A single-member limited liability company is getting more and more attractive as far as conducting business is concerned. One of the reason is that it enables entrepreneurs to invest and enjoy solutions made for capital companies at once, such as avoiding the liability for company’s obligations. What more you should know about a single-member limited liability company? What are its characteristics and distinctive features? Find the answers below.
Table of Contents
- What makes a single-member limited liability company so popular?
- A single-member limited liability company and Polish law
- What are possible ways to establish a single-member limited liability company?
- How to organize a single-member limited liability company?
- Representation of an LLC – a shareholder and member of the management board in one person
- Single-member limited liability company and ZUS (Social Insurance Institution)
- A single-member limited liability company – limitations and distinctive features
What makes a single-member limited liability company so popular?
Why is a single-member limited liability company popular? Below you will find the most important reasons:
- The absence of personal responsibility for the company’s obligations by shareholders;
- There is a lot of flexibility in creating the company’s agreement or founding act.
- The minimum capital requirement is relatively low.
The flexibility of a single-member LLC evinces itself in its capacity to participate in legal transactions, as a company whose shares are owned by a single shareholder. It can be established by gathering all shares of an already existing LLC or by creating a new one. It’s worth mentioning that the legislator doesn’t allow to set up a single-member LLC by another single-member LLC.
A single-member limited liability company and Polish law
The legislator in the Act of 15 September 2000 Code of Commercial Companies (Journal of Laws of 2022, item 1467) in art. 4 § 1 item 3 defines a single-member company. It is a capital company whose all shares or stocks belong to only one partner or shareholder. Both a natural and legal person can be such a shareholder. Practitioners and theorists of law often raise that there are no provisions that directly refer to a single-member LLC. It raises reasonable concerns of entities engaged in or preparing to engage in economic transactions. It would be better if the provisions of the CCC had a separate section dedicated to a one-member LLC.
What are possible ways to establish a single-member limited liability company?
There are two ways to establish a single-member limited liability company:
• transformation from a sole proprietorship,
• creating it from scratch only in electronic form (from 1st of July 2021). It means: opening a company via the Court Registry Portal or the S24 Portal
How to organize a single-member limited liability company?
In a situation where a decision was made to establish a single-member LLC, the articles of association are replaced by the founding act. It must meet the requirements of the articles of association. Both the founding act and the articles of association should be prepared in the form of a notarial deed.
Upon signing the founding act or the company’s agreement, a new LLC in the organization is formed. It lasts until the company is entered into the National Court Register. At this stage, the sole shareholder, unlike shareholders in standard LLCs doesn’t have the right to represent the company. During this time, the management board have the authorization to represent it. If it has not yet been appointed, a proxy appointed by a unanimous resolution of the shareholders represents the company.
Following registration, the legislator entrusts the persons establishing the firm the representation of an LLC in external dealings. That person can determine the manner in which the members of the multi-person management board will perform the representation. If the founding act or articles of association don’t regulate this matter, the CCC requires the participation of two management board members when presenting declarations. Alternatively, a commercial proxy and one member of the management board. The code governs internal representation when the only shareholder is not the sole member of the management board. In instances involving contracts and disputes between the company and a member of the management board, the legislator requires for the company to be represented by the supervisory board or a proxy appointed by a shareholders’ resolution.
Representation of an LLC – a shareholder and member of the management board in one person
There is one more thing to consider when it comes to representation. It refers to concluding agreements between a shareholder and the company when the sole shareholder is also the sole member of the management board. In the classic case of multi-member companies, a company is represented by the supervisory board or a proxy. The proxy is appointed by a resolution of the shareholders’ meeting. But, the legislator regulates this issue differently in the case of a single-member company. The Code of Commercial Companies requires the form of a notarial deed for such an agreement. Also, the notary public is obliged to notify the registry court of each agreement concluded in this way.
Single-member limited liability company and ZUS (Social Insurance Institution)
An important difference between a multi-member and a single-member LLC is the issue of social insurance. The owner of all shares in an LLC is considered to be a person running a non-agricultural business. As a result, the sole shareholder is required to pay contributions to ZUS. This is different in the case of the shareholders of multi-member LLCs. They are not subject to social insurance due to the fact of being a shareholder. It’s worth mentioning the existence of the so-called ‘nearly sole shareholder’. This refers to a situation where, in theory, not all shares belong to one shareholder, but he has shares of at least 90%. In such a case, ZUS may consider the minority shareholder as an ‘illusory shareholder’. It results from the risk that his only purpose in the company is to avoid paying contributions. In such a situation, the ‘nearly sole shareholder’ is also obliged to pay social insurance contributions.
A single-member limited liability company – limitations and distinctive features
You should note that the following list is not exhaustive. Yet, it covers issues that are most often discussed from a practical point of view:
- Full control over the single-member LLC by its sole shareholder. At the same time, the shareholder is not responsible for the company’s obligations with his own assets.
- Formalized form of submitting declarations of will in the company, making legal transactions and extended reporting obligations on the company’s activities.
- A simplified form of protocoling resolutions of the general meeting of shareholders or, in fact, of the sole shareholder. A shareholder is also the protocolant and the chairman. The lack of the obligation to submit proof of convening the meeting is also characteristic. The sole shareholder does it individually at any time.
- The sole shareholder cannot be employed by the single-member LLC under an employment contract. There is a lack of the characteristic element of employment, which is subordination. Due to the rich case law in this matter, the most common and recommended solution in such a situation is a management contract or a contract of mandate.
- Legal transactions between the sole shareholder and the company he represents require the form of a notarial deed under pain of its absolute invalidity. This results directly from the provisions of the Code of Commercial Companies,
- The sole shareholder makes declarations of will to the company. It must be made in writing, under pain of invalidity.
- The single-member LLC is represented by a proxy appointed by the sole shareholder.
- The founders of a single-member LLC can be natural persons or legal entities. Their citizenship and the company’s registered office do not matter. Additionally, a capital of at least 5,000 PLN is required.
The legal structure of a single-member LLC can raise many questions or doubts. If this article interests you and you want to learn more about a single-member LLC, we invite you to cooperate with CGO Legal. Contact our law firm in Łódź and Warsaw.