Which Type of Company in Poland Should You Register in 2024?
Here we summarize 2023 and provides speculations about what can happen in 2023. This time we take a closer look at the most popular companies established by our clients in 2023. We will also try to indicate the ones that will be still profitable in 2023. If you want to run a business but don’t know which type of company will be the most suitable for your needs – this article is for you.
Limited liability company (LLC)
It is the most popular one among all commercial law companies. Every year, the vast majority of those who intend to operate as a company choose a limited liability company. This type of company was also the most popular one among our customers last year. So far, there is no indication that this will change next year.
Why is setting up a limited liability company in 2024 worth it?
There is no doubt that the changes introduced by the ‘Polish Deal’ led to an increase in popularity of an LLC. This results from the fact that a limited liability company allows for:
Lack of health insurance contribution
As a rule, shareholders of an LLC are not subject to the
obligation to pay health insurance contributions.
A limited liability company can benefit from the Estonian CIT
Additionally, there is also a limitation of the partners’ liability for the company’s obligations.
What steps should you take to register a limited liability company?
Registration of an LLC is quite a formal process. It requires a number of activities specified in the Code of Commercial Companies. They consist of:
• conclusion of the contract of an LLC,
• making contributions by the shareholders to cover the company’s share capital,
• appointing the management board,
• appointing a supervisory board or auditors’ committee,
• registarion of an LLC, i.e. its entry into the register.
Contributions to cover the company’s share capital
Another step concerns contributions to cover the share capital. The shareholders have to make contributions before registration of a limited liability company. If the share is taken at a price higher than the nominal value, one must also pay the excess.
The obligation to make contributions results from the articles contract of an LLC. It defines the number and nominal value of shares acquired by each shareholder. If the company’s contract was concluded with the contract template, you can cover the share capital after its entry into the register. This must be done no later than 7 days from the date of entry.
What is important, the share capital of a limited liability company should amount at least to 5,000 PLN. It can take both pecuniary and non-pecuniary form (e.g. receivables or property).
Appointing of the management board
The appointment of the first management board must take place before LLC’s registration. The CCC does not specify rules for the appointment of the management board in the LLC in organization. Thus, it should be done according to the rules governing the appointment of board members in already registered company. As a rule, the resolution of shareholders determines the appointment of the management board members. An absolute majority of votes must support the decision.
Establishment of the supervisory board or auditors’ committee and appointment of their members
As a rule, the supervisory board and the auditors’ committee are not obligatory bodies of an LLC. The obligation to establish them arises only in the case specified in Article 213 of the CCC. It corresponds to the following situations:
• the share capital exceeds 500 000 PLN,
• there are more than 25 shareholders.
Both premises must be met at the same time. The shareholders must appoint above-mentioned boards before registration of an LLC.
Registration of an LLC – entry into the register
The last stage necessary to establish an LLC is its entry in the relevant register. Registration of a limited liability company follows the registration proceedings. They are initiated at the request of the company. Management board or a legal representative may represent the company in this process.
According to Article 169 of the CCC, there is a timeframe for reporting a company to the registry court. You should do it within 6 months of the date of conclusion of the articles of association. The management board in its full composition should submit the notification. The company may also appoint a legal representative for this purpose.
The Act on the National Court Register and the Code of Civil Procedure govern the registration proceeding. They also govern the process of applying for registration. The entry is made based on a court order and is effective upon entering the data into the register. After obtaining a decision, the LLC in organization transforms into the LLC. It becomes a separate legal entity.
LLC in Poland – who can establish it?
As it was already mentioned, an LLC is currently a very popular form of business. Also among our clients. A limited liability company will be suitable especially for:
• Enterprises with financial or operational risks;
• Start-ups (no health insurance contribution for partners and relatively easy access to obtain external capital);
• Businesses in which a significant part of revenues is transferred to investments (suggestion for using the Estonian CIT);
It is the second most frequently chosen type of company. Our experts also recommended it to customers. As of 2021, it is subject to CIT. This would seem to be unfavourable in terms of taxation. But this is only the first, superficial impression. If the appropriate corporate structure is maintained (most of the profit is allocated at the level of general partners), it can still be beneficial. As it turns out, in some cases (turnover up to 2,000,000 EUR per year), it can be even more profitable than before 2021. Due to the confusion caused by the Polish Deal, a limited partnership once again became a desirable form of business in Poland.
Why is it worth setting up a limited partnership in 2024?
There are several reasons why the limited partnership continues to be a very favourable form of business:
• A flat-rate health insurance contribution
The health insurance contribution has a flat-rate character. It means that it is not calculated based on the global income of the partners.
