Forms of conducting business activity in Poland

1. Forms of conducting business activity in Poland - Introduction

Business activity in Poland may be conducted in forms similar to those found in other European countries. Available types of business activity include:

commercial companies comprising:
- corporations (limited liability company and joint-stock company);
- partnerships (general partnership, professional partnership, limited partnership, limited joint-stock partnership);
branch offices of a foreign company;
representative offices of a foreign company;
individual business activity (also as part of a civil partnership).

Cooperatives, associations, foundations and cross-border vehicles such as the European Company, or the European Economic Interest Grouping, which may also be used in conducting business in Poland, are not covered by this study.

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2. Freedom of business activity

Polish law stipulates the principle of freedom of business activity. This means that anyone has equal rights in undertaking business activity of their choosing.

However, this principle does not offer absolute freedom of business activity. Crucial in this respect are restrictions as to the subject (i.e. who can undertake business activity) and the object (i.e. the requirements that must be met in order to conduct a given type of activity).

2.1 Restrictions as to the subject

The rules applicable to Polish citizens (i.e. with respect to selecting the type of business activity) with regard to undertaking business activity also apply to natural persons, legal persons and other organisational units with legal capacity:

2.1.1 from the Member States of the European Union;
2.1.2 from Norway, Iceland and Liechtenstein;
2.1.3 from countries that are not signatories to the Agreement on the European Economic Area, pursuant to agreements entered into by those states with the European Union and its Member States;
2.1.4 citizens of countries other than those listed above, indicated in the Act on Freedom of Economic Activity, including persons who have obtained permission for permanent residence in Poland, residence for a long-term resident of the European Union, temporary residence (in certain circumstances provided for in the Foreigners Act), refugee status, supplementary protection, consent for residence for humanitarian reasons or consent for a tolerated stay, permission for temporary residence and who are married to a Polish citizen living in Poland, temporary residence in order to engage in economic activity, granted on account of continuation of economic activity already engaged in on the basis of an entry in the Central Registration and Information on Business, who have temporary protection in Poland who hold a valid Polish Charter, or are family members joining or staying with citizens of states referred to in sec. 2.1.1 - 2.1.3.

The above list includes entities able to take advantage of the freedom of business activity in the broadest scope. Other persons may solely operate as: (i) limited partnerships, (ii) limited joint-stock partnerships, (iii) limited liability companies or (iv) joint-stock companies.

However, international agreements may grant more extensive rights to persons not included in the catalogue.

2.2 Restrictions as to the object

The most important restrictions as to the object are those that require the entrepreneur to obtain a prior administrative decision that enables them to undertake a given activity.

2.2.1 Concessions

Concessions are issued in areas of business activity that carry particular importance for national security or the safety of the citizens or other important public interest.

The requirement of obtaining a concession concerns activities that involve:

exploring and identifying hydrocarbons and solid mineral ores subject to mining proprietorship, exploring or identifying a subterranean carbon dioxide deposit complex, extracting minerals from ores, subterranean non-reservoir storing of substances, subterranean depositing of waste and subterranean depositing of carbon dioxide;
manufacturing and trading in explosives, weapons and ammunition, as well as military and law enforcement products and technologies;
manufacturing, processing, storing, transmitting, distributing and trading in fuels and energy,
transferring carbon dioxide for its subterranean depositing;
protecting people and property;
distributing radio and television programming, save for programming distributed solely using the ICT system, which is not broadcast terrestrially, by satellite or over cable networks;
air transportation;
running casinos.

Before issuing a concession, the administrative body may verify if the entrepreneur meets the requirements of conducting business activity that requires a concession and whether it guarantees proper conduct of such activity.

The number of available concessions may be limited. In such cases, the relevant administrative body organises a tender. The winner is the entity offering the highest price for the concession.

A promise of a concession, i.e. an undertaking to grant a concession once certain requirements are met, may also be obtained. Such a promise is issued for at least six months. During its term, a concession cannot be denied unless the entrepreneur failed to meet the relevant requirements or unless the information contained in the promise application has changed.

