A limited liability company has been enjoying unflagging popularity when it comes to the type of business activity for years. What are the pros and cons of a limited liability company at different stages of its existence? How is it created and functioning? We answer in the article below.
Table of Contents
- Limited liability company in Poland – company formation and further business activity
- Pros and cons of a limited liability company in Poland during the company registration stage
- Advantages and disadvantages of an LLC during the company’s operational stage
Limited liability company in Poland – company formation and further business activity
According to the Commercial Companies Code, a limited liability company is a capital entity. It can be established by one or more individuals for any legally permissible purpose. However, it cannot be formed only by another single-member LLC.
Shareholders of an LLC are only obliged to perform services specified in its contract. They are not liable for the company’s obligations.
The share capital of an LLC is divided into shares of equal or unequal nominal value. It should amount to at least 5 000 PLN, with a nominal value of each share not lower than 50 PLN.
Pros and cons of a limited liability company in Poland during the company registration stage
Disadvantages of an LLC during its registration stage include:
- A formalized procedure for establishing an LLC.
- The requirement for the LLC agreement to be in the form of a notarial deed.
The formalized procedure for establishing an LLC. According to CCC the formation of an LLC in Poland involves several steps. To establish an LLC, you must:
- conclude the company’s agreement,
- contribute funds to cover the entire share capital,
- appoint the management board,
- appoint a supervisory board or auditors’ committee if the agreement or the law requires it,
- register the company in the National Court Register.
After meeting these requirements, the limited liability company is formed.
Articles of association in the form of a notarial deed. The CCC states that articles of association of a limited liability company should be in the form of a notarial deed. However, this is not the only legally permissible form. Another possibility is the use of a template agreement.
Drafting an LLC agreement in the form of a notarial deed can be seen as disadvantage because:
- it generates additional costs for the shareholders,
- it requires gathering specific documents,
- it requires scheduling an appointment at a notary’s office,
- it takes more time compared to concluding the LLC agreement using a template.
On the other hand, the advantages of an LLC at the stage of its registration include:
- Low costs of LLC formation,
- A possibility to register an LLC online,
- A low minimum share capital,
- The possibility of establishing a single-member LLC.
Low costs of LLC formation. During the registration phase of an LLC, you should consider the following expenses:
- Drafting the LLC agreement in the form of a notarial deed.
- Registering the LLC in the National Court Register.
- Contributing an initial capital.
However, these costs are reduced in the case of registering an LLC online. This allows for avoiding notarial expenses.
The possibility to register an LLC online. The procedure for an LLC formation through the teleinformatic system currently takes only a few minutes. Sending and paying the registration application through the free S24 system allows you to skip visits at offices.
A low minimum share capital. According to the Commercial Companies Code, the share capital of an LLC should be at least 5000 PLN. It is defined in the LLC agreement as one of its mandatory elements. The share capital can be increased or decreased at any time.
The possibility of establishing a single-member LLC. It is an exception to the rule that an LLC typically consists of at least two shareholders. Introducing such an option allows entrepreneurs to run their businesses in a manner that reduces economic and tax risks.
Advantages and disadvantages of an LLC during the company’s operational stage
Among disadvantages of an LLC that can be seen at the stage of its operations, the following are distinguished:
- Double taxation of income generated by the LLC’s activities.
- The obligation to submit financial reports.
- The requirement for full accounting.
Double taxation of income generated by the LLC’s activities. The profit of an LLC is subject to Corporate Income Tax (CIT). If the LLC distributes profits to its partners, it is also subject to Personal Income Tax (PIT). The tax rate applied to the LLC is either 9% or 19%. The lower rate is applied to entities that haven’t generated revenues exceeding the equivalent of 2 000 000 EUR in the given fiscal year. In the case of higher revenues, a higher tax rate is applicable.
The obligation to submit financial reports. The management board of an LLC is obliged to prepare and submit financial statements to the registry court. Failure to fulfil this obligation can lead to financial liability. The shareholders of an LLC may be fined up to several thousand zlotys.
The requirement for a full accounting. This is a complex and formalized system for recording economic and financial events. Full accounting generates additional costs. Entrepreneurs are required to outsource accounting tasks to external entities.
Legal personality of an LLC. According to the Commercial Companies Code, an LLC has legal capacity, the ability to perform legal acts and judicial capacity. It can acquire rights, including real estate ownership and other property rights. Moreover, it can incur obligations, sue, and be sued. An LLC acquires legal personality upon its entry into the National Court Register.
Limited liability of LLC partners. As a rule, shareholders are not personally liable for the obligations of the LLC. The company is responsible for its own obligations independently. The liability of partners is limited to the amount of their shares. It can be extended to their personal assets only in exceptional cases.
Despite the formalities and costs associated with operating an LLC, this business form is very popular. This proves the predominance of the benefits that come with it.
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