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Polish law

Which form to choose?

 



1. General information

2. Polish law

3. Individual conducting of business activity and civil partnership

4. Smaller forms of conducting business activity permitted by the Code of Commercial Partnerships and Companies

5. LLC and J-SC

6. Branch office/representative office

7. Other forms of business activity


1. General information

Following the article 43 of the EC Treaty each entrepreneur within the European Community has a right to choose from various forms of conducting business activity, which he finds most suitable for his business. With this regard Member States are obliged to realise the freedom of business activity.
According to the regulations of the European Community, there exists a division of entrepreneurial freedom into primary and secondary one, which has to be enforced and respected by all member states.

The primary entrepreneurial freedom envisages:

  • the right of entrepreneurs from the Member States to carry out the self-employment,
  • the right of entrepreneurs to incorporate and to conduct business activity,
  • the right to purchase shares of enterprises.

On the other hand secondary entrepreneurial freedom creates an opportunity to geographically expand conducting of business activity in the form of self-reliant subsidiaries, such as branch offices,  agencies, which are organisationally dependent on their parent company.

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2. Polish law

Polish law offers various forms of conducting business activity, which enables entrepreneurs to choose between individual conducting of business activity, civil partnership, and other forms - not having legal personality. The most important factors determining the final choice of the form of conducting business activity include requirements concerning initial capital, scope of shareholders’ liability or formalities prior to commencing business activity.


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3. Individual conducting of business activity and civil partnership

Among the least complicated forms of conducting business activity, which are permitted to each Polish entrepreneur and (according to the article 13 of the Economic Freedom Act) to foreign persons from the European Union Member States and European Free Trade Association (EFTA) member states - parties to the European Economic Area Agreement and foreign persons from states which are not members of the treaty on European Economic Area, which may enjoy economic freedom on the basis of agreements concluded by those states with European Community and its Member States, one can name individual conducting of business activity and civil partnership. They do not require neither initial capital outlays nor high costs related to setting up business activity. Entry in the Business Activity Register (Ewidencja działalności gospodarczej), requiring only to fill one form, is free of charge. However, one must be aware of the fact that these forms of conducting business activity impose unlimited liability of entrepreneurs for their enterprises' obligations.

Moreover, citizens from other states than European Community Member States, Member States of the European Free Trade Association (EFTA) - parties to the agreement on European Economic Area and foreign persons from states which are not parties to the European Economic Area, who:

  1. posses in the Republic of Poland:

    1. settlement permit,

    2. residence permit for a long-stay European Community resident,

    3. residence permit for a fixed period issued for the purpose referred to in the article 53, section 1, subsection 7, 13, 14, or 16 of the Act on aliens of 13th June, 2003,

    4. residence permit for a fixed period granted residing on territory of Republic of Poland or residing on that territory for the purpose of joining with a family, member of a family within the meaning of the article 53 section 2 and 3 of Act on aliens of 13th June, 2003, of persons referred to in the subsections a, b, e and f,

    5. refugee status,

    6. supplementary protection,

    7. permit for tolerated stay,

    8. residence permit for a fixed period and are married to Polish citizen residing on the territory of Republic of Poland.

    9. visa referred to in the article 61 section 3 or article 71a section 3 of the Act on aliens of 13th June, 2003, if before such a visa was issued they had been entitled to undertake and exercise a business activity on the basis of section 3.

  2. enjoy temporary protection on the territory of Poland,

  3. posses valid Polish Charter,

  4. are family members within the meaning of the article 2 section 4 of the Act of 14th July, 2006 on the entry into, residence in and exit from the Republic of Poland of nationals of the European Union Member States and their family members, joining the citizens of the states referred to in the article 13 section 1 of Act on freedom of economic activity, or staying with them,

may undertake and conduct economic activity on the territory of Poland on the same terms and conditions as Polish citizens.

Other persons shall have the right to undertake and conduct economic activity only in the form of a limited partnership, limited joint-stock partnership, limited liability company, and joint-stock company, as well as to join such partnerships and companies and to take over or acquire shares in these entities, unless otherwise provided for in international agreements.


Moreover citizens of other states are entitled to undertaking and providing in Poland individual economic activity if international agreements provide so.

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4. Smaller forms of conducting business activity permitted by the Code of Commercial Partnerships and Companies

Planning larger scope of activities, it is reasonable to choose one of the forms stipulated in the Code of Commercial Partnership and Companies (KSH).

At first one should point at the partnerships, which do not have legal personality, but they can on their behalf purchase rights, including ownership of property and other rights in rem, incur obligations, as well as sue and be sued.  In case of partnerships, each of the partners pays taxes based on the personal income tax rates.

The above mentioned Code enforces:

All of them require registering with the National Code Register and paying a fee of PLN 750 (plus additional cost of PLN 500 related to posting an advertisment in the Monitor Sądowy i Gospodarczy), as well as covering additional expenses related to preparing company's deed (apart from registered partnership).

