According to the Polish legal framework, economic activities may be carried out in many various forms. Below is a presentation of their characteristics.
Sole proprietorship (self-employment; individual business entity)
For a private individual to be allowed to conduct his or her sole economic activity, he or she must be registered in the appropriate registry of economic activities, i.e. fill in a relevant application (free of charge). Entrepreneurs intending to commence operations in this form do not need to expend significant registration costs nor have any solid initial capital. However, a private individual running their business in this form bears unlimited personal liability for any obligations arising from the activities of their enterprise. This form of business activity is available only to citizens of EU and EEA Member States. Citizens of third party States are required to obtain special permits.
Civil law partnership
Contrary to what the designation may suggest, a civil law partnership is not an independent economic entity. It is only a contractual relationship, i.e. a contract concluded between two or more individuals forming a partnership with the purpose of jointly conducting their business activities. Each partner is authorized and obliged to manage the affairs of the partnership and represent the partnership externally. Partners are personally, jointly and severally liable for the obligations of the partnership. The partnership by itself does not need to be registered, but each partner is required to make such registration. This form of business activity is available only to citizens of EU and EEA Member States. Citizens of third party States are required to obtain special permits.
Commercial partnerships, contrary to civil law partnerships, are autonomous economic entities that are not legal entities, but under valid legislation they have certain significant attributes of legal entities. These partnerships may acquire titles, contract obligations, sue and be sued on their own behalf. Commercial partnerships as entrepreneurs must be recorded in the registry of entrepreneurs of the National Court Register (KRS). Four types of commercial partnerships can be distinguished in the Polish legal framework.
This is a model form of a commercial partnership, focusing primarily on the personal component, namely on the partners. A deed of a registered partnership should be executed in writing unless the deed obligates the partner to deliver a contribution for which any special form is prescribed, e.g. for real property to be contributed to the partnership, the deed of partnership must be executed as a notarized deed. Partners provide contributions to the partnership. The value of such contributions must be defined, but no minimum initial capital is required. As in the case of a civil law partnership, each partner is authorized and obligated to manage the affairs of the partnership and represent the partnership externally. Each partner is liable for the obligations of the partnership without any limitation, with their entire property, jointly with the remaining partners and with the partnership. However, this liability is defined as subsidiary liability, meaning that a creditor of a partnership may carry out an execution from partner’s assets where execution from partnership’s assets proves ineffective. This form of business activity is available only to citizens of EU and EEA Member States. Citizens of third party States are required to obtain special permits.
In a professional partnership, partners may be exclusively private individuals authorized to practise the independent professions specified in Article 88 of the Code of Commercial Partnerships and Companies, including the following professions: advocate; pharmacist; architect; building engineer; sworn translator, etc.
As in the case of a registered partnership, a deed of a professional partnership should be executed in writing under pain of nullity. The material substance of the enterprise typically consists of the partners’ contributions, without a specified minimum value of initial capital for a professional partnership. A unique quality of a professional partnership is a specific regulation of liability rules, namely each partner may only be held liable for the consequences of his own actions but cannot be held liable for the obligations of the partnership occurring as a consequence of other partners’ deeds in relation to the practising of an independent profession by the remaining partners, as well as for the partnership’s obligations resulting from the actions or default of the persons employed by the partnership and subordinate to another partner. This form of business activity is available only to citizens of EU and EEA Member States. Citizens of third party States are required to obtain special permits.
This is a specific type of a commercial partnership, distinguished by the presence of two types of partners: limited partners and general partners. A limited partner is the partner bearing limited liability for the partnership’s obligations towards its creditors, only up to the amount of commandite sum defined in the deed of partnership. The name of the limited partner cannot be included in the corporate name of the partnership, or otherwise the limited partner would be liable towards third parties to the same extent as the general partner. A general partner is the partner, who is liable for the obligations of the partnership towards its creditors without any limitations, as partners in a registered partnership. The deed of a limited partnership shall be made in the form of a notarised deed. Partners provide contributions to the partnership. The value of such contributions must be defined, but – as in the case of a registered partnership – no minimum initial capital is required. Division of partners’ liability is related to the scope of their authority to manage the affairs of the partnership and represent the partnership externally. A limited partner may only represent the partnership as a proxy and is neither authorized nor obliged to manage the affairs of the partnership. The general partner is responsible for managing the affairs of the partnership and for representing the partnership externally. This form of business activity is available to citizens of any State.
