A limited liability company in Poland can be established by anyone, regardless of citizenship or type of residence in Poland. In other cases it is not so comfortable, especially in the case of a sole proprietorship. So if this is the only business opportunity for you in Poland, then reading this article is a must.
Whether this is actually the case, you will find out in this article.
Maybe let’s start slowly – What is a limited liability company?
A limited liability company, abbreviated as LLC is a frequently chosen legal form of doing business in Poland. Such companies fall into the commercial and equity categories. The rules of their functioning and operation are precisely defined in the Polish Commercial Companies Act.
A limited liability company usually exists indefinitely, but it is also possible to create one for a limited period. Compared to a sole proprietorship, running a LLC is more formalized. It differs primarily in that it is incorporated, which means that it is a separate legal entity. This results in limited liability of the partners for the company’s debts and obligations. However, it doesn’t mean no liability.
Big word: Liability and who bears it?
As a legal entity, the LLC has certain governing bodies:
- Shareholders: This body brings the company into existence, and possibly liquidates it. In addition, it makes important decisions, such as approving financial statements.
- Board: Can consist of one or more members and handles day-to-day affairs. It is also responsible for representing the company externally. May be liable for company’s obligations.
- Supervisory board: It is mandatory only for larger companies. The supervisory board monitors the company’s activities, especially major financial decisions. Since it is practically non-existent in smaller companies, we will not focus on it further.
It is worth paying special attention to the issue of management responsibility in a limited liability company. If the company has unpaid debts, the creditor has the right to demand their repayment from the company’s assets. In a situation where these assets are insufficient, a creditor may try to assert his claim against the board members.
If board members neglect their duties and fail to declare bankruptcy when the company goes insolvent -you can seek claims from them. Board members are responsible when they lead the company into bankruptcy through their actions and negligence.
As a board member, you must be aware of your responsibilities and diligently oversee them. Mismanagement of the company and neglect of duties can carry considerable consequences.
There was talk of assets. What does it look like in a limited liability company?
A limited liability company is a separate legal entity and also has its own separate assets. This means those are not a shareholder’s or board member’s assets, and they can’t freely dispose them.
That’s why you can’t withdraw money from a company account or use it for personal expenses without valid reasons.
This is a very important issue that a large number of entrepreneurs are unfortunately unaware of. They treat the company’s assets as if they were their own. They do whatever they want with them, what can cause a lot of trouble. Therefore, be aware and manage the company’s assets in the right way!
The company’s assets are formed through the contribution of share capital by the shareholders.
And what is this share capital?
The minimum value of share capital of a limited liability company is 5 000 PLN. In comparison, the minimum stock capital of a joint-stock company is 100 000 PLN. Share capital can be contributed either by cash or non-cash assests.
Cash paid in or assests contributed to the share capital are used to cover various start-up expenses.
Before forming a company, consider setting the share capital at the exact amount needed to start the business.
Mostly, shareholders of a limited liability company decide to pay a minimum share capital.
It is not a good practice; when funds run out, shareholders must recapitalize the company to continue. Most often they lend money to the company, which involves additional formalities and the need to settle these loans.
It is also worth noting that higher share capital increases the credibility of the company.
Probably there are more questions, so….
How does accounting look like in a limited liability company?
According to the regulations, it is required to keep full accounting ledgers. This means that bookkeeping is more advanced and costly than for a sole proprietorship.
In addition, the limited liability company must submit annual financial statements. The financial statements primarily include a balance sheet and profit and loss account.
We would like to emphasize that we offer ourselves as an accounting office. We will help you in forming LLC, managing its accounting, and preparing financial statements.
Probably all of you (or vice versa) are waiting until we finally mention taxes. Here we are…
What is the taxation of a limited liability company ?
Here, the issue of double taxation must be taken into account. The company’s income is subject to a corporate income tax (CIT) of 9% or 19%. The lower rate applys to the so-called small taxpayers. Small taxpayer status is granted if annual revenues do not exceed 2 000 000 EUR.
The second income tax is personal income tax (PIT). It is assessed when partners distribute profits from the company in the form of dividends. In this case, the tax rate is 19%.
We will write in details about taxes in a separate article. Follow our blog so you don’t miss it!
Now that we’ve mentioned the dividend, how does it work?
Shareholders are entitled to participate in profits. When a company generates profits, shareholders can expect dividend payments. It is necessary to decide that all or part of the profits will be used to pay dividends.
This decision is made through a resolution at a shareholders’ meeting, typically alongside the approval of the financial statement. Such a meeting should be held within 6 months after the end of the fiscal year.
If I no longer want to continue to run the company, what to do with it?
Shareholders have the option of deciding to suspend the company’s operations or liquidate it.
Liquidation is a process lasting at least 6 months with the aim of terminating a company’s activities and deregistering it.
However, it is often simpler and more advantageous to sell a limited liability company. This usually involves the transfer of shares to another person. It doesn’t mean the sale of the company itself but the transfer of ownership rights and obligations.
A contract of sale is sufficient to sell the company and its effect is virtually immediate. The formalities involved, while also occurring, are less cumbersome than liquidation.
And just to conclude, we list the advantages and disadvantages of a limited liability company.
Starting with the advantages:
- Limited financial responsibility – partners of LLC risk only with the funds contributed to cover the share capital. This means that the shareholders are not liable for obligations to creditors. The limited liability company is responsible for them (with its assets). However, in certain situations, the members of the board may be liable.
- The solution to avoid ZUS contributions – one of the differences between a limited liability company and a sole proprietorship. LLC is not required to pay ZUS contributions. However, it doesn’t apply to LLC with only one shareholder, which is treated by ZUS as a sole proprietorship.
- Possibility of selling the company – the sale of the company’s shares is quite simple.
What the other side looks like, i.e. the disadvantages?
- The need to pay up share capital – has its importance here. Its value may be much lower than in the case of a joint-stock company.
- The structure is more formal than in a sole proprietorship – this involves more required procedures, including those related to bookkeeping.
- Double taxation – first the CIT is paid and then still the PIT.
Remember that any decision should be well thought out and discussed with professionals. When you’re planning to set up a limited liability company, it is good to prepare solidly for it. So that nothing surprises you later.
We wish you success! We are available to help you. If you have any questions or need support in setting up a limited liability company and handling its accounting. Contact us and we will be happy to help you realize your plans.
You can read more about all this here