• Low tax
Effective taxation of a general partner in a “small” limited partnership amounts to 17.3%
• Estonian CIT
A limited partnership may benefit from the Estonian CIT.
• Unlimited advance payments
Unlike an LLC, there is no limit on advance payments against expected profits.
Partners in a limited partnership
Let’s start with the fact that there are two types of partners in a limited partnership:
• General partners – they represent the company and are liable for its obligations (debts) without limitation,
• Limited partners – they are liable for the company’s obligations limited to the amount specified in the contract (comandite sum).
A limited partnership must have at least two partners, including at least one general partner and one limited partner. You cannot establish a single-member limited partnership.
The surname or name of at least one of the general partners must appear in the business name of the limited partnership. Of course, it is not forbidden to use an additional designation in the company name. The designation “spólka komandytowa” (which translates into limited partnership) is obligatory.
Who can establish a limited partnership?
The partners of a limited partnership may be both natural persons and legal persons. The nationality or country of origin of the partner is irrelevant. A foreign company or a non-EU foreigner can also become a partner in a limited partnership.
The agreement of a limited partnership
The first step to establish a company is always concluding its agreement. You can conclude the agreement of a limited partnership in two ways:
• in the form of a notarial deed,
• via the Internet (using the S24 system).
What is the difference between setting up a limited partnership at a notary public and online?
The main difference is the waiting time for the company’s entry in the National Court Register. Companies established via the S24 system are usually entered into the register within 2 working days. In the case of those established with a notary public, the waiting time for entry is about 2 weeks.
The second difference is the costs – in the case of a company formed online, notarial costs are not covered. The court fee for an application filed in the S24 system is also lower, as it is 350 PLN. In the case of a company established with a notary, the fee to the court is 600 PLN.
So what is the advantage of setting up a limited partnership with a notary? The content of an agreement signed at a notary’s office can be more complex. This is because agreements in the S24 system are concluded on the forms provided by the system. Such agreements have only basic provisions. It is not possible to include detailed solutions regulating relations between partners. Such provisions often help in the everyday operations of the company. They can also be useful in countering potential conflicts between partners. Establishing a limited partnership with a notary helps to protect the interests of partners better.
Limited partnership in Poland – who can establish it?
A limited partnership will be a good solution for:
• Enterprises that have no financial or operational risks;
• Businesses in which a significant part of revenues is transferred to investments (suggestion of using the Estonian CIT);
• Enterprises with a turnover up to 2,000,000 EUR per year, where the income is entirely consumed by the partners;
Other types of companies
Simple joint-stock company
A simple joint-stock company is a new type of capital company in Polish law (it is available from the 1st July of 2021). This legal form was useful mainly for start-ups. This is because it is supposed to combine the importance of the company’s founders (the contribution of these people to the development of the company) with simplified ways to raise funds from external investors. It is certainly an interesting alternative to a regular joint-stock company.
Limited joint-stock partnership
The introduction of the Polish Deal caused an increase in the popularity of the limited partnership. This is because it combines the advantages of a limited partnership (low effective tax rate for small taxpayers) and an LLC (no health insurance contribution). But, as we expected, the legislator quickly ‘reminded himself’ about the partners of a limited joint-stock partnership. He imposed an obligation to pay ZUS contributions and health insurance contributions. Now they are subject to the same rules that apply to partners of limited partnerships. This year, we did not recommend our clients to set up a limited joint-stock partnership. It seemed to be a less beneficial version of a limited partnership. This was, among others, due to the obligation to keep a register of shareholders by an external entity.
General partnership/ limited liability partnership
Its popularity decreased due to the changes implemented by the Polish Deal. This form of business recently lost its attractiveness. It was caused by the implementation of health insurance contribution calculated on the basis of global income. Still, in specific situations, it can still be a very attractive form of business. Especially in terms of taxation. For whom? For all those who perform research and development activities. This relates to the modification of R&D tax relief and the possibility to combine it with the IP BOX. Combining some business models with the above circumstances may help you avoid paying income tax at all. Therefore, in some cases, it might be worth establishing this form of company in 2024.
Summary – our recommendations
In 2024, our recommendations for the clients will still depend on their developed or assumed business models. There is no doubt that since the implementation of the Polish Deal there is no one business form that would be profitable for all entrepreneurs.
Previously, a limited liability company and a limited partnership constituted such solutions. Still, we can assume in broad terms that:
• for “start-ups” we will recommend an LLC or a simple joint-stock company;
• for profitable service activities (with a low level of investment) we will recommend a limited partnership;
• for businesses in which a significant part of the income is reinvested, we would recommend an LLC, preferably together with Estonian CIT