2.2.2 Permits, licences, authorisations

Another manifestation of the restriction of economic freedom as to the object is the requirement for the entrepreneur to obtain a permit, licence or authorisation. However, the different names do not mean that we are dealing with different acts. All of these types of administrative decisions are equivalent - they carry the same legal effect with respect to the ability to conduct business. Therefore, the collective term permit will hereinafter be used to refer to all of these.

A permit allows an entity to undertake and perform a specific type of business activity provided that it meets the relevant statutory requirements.

Presented below are examples of activities that require a permit:

business activity within a special economic zone, which is eligible for public aid;
activity that involves maintaining a regulated market (stock exchange and over-the-counter);
the activities of pension funds;
banking activities involving risk for entrusted funds subject to repayment;
provision of payable services as a domestic payment institution;
collective water supply or waste removal activities;
activities involving the manufacturing or importing of medicinal products;
scheduled and special transportation services;
conducting insurance activity in the Republic of Poland;
the activities of investment funds.

A permit is granted to an entrepreneur upon finding that it has met the statutory requirements. These requirements primarily concern the protection of human life and health, safety and public order, state secret and the nature of business activity covered by the permit. Detailed provisions on the procedure of issuing permits are set forth in the relevant acts. If the entrepreneur has met the requirements for conducting a given type of activity, the administrative authority is required to grant a permit.

2.2.3 Regulated activities

Regulated activities are defined as such in the legislation. In order to conduct them, an entrepreneur must:

meet the requirements set forth in a given act;
obtain an entry in the register of regulated activities.

Regulated activities do not require obtaining a concession or permit, but are yet another manifestation of state control of the freedom of business activity.

For instance, regulated activity includes:

post-graduate training for doctors and dentists;
currency exchange activities;
organising travel events;
detective services;
packaging and customising or marketing plant care products;
postal services.

In order to obtain an entry in the register of regulated activity, an entrepreneur must submit a statement on meeting the requirements for conducting such activity. During the registration proceedings, the registering authority does not verify the authenticity of the information and documents submitted. However, this may be done after making the entry. If it turns out that the information provided by the entrepreneur was untrue or the entrepreneur failed to remedy breaches of the requirements for conducting regulated activities before the deadline set by the authority, the authority will issue a decision denying the entrepreneur the right to conduct the activities covered by the entry. In such cases, the entrepreneur may obtain another entry in the register in the same scope of business no earlier than three years after the issuance of the decision.

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3. Most common types of business activity in Poland

Common type of business activity are commercial companies, in particular, the limited liability company and the general partnership. According to the Polish Central Statistical Office, as at the end of 2016, limited liability companies accounted for approximately 84 per cent of all commercial companies, with general partnerships accounting for approximately 7 per cent. Further down the list are the joint-stock company, the limited partnership and the limited joint-stock partnership. The smallest group are professional partnerships, accounting for approximately 0.5 per cent of all commercial companies in Poland. However, it should be noted that in recent times, the highest growth was reported for the limited partnership. The above is due to the ability to optimise taxation in the structures of such a partnership as revenues are taxed at the level of the partners in that partnership rather than the partnership itself.

Many natural persons choose to pursue individual business activity. In the private sector, these entities account for 73 per cent of all entrepreneurs. Individual business activity may also be conducted in the form of a civil partnership, i.e. an association of at least two entities for the purpose of conducting for-profit activity. Unlike
a corporation, a civil partnership is not a separate legal entity - only its partners are separate legal entities.

Foreign investors also take advantage of the branch office structure, through which they can operate in Poland to the extent they operate in their country of origin.

3.1 Commercial companies

A commercial company is a form of for-profit cooperation between at least two persons, save for the limited liability company and the joint-stock company, which may be established by a single entity, provided that the founder itself is not a one-person limited liability company.

A company is established upon concluding an agreement in which the shareholders agree to pursue a shared goal by making contributions and, potentially, by cooperating in another defined manner.

The activities of commercial companies are regulated by:

the applicable laws,
the shareholders in the articles of association or statute.

In partnerships, utmost importance is attached to the person of the partners, their credentials and work performed. As a rule, they are liable for the obligations of the partnership up to the full value of their assets.

