be established, a capital of at least PLN 5,000 is required.
Liability of shareholders
The company is responsible for its liabilities with all its assets. Shareholders are not liable for the company's obligations (if they are not members of the company's management board). Shareholders bear only limited liability, up to the value of their contributions (business risk).
If the execution against the company proves to be ineffective, the members of the management board are jointly and severally liable for its obligations. A management board member may release himself from liability if he proves that a petition for bankruptcy was filed or composition proceedings were instituted in due time, that the failure to file for bankruptcy and to initiate composition proceedings was not due to his fault, or that despite the failure to file for bankruptcy and initiate composition proceedings, the creditor did not suffer any damage.
The company's highest authority is the general meeting of shareholders. The company shall be represented by its Management Board (consisting of at least one member) in accordance with the principles set forth in the Articles of Association. The company may also be represented by a commercial proxy.
Each shareholder shall have the right to exercise individual supervision over the company. It may be limited or excluded in the contract if a supervisory board is established.
A limited liability company may also establish a supervisory board or an audit committee, or both. In companies where the share capital exceeds PLN 500,000 and there are more than twenty-five shareholders, the establishment of a supervisory board/audit committee is mandatory.
Shareholders are free to choose the name of the Ccompany, however, the name must be sufficiently different from the names of other entities operating on the same market as the Company. The name shall include the words "Limited liability company" or the abbreviation "Sp. z o.o." or "Spółka z o.o.".
Articles of association
The articles of association of a limited liability company must be drawn up in the form of a notarial deed. The exception is the registration of the company via the Internet (you can use a ready-made template). What is important, when registering a company via the Internet, the partners of a limited liability company may only make cash contributions to cover the initial capital.
The articles of association shall contain:
- the name and registered office of the company
- determination of the company's business on the basis of the Polish Classification of Business Activities (PKD)
- the duration of the company - when the company has been established for a definite period of time (as a rule, an appointment for an indefinite period of time is a principle)
- the amount of the share capital
- a provision stating whether a shareholder may hold more than one interest
- the number and nominal value of shares subscribed for by each member
Additional provisions in the agreement may apply to such matters as capital increase, disposal of shares, method of representation.
In order to establish a company, it is also necessary to make contributions to cover the share capital and appoint the management board (and, if necessary, a supervisory board or an audit committee). Company bodies may be appointed in a notarial deed containing the articles of association or in a separate resolution, after the articles of association have been signed.
Registration of the company
The company is registered in the National Court Register in a traditional way or electronically.
NIP and REGON
NIP and REGON numbers are assigned "automatically" when the company is registered in the National Court Register.
A shareholder is entitled to a share in the profit resulting from the annual financial statements and intended for distribution by virtue of a resolution of the general meeting of shareholders. The profit is distributed in proportion to the shares (unless the agreement provides otherwise).
The company is a corporate taxpayer (CIT) - the tax (19% or 9% in the case of small companies - gross sales up to EUR 1.2 million - or start-ups) is paid by the limited liability company itself on the income earned by it in a given tax year. In addition, the company's partners pay tax (19%) on dividends and other income from participation in corporate profits (e.g. income from redemption of shares).
The basic category of income from participation in the profits of a limited liability company is the payment of cash (dividend).
The company is a VAT payer.
Requirement of full accounting and auditing of financial statements.
Obligations towards ZUS
When a company is registered, it will automatically be registered with the Social Insurance Institution as a payer. There is no need to send additional documents to ZUS. Shareholders of a limited liability company are not obliged to insure in ZUS on this account (this also applies to members of the management board, unless they perform their functions on the basis of employment contracts or civil law contracts).
Exception! A person commencing business activity as a partner in a limited liability company is obliged to register himself as a payer of insurance contributions (at least for health insurance) with the Social Insurance Institution (ZUS) within 7 days from registration. A shareholder of such a company is a payer of contributions for his own insurance, therefore, he should prepare and submit to the Social Insurance Institution a notification:
- the payer of contributions on the ZUS ZFA form, in which he enters his own identification data, i.e. PESEL and NIP or NIP number, REGON and PESEL (if the partner also runs a separate business activity, other than conducted in the form of a partnership)
- himself or herself as an insured person - on the ZUS ZUA form (or if only he/she will be covered by health insurance - on the ZUS ZZA form), with a PESEL identification.