An interesting version of a limited partnership, which is advantageous in many ways, is a limited liability company & co. limited partnership. In this specific organizational form, the limited partner is a private individual – shareholder of a limited liability company, and the limited liability company itself becomes the general partner. This option has the following advantages: no double taxation of incomes; no private individual bears unlimited liability with their personal property; the partnership may be managed by professionals, who are not necessarily made partners; if a legal entity is the general partner, this guarantees more solid continuity of business operations.
Limited joint-stock partnership
This is a hybrid type of establishment, combining certain components of partnerships and companies, although the Polish legislator has classified it among partnerships. In this type of partnership, at least one partner is the general partner, who is liable for the partnership’s obligations before creditors without any limitations, and at least one partner is a shareholder. The importance of this form in the Polish economy is quite marginal because in case of major undertakings, unlimited liability of general partners for the partnership’s obligations would be too risky, and shareholders are generally not interested in investing in a partnership in which they would not be able to influence the composition of the managing bodies – it is practically impossible to dismiss or otherwise remove general partners from their managing positions. As in the case of a joint-stock company, the legislator uses the word “articles” instead of “deed of formation”, requiring that the said articles be executed as a notarized deed. A limited joint-stock partnership is the only type of partnership where at least PLN 50,000 initial capital must be raised. Therefore, this partnership is capitalized higher than any of the existing types of companies. The partnership is represented externally by general partners, while shareholders are neither liable for the partnership’s obligations nor engaged in management of the partnership (they are only allowed to represent the partnership as proxies). This form of business activity is available to citizens of any State.
Apart from partnerships, the Polish legislative framework envisages two additional forms of conducting economic activities, namely the following two types of companies: a limited liability company (Sp. z o.o.) and a joint-stock company (S.A.). Their objective is to conduct more extensive operations than those of partnerships. Joint-stock companies are particularly fitted for handling major economic undertakings, requiring involvement of significant equity. Both these types of companies are corporate legal entities, operate as independent entrepreneurs and must therefore be registered in the registry of entrepreneurs of the National Court Register. Companies are the most commonly chosen forms of conducting business activities in Poland. The factor which strongly contributes to their popularity is certainly the limitation of personal liability of shareholders up to the amounts of their respective contributions to cover the initial capital (more precisely, there is an obligation to execute certain performances identified in the company deed/articles, with simultaneous non-existence of any liability of the shareholders for the obligations of the company).
Limited liability company
This type of organization is most commonly chosen by persons intending to engage in small or medium-sized entrepreneurial activity, with special consideration of the personal component, i.e. the identities of the shareholders. Although this type of company may be managed by third persons other than shareholders, it is common practice to delegate managing functions to one or more shareholders, considering their higher engagement in current affairs of the company. Paradoxically, this option carries a risk of liability for the obligations of the company because where execution against the company has proved ineffective; the members of the management board shall be liable jointly and severally for the obligations of the company (although they are able to avoid this liability under certain conditions). A deed of formation of a limited liability company should be executed as a notarised deed. Shareholders provide contributions to the company, covering the initial capital (share capital). Cash or non-cash contributions are distinguished, and the minimum amount of initial capital is PLN 5,000. From January 1, 2012, the Polish legislator introduced an option to fund a limited liability company by means of a limited deed template available in the ICT system. For the time being, the procedure, which aims at simplification of registration and its reduction to 24 hours, has been under implementation. There is an important limitation of the general rule, under which it is not permitted for a new limited liability company to be established (formed) solely by another sole-shareholder limited liability company as the single promoter. However, there are no restrictions preventing acquisition of the entire shareholding in an existing limited liability company by another sole-shareholder limited liability company. Unlike partnerships, companies operate as corporate legal entities through their bodies. The bodies of a limited liability company are: a general meeting of shareholders, and a management board, as well as supervisory bodies that are obligatory only in certain specific circumstances (a supervisory board and/or a revision committee). The ranges of competence of the specific bodies of the company are divided by law and may be further regulated in the deed of company formation. In any case, the management board shall manage the affairs of the company and represent the company. This form of business activity is available to citizens of any State.