In corporations, the emphasis is on the equity provided by the shareholders, on which the operations of the company are based. The shareholders are not liable for the company’s obligations - their risk is limited to the amount of the contribution made, which may not be recovered if the business fails.

3.2 Branch office of a foreign company

A foreign company may conduct business through a branch office in Poland to the extent such activity is conducted in its country of origin.

3.3 Representative office

Having a representative office in Poland enables a foreign entrepreneur to conduct business solely with respect to advertising and promoting its activities.

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4. Criteria for selecting the form of conducting business activity

4.1 Investor’s country of origin

The investor’s country of origin is crucial in determining its ability to conduct business activity in Poland. As stated in detail in point 2.1 above, persons from outside the European Union, Norway, Iceland, Liechtenstein or countries with which the European Union and its member states did not conclude agreements on the freedom of business activity, as well as other persons who have been granted the right to engage in business activity on the same principles as Polish citizens, may select from among types of business activity limited to the following entities:

limited partnerships,
limited joint-stock partnerships,
limited liability companies and
joint-stock companies.

4.2 Type of activity

In principle, business activity may be conducted in any form permitted by the applicable laws. However, in some cases, legislation stipulates the use of a strictly defined form of activity, e.g. in the case of banks, insurance companies and universal pension fund companies, which may operate solely as joint-stock companies. On the other hand, lending companies may conduct business activity exclusively in the form of either limited liability company or joint stock company.

4.3 Scale of activity

A general rule is to select partnerships (except for limited joint-stock partnerships) for business activity on a smaller scale, and use corporations and the limited joint-stock partnership for larger-scale business ventures. The above is primarily related to the distribution of risk incurred by investors, the need for their personal involvement in running the affairs of the company and the ability to obtain equity from the market.

4.4 An investor’s liability for the obligations of the entity through which it conducts business

In a general partnership, all of its partners have unlimited liability for the partnership’s obligations. In a limited partnership and limited joint-stock partnership, this rule applies in full to the general partners. The scope of liability may be optimised through appropriate design of the structure of the limited partnership or limited joint-stock partnership (corporation as a sole general partner). The limited partner in a limited partnership is liable up to the amount of the limited sum, while a shareholder in a limited joint-stock partnership is not liable for the partnership’s obligations.

On the other hand, in corporations, the shareholders are not liable for the company’s obligations. Their risk is limited to the contributions made in the event that the business fails.

4.5 The requirement of personal involvement in the running of affairs

In partnerships, each of the partners is involved in running the affairs of the partnership. However, the articles of association may remove such right from a partner.

The requirement of personal involvement may be limited to a minimum for an investor involved as a limited partner of a limited partnership or a shareholder of a limited joint-stock partnership. By law, a limited partner is not authorised or required to run the partnership’s affairs unless the articles of association state otherwise. On the other hand, a shareholder of a limited joint-stock partnership is involved in its affairs solely by participating in the adoption of resolutions by the general meeting.

In corporations, the responsibility of running the affairs lies with a body separate from the shareholders, i.e. the management board. Personal involvement of investors is limited to expressing opinions (in the form of resolutions) on key matters concerning the company in the form of shareholders meetings and general meetings. There is no reason preventing an investor from being involved in managing the company as a management board member.

4.6 Options for obtaining capital

The most popular forms of obtaining capital for business activity include financing investments with bank loans and issuing shares or bonds.

4.6.1 Issuing corporate bonds

Entities authorised to obtain capital by issuing bonds are limited liability companies, joint-stock companies and limited joint-stock partnerships.

As a result of issuing bonds, an entity obtains cash from bondholders. However, it becomes obliged to redeem the bonds by a specific time, together with payment of interest. Therefore, it is a form of debt financing, whose structure is similar to taking out a loan.

The main benefits of issuing bonds include a lower cost of earning capital compared to borrowing costs and an unchanged shareholding structure of the bond issuer (the bondholder does not become a shareholder and does not become able to influence the company).