Registered partnership is the basic form of the partnership. No initial capital is required likewise in case of professional and limited partnership. Its crucial feature as well as the decisive factor related to accepting this form of conducting business activity is the scope of partners’ liability. They bear a subsidiary and unlimited liability for the obligations of the partnership, which means that partnership’s creditor can carry out the execution from the partners' assets in each case the execution from the partnership proves to be in vain.

Professional partnership, contrary to other forms of business activity, is designated only for a limited number of professions, so-called 'free professions' - final enumeration is provided in the article 88 of the Code:

  • advocate,
  • pharmacist,
  • architect,
  • construction engineer,
  • expert auditor,
  • insurance broker,
  • tax consultant,
  • accountant,
  • physician,
  • dental surgeon,
  • veterinary surgeon,
  • notary,
  • nurse,
  • midwife,
  • legal counsel,
  • patent gent,
  • property expert,
  • sworn translator,
  • stockbroker, investment adviser.

Limited access to that form of activity is compensated in suitable legal provisions governing liability. The partner in this kind of partnership is not liable for obligations of the partnership arising from activities related to carrying out the profession by another partner, as well as losses incurred by the partnership due to acts or omissions of a person being under supervision of another partner and being bound with the employment agreement or other legal relation with the partnership.

Limited partnership is designated for legal and natural persons. It enables significant limitation of liability as at least one of the partners - general partner is liable for all obligations of the partnership without any limitations, whereas limited partners’ liability is restrained up to the limited amount - limited partner share. However, if a business name of a limited partnership includes  name or a business  name of a limited partner, this partner is liable for obligations of a partnership without any limitation.

One of the more complicated forms of conducting business activity is a limited joint-stock partnership, which (despite being a partnership) requires a minimum contribution of PLN 50,000. The scope of the liability is regulated in a way similar to limited partnership, i.e. at least one of the partners - general partner bears unlimited liability for partnership’s obligations, whereas the shareholder is completely absolved from liability. However, if a business name of a limited joint-stock partnership includes  name or a business  name of a shareholder, this shareholder is liable for obligations of a partnership without any limitation.

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5. LLC and J-SC

However, the most popular forms of conducting business activity designated for the largest business undertakings are - limited liability company (LLC) and joint-stock company (JSC). A fee for entering a LLC and J-S. C. is PLN 1000. The Code of Commercial Partnership and Companies attributes legal personality to both of them, which limits their liability only to the amount of their initial capital. One should however stress that in case the execution against a limited liability company ends in vain, members of the management board of such a company can be jointly and severely liable for company’s obligations unless they file a petition for declaration of bankruptcy or institute the arrangement proceedings in due time, or unless they prove that a failure to file a petition for declaration of bankruptcy or to institute the arrangement proceedings in due time, was not due to their fault, or that a creditor suffered no damage even though no petition for declaration of bankruptcy was filled or no arrangement proceedings instituted.


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6. Branch office/representative office

It is worth stressing that in order to limit operating costs, an entrepreneur can benefit from the so-called secondary entrepreneurial freedom and set up a branch office or representative office.

Branch office, according to the Economic Freedom Act, is a separate and self-reliant part of existing business activity, which is being run by an entrepreneur outside the seat of the enterprise or the main place of business activity.
Foreign entrepreneur can incorporate the branch office on the basis of reciprocity (article 85 of the Act mentioned). The reciprocity rule states that a foreign person (entity) can institute and run business activity on the territory of Poland according to the same rules that a Polish entity has guaranteed in the other country. However one is obliged to run the activity only within the scope of foreign entrepreneur’s activity. One of the requirements concerns entering information to the National Court Register, as well as e.g. indicating a person representing the foreign entrepreneur in the branch office, submitting a write-off of the incorporation deed as well as a write-off from the foreign entrepreneur’s country Register. Furthermore, the entrepreneur is obliged to run accountancy in Polish and to report all legal and other changes to the Ministry of Economy. The Minister is empowered to ban the entrepreneur from business activity in case of extreme infringement of Polish law or failing to report legal and other changes concerning this branch office, or if entrepreneur’s activity threatens public security and security, or in case of the necessity to protect state secret or other public interest.

Contrary to branch offices, the scope of activity of a representative office can only concern advertisements and promotion of a foreign entrepreneur. It requires an entry to the Foreign Representative Offices Register held by the Minister of Economy. Again, the Economic Freedom Act specifies requirements concerning the content of a proper application form, documents needed and cases of imposing ban on running business activity of this representative office.


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7. Other forms of business activity

It has to be mentioned that in relation to EU membership, the choice of forms of running business activity is extended by European Economic Interest Grouping and European Company.
EEIG do not require any initial capital and gathers entities from EU countries, not in order to make a profit but for the purpose of their promotion, which is different from a classic form of running business activity.
However, setting up a European Company can be limited only to large entities due to the requirement of high level of initial capital - EUR 120,000, as well as the limited types of entities allowed to cooperate in this form.

Regardless of the uppermentioned and specific features of these entities, the ability to set them up is the fullfilment of economic freedom, as well as helps to level development gaps between the economies of member states.



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Prepared for the Polish Information and Foreign Investment Agency by:

Kancelaria Prawna Chałas i Wspólnicy

Author: Jarosław Chałas - Managing Partner


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