A joint-stock company (S.A.) is an organization, which is capable of obtaining significant equity from a large group of investors in a relatively short time and at a relatively low cost. Therefore, this form is most commonly applied in the case of major economic undertakings. A characteristic feature of this company is the absolute separation of managing functions from shareholding functions – in joint-stock companies, day-to-day management is exercised by one or more persons specializing in management activities. Because shareholders are not directly engaged in company management, they are capable of diversifying their portfolios and engaging their capital in many business operations at the same time. Another important quality of a joint-stock company is unrestricted transferability of the company’s shares. Articles of a joint-stock company should be executed as a notarized deed, and the signatories of such deed become the founders of the joint-stock company. Afterwards, shareholders provide contributions to cover the initial capital; if shares are taken up in exchange for non-cash contributions, these should be covered in whole not later than one year of the company registration date, and otherwise cash contributions should be paid up before registration of the company, at least in one-fourth of their nominal value. The minimum value of initial capital of a joint-stock company is PLN 100,000. As in the case of a limited liability company, a joint-stock company cannot be established (formed) solely by a single-shareholder limited liability company. A joint-stock company operates through its bodies in a manner provided for in the respective statute and in the articles. These include: the general meeting (of shareholders), the management board, and the supervisory board, which is obligatory unlike in the case of a limited liability company. This form of business activity is available to citizens of any State.
Branch and representative office of a foreign entrepreneur in Poland
A foreign entrepreneur may open a branch in the territory of Poland, on a mutual basis, meaning a separate and organizationally independent operation of the entrepreneur’s business, conducted outside the head office of the entrepreneur. The key characteristic quality of a branch is that it does not have a legal identity but operates within the limits of the legal identity of the foreign entrepreneur, who established the branch. A foreign entrepreneur’s branch must be recorded in the registry of entrepreneurs of the National Court Register, and the costs of registration procedure are the same as those applicable to commercial companies. Registration is made on the basis of a relevant resolution/decision to establish a branch office, with simultaneous registration of the foreign entrepreneur’s data (including submission of articles of association/deed of company and a copy of applicable registration for the foreign entrepreneur). The foreign entrepreneur must appoint his authorized representative at the branch office. This person is entitled and authorized to operate within the branch, however only for and on behalf of the foreign entrepreneur. A branch does not have its separate corporate name and identifies itself in the market with the corporate name of the foreign entrepreneur. A branch has its own separate property and therefore, the foreign entrepreneur is obliged to keep separate accounts for the branch in the Polish language, according to Polish accounting laws. A branch may carry out business activities only within the scope of the business activity of the foreign entrepreneur.
A foreign entrepreneur is also permitted to open a representative office in Poland. This legal concept is very similar to that of a branch: a representative office does not have a legal identity and it constitutes a unit of organisation that is entirely and absolutely subordinate to the foreign entrepreneur. The basic difference between the two types of foreign offices is that a representative office may only carry out advertising and promotional operations for and on behalf of the foreign entrepreneur. Unlike branches, which are recorded in the registry of entrepreneurs of the National Court Register, formation of a representative office requires registration in the registry of representative offices of foreign entrepreneurs, which is maintained by the competent minister of the economy. The remaining duties and obligations of an entrepreneur establishing a representative office are similar to those applicable to formation of a branch.
Cross border forms of entrepreneurship
The European Economic Interest Grouping (EEIG)
This cross border form of conducting economic activities is regulated with reference to Regulation (EEC) No. 2137/85 of 25 July 1985. An EEIG must be composed of at least 2 entities (companies and/or private individuals) conducting their business activities or having their registered offices in two different Member States within the Community. The purpose of EEIG is to facilitate or develop the economic activities of the specific members instead of earning profits for itself. The activities of an EEIG are therefore auxiliary to those of its members.
European company (Societas Europaea or SE)
A European company is regulated in a single Act of law with the EEIG, with reference to Regulation (EC) No. 2157/2001 of 8 October 2001. This is a public limited-liability company, which should exist within the frameworks of companies’ laws of the particular Member States also with national joint-stock companies. An SE has a legal identity and is required to have a relatively high share capital – EUR 120,000. As compared to the Polish joint-stock company, the following issues are regulated differently for an SE: formation of an SE, registered office and change (movement) of registered office, free choice of the scheme of corporate bodies in an SE (single or dual), and employee participation in management of an SE.