On 30 September 2009, the Catalyst bond market was launched. Catalyst is an organised platform for trading in debt securities (corporate bonds, treasury bonds and mortgage bonds), composed of four trading platforms, for both retail and wholesale investors. The transactions are guaranteed by the National Depository for Securities (Polish: KDPW).

The purpose of the Catalyst market is, in particular, to help entrepreneurs to obtain capital, increase their reliability for investors and to promote them.

4.6.2 Issue of shares in a public offering

Joint-stock companies may obtain capital from the market in a public offering carried out on the Stock Exchange or an alternative trading system (NewConnect). Capital is acquired by the company if the interested persons (investors) subscribe for shares and become shareholders required to pay for them.

In order to obtain capital in this manner, a joint-stock company must obtain the status of a public joint-stock company. A public company is a company in which at least one share is dematerialised, i.e. does not exist in the form of a document and is recorded solely on a securities account. In order to become a public company, a joint-stock company must undergo a special procedure that involves drafting certain documents: as a rule, it will be a prospectus (to enter the WSE) or an information document (to enter NewConnect). It is a complex process that requires collecting numerous pieces of information, conducting analyses (to present potential investors with accurate information about the company and its business), and therefore it is relatively expensive. Additionally, upon obtaining the status of a public company, a joint-stock company is required to provide current reports on important events concerning the company, and interim reports containing primarily financial information.

If, however, a company’s capital requirements are not considerable, it can obtain capital by way of a non-public (private) bond or share offer. A private offer can be made to 149 personally indicated investors at the most, and is subject to much smaller information rigours, which enables capital to be obtained at a lower cost and in a shorter time. Instead of an issue prospectus or information memorandum, the issuer draws up a document detailing the conditions of the issue, which it then makes available to selected potential investors.

4.7 Taxation of income

The significant difference between doing business in form of a partnership or a company is the way the profits from such business will be taxed with income tax.

Although a partnership is required to maintain tax ledgers, it is not considered a taxpayer of income tax. It is the shareholders of those partnerships, who generate income from participation in an entity without legal personality and who are deemed taxpayers on the profits of the partnerships (with the exception of a limited joint- stock partnership). Depending on the status of the partner - whether a natural person or a legal entity, the income from the partnership will be combined with partners’ other income and be subject to personal income tax (PIT) or corporate income tax (CIT).

The income of a company (as well as joint stock limited partnership) is taxable at the level of the company. As a result, upon transfer of profit to the shareholder the economic double taxation may arise - the tax is first levied on the level of the company subject to Corporate Income Tax and later on the level of the shareholder who receives the dividend.

4.8 Cost and formalities involved in conducting business activity

In corporations and in limited joint-stock partnerships, the partners must contribute the share capital (in a limited liability company - PLN 5,000, in a joint-stock company - PLN 100,000, and in a limited joint stock partnership - PLN 50,000). In partnerships (save for the limited joint-stock partnership), due to the absence of share capital, the partners may freely determine the amount of their contribution. Furthermore, they can also anticipate that their contribution will involve providing work or services.

The operations of corporations, in particular, the joint-stock company, are more formalised and more complex than in the case of partnerships, which results in increased costs (e.g. the requirement to prepare a notarial deed for each general meeting of shareholders, the cost of maintaining corporate bodies).

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SCHEDULES

Forms of conducting business activity in Poland - features:

5. Corporations

5.1.  limited liability company - joint-stock company (comparison)
5.2.  limited liability company
5.3.  joint-stock company

6. Partnerships

6.1. general partnership
6.2. professional partnership
6.3. limited partnership
6.4. limited joint-stock partnership

7. Individual business activity
8. Civil partnership
9. Branch office of a foreign company - representative office of a foreign company (comparison)

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(Last update: May 2015)

Prepared for the Polish Information and Foreign Investment Agency by:

FKA Furtek Komosa Aleksandrowicz Law Firm

Authors:

Edyta Jusiel, attorney-at-law
Partner at the Corporate Department
E-mail: ejusiel@fka.pl
Tel: +48 22 581 44 44

Contact person:

Milena Wieczorek-Waszewska, attorney-at-law
Associate at the Corporate Department
E-mail: mwieczorek@fka.pl
Tel.: +48 22 581 44 20