Limited liability company – is it worth to set up?

A quick answer to the question is it worth to set up a limited liability company (LLC) or not is not straightforward. Like any business venture, it has its advantages and disadvantages. The advantage seems to lie in the fact that it is one of the most commonly chosen types of companies. Let’s explore the pros and cons of an LLC below.

Table of Contents

• Limited liability company in Poland – what is it?
• Limited liability company in Poland – is it worth to set up? What are its advantages?
  • Legal personality of a limited liability company in Poland
  • Limited liability of shareholders in an LLC
  • Low costs of establishing a limited liability company in Poland
  • A possibility to register a limited liability company via the Internet
  • Immediate assignment of NIP and REGON numbers
  • Low minimum share capital
  • Possibility to form a one-person limited liability company in Poland
• Limited liability company in Poland – maybe it is not worth to set up? What are its disadvantages?
  • Formalised procedure of forming a limited liability company
  • The company’s agreement in the form of a notarial deed
  • Double taxation of the limited liability company’s income
  • The obligation to submit financial statements
  • The obligation to maintain the so-called full accounting
  • Liability of management board members for obligations of a limited liability company 
  • Long liquidation procedure
• Summary

Limited liability company in Poland – what is it?

According to the Code of Commercial Companies, a limited liability company is a capital entity. One or more persons may establish it for any legally permissible purpose. The only limitation is that it cannot be formed by another single-person LLC. Shareholders of an LLC are only obligated to contributions specified in the company’s agreement. They are not liable for the company’s obligations. A limited liability company is an independent legal entity. Its minimum share capital amounts to 5000 PLN.

Limited liability company in Poland – is it worth to set up? What are its advantages?

A limited liability company is one of the most popular forms of business in Poland. What are its advantages?

Legal personality of a limited liability company in Poland

As provided by the Commercial Companies Code, a limited liability company (spółka z o.o.) has legal capacity, capacity for legal actions, and capacity to be a party in court proceedings. It may acquire rights in its own name, including real estate and other proprietary rights. It can also incur obligations, sue and be sued. Limited liability company in Poland acquires its legal personality upon registration in the National Court Register.

Limited liability of shareholders in an LLC

Among the advantages of a limited liability company, there is also the exclusion of the liability of shareholders with their personal assets. As a rule, shareholders are not liable for the company’s obligations. The company itself is responsible for them. The liability of shareholders is limited only to the amount of their shares. It can be extended to their personal assets only in exceptional cases.

Low costs of establishing a limited liability company in Poland

Another advantage of a limited liability company in Poland is the low cost of its formation. The costs include the initial contribution,  drawing up the company’s agreement in the form of a notarial deed and registration with the National Court Register. The cost may be even lower if you chose to register the company via the Internet. This form allows to avoid notarial costs.

A possibility to register a limited liability company via the Internet

The possibility to register a limited liability company in Poland via the Internet is also worth mentioning. The simplified procedure for setting up a company allows to avoid personal visits to various offices. Both sending and paying the registration application via the free S24 system takes a few minutes.

Immediate assignment of NIP and REGON numbers

Establishing an LLC in Poland requires registration in the National Court Register (Polish: KRS). When an LLC is registered in the KRS, the application for NIP (Tax Identification Number) and REGON (National Business Registry Number) is automatically forwarded to the tax and statistical offices. Currently, an LLC obtains NIP and REGON numbers within 2 days of the registration in the KRS.

Low minimum share capital

According to the provisions of the Commercial Companies Code, the minimum share capital should amount to 5000 PLN. The company’s agreement determines share capital. It can be increased or decreased at any time. The share capital consists of shares contributed by individual shareholders. They may have an equal or unequal nominal value.  The value of a share cannot be lower than 50 PLN. The owned shares entitle the holder to vote during general meetings. Moreover, they allow to participate in making decisions concerning the company.

Possibility to form a one-person limited liability company in Poland

The possibility to establish a one-person limited liability company is another advantage. It is an exception to the rule that a company must consist of at least two shareholders. The purpose of introducing such a solution was to enable entrepreneurs to run their own businesses in a way that reduces economic risk and taxes.

Limited liability company in Poland – maybe it is not worth to set up? What are its disadvantages?

Despite many advantages of a limited liability company, it also has some disadvantages. We will discuss them below.

Formalised procedure of forming a limited liability company

According to the provisions of the CCC, the process of setting up a limited liability company consists of several steps:

1. Conclusion of a company’s agreement,
2. Contribution of share capital by shareholders,
3. Appointment of a management board,
4. Establishment of a supervisory board or an audit committee, if required by law or the company’s agreement,
5. Registration in the National Court Register.

Only after meeting these requirements, the limited liability company may be established.

The company’s agreement in the form of a notarial deed

As indicated by the provisions of the CCC, the company’s agreement for an LLC must be in the form of a notarial deed. Yet, it can also be created using a template agreement.

Why the agreement in the form of a notarial deed is seen as a disadvantage of a limited liability company? It requires:

• Additional costs for the shareholders,
• Gathering appropriate documents,
• Scheduling a visit at a notary’s office.

 In the case of a large number of shareholders, this takes more time than concluding an LLC agreement by using a template. However, it’s worth remembering that any changes to the company’s agreement will still require a visit at a notary’s office. Even if the agreement was concluded with the use of the standard template.

Double taxation of the limited liability company’s income

The double taxation of a limited liability company can be also seen as its drawback. The company’s profit is subject to corporate income tax (CIT). If the company distributes its profits to its shareholders, it is also subject to personal income tax (PIT). The tax rate for the company is either 9% or 19%. The lower rate applies only to entities that did not earn revenues exceeding the equivalent of 2 000 000 EUR in the given accounting year. For higher revenues, the higher tax rate applies.

The obligation to submit financial statements

The management board of an LLC must prepare and submit an annual financial report to the court of registration. This obligation applies regardless of whether the LLC achieved any revenue in a given year. A failure to fulfil this obligation may result in financial consequences. The shareholders of the limited liability company may be charged with a penalty of up to several thousand PLN.

The obligation to maintain the so-called full accounting

Another disadvantage of a limited liability company is the obligation to keep full accounting records. It is a complex and formalised system of recording economic and financial events. In practice, this involves additional costs. Entrepreneurs are forced to entrust accounting tasks to external entities. However, there are exceptions for smaller limited liability companies. In some cases, they allow the use of simplified accounting.

Liability of management board members for obligations of a limited liability company

According to the CCC, a limited liability company is liable for its obligations towards third parties with all its assets. However, if an LLC cannot be held liable, then creditors may demand payment from the members of the management board. In such a case, they are personally liable with all their assets without limitation.

Long liquidation procedure

Another disadvantage of a limited liability company is the long liquidation procedure. It requires gathering appropriate documentation and appointing liquidators. When deciding to terminate the activity of an LLC, one should be aware that the liquidation process takes longer than its formation.

Summary

A limited liability company is a form of business that has both advantages and disadvantages. Although running an LLC involves many formalities and higher service costs, setting it up is generally a very beneficial move.

Are you looking for an accountant in Poland or a payroll services provider in Poland? Specialists from our accounting firm in Poland, Warsaw will be happy to help. If you are interested in company registration in Poland visit our dedicated landing page.