Limited liability company in organization
Upon the conclusion of the contract of a limited liability company, a limited liability company is established within the organisation. It operates until the company is registered in the National Court Register. Therefore, it is the initial phase of the existence of a limited liability company.
It is transformed into a proper limited liability company having legal personality at the moment of registration of the company in the National Court Register (KRS). Therefore, within 6 months from the date of concluding the articles of association, the partners are obliged to submit an application for registration of the partnership to the relevant registry court. The company may exist in the organization for more than 6 months, because court actions concerning the registration of the company may extend the period of the company's operation beyond the statutory six months.
During the period of the limited liability company's operation in the organization, apart from preparing and submitting to the registry court an application for entry of the company into the National Court Register, the shareholders should also appoint the company's management board, the supervisory board (if the articles of association so require), and make contributions to cover the entire share capital.
What can a limited liability company do in an organization?
The limited liability company does not have legal personality in the organization, but it has full capacity to perform legal acts. This means that it may conduct business activity on its own behalf, including purchasing and selling goods, products and services, hiring employees, acting before offices or courts.
It may also, on its own behalf, acquire rights, including ownership rights to real estate, fixed assets, equipment and other property rights (e.g. the right to perpetual usufruct of land), incur liabilities, and thus also sign agreements with contractors in the course of their business activities.
A limited liability company may obtain both NIP and REGON in the organisation. It can be a tax payer and therefore issue VAT invoices. The same NIP and REGON number shall be used by the limited liability company established after registration with the National Court Register.
A company within an organisation is not yet a proper limited liability company registered in the National Court Register, therefore the company's name must contain a clear indication "within an organisation". The only limitation in the scope of activity of such a company is the lack of possibility to sell its shares (which is acceptable in a limited liability company).
The rules of representation of the company in the organization (i.e. the circle of persons authorized on behalf of the company to incur liabilities, sign contracts, act before offices or courts, etc.) and the rules of responsibility for its obligations are also different in relation to the competent limited liability company. The company may be represented by the management board (provided that the articles of association of the company already provide for the composition of the management board) or, if the management board has not yet been established, by a proxy appointed by a unanimous resolution of the shareholders. The role of an attorney-in-fact is particularly important in the event of failure to appoint a management board, in which case the attorney-in-fact is the only person authorised to represent the company. A special rule of representation applies in the case of a sole shareholder limited by shares in an organisation where the sole shareholder is at the same time the sole member of the management board. In such a case he is only entitled to sign the application for registration of the company in the National Court Register. On the other hand, all other activities on behalf of the company in the organisation may be performed only by an attorney-in-fact appointed by the shareholder.
The obligations of a limited liability company within the organisation are jointly and severally the responsibility of the company itself and of the persons who acted on its behalf, i.e. the management board or an attorny-in-fact. The shareholder is also jointly and severally liable for the company's liabilities in the organisation, if it has not yet made the entire contribution to the company, up to the amount of the contribution promised in the contract, but not made. A shareholder is not liable for the company's obligations in the organisation only if he has made all his contributions specified in the articles of association. However, if a shareholder is also a person authorised to represent the company (for example, a member of the management board), he is jointly and severally liable with the company by virtue of his function. Upon the registration of a limited liability company by virtue of law, all rights and obligations of the company in the organization are transferred to it.
A limited liability company is not always transformed into a proper limited liability company. If for any reason an application for registration of a limited liability company is not submitted to the National Court Register within 6 months from the date of conclusion of the articles of association or if a court decision refusing registration of the company becomes final, the articles of association shall be terminated and the company within the organisation shall be dissolved. In such a case, the company should immediately reimburse all its contributions and cover all its liabilities towards third parties. If for any reason the company is not able to do so, the procedure of liquidation of the limited liability company in the organization is implemented in accordance with the procedure specified for liquidation of companies registered in the National Court Register. The management board (if not appointed, the general meeting of shareholders or the registry court) shall appoint a liquidator(s) to liquidate the company. The liquidator must announce the opening of the liquidation of the company in the organisation once in the Court and Commercial Gazette, inviting creditors to submit their claims within one month from the date of publication. The dissolution of the company will take place on the date of approval of the liquidation report by the shareholders' meeting.