Article

Setting up a business in Poland: Forms of business entity

Summary:UK businesses in Poland tend to be big investors. According to the state inward investment agency, PAIiIZ, there are over 80 British investors present in the Polish market; companies like Tesco, BP, GlaxoSmithKline, Associated British Foods, Aviva and RSA. Yet looking at the structure of German and Italian investment in Poland, we can see thousands of SMEs which have set up manufacturing and service operations here. They have been doing profitable business here for years. There are, however, very, very few such companies from the UK present in Poland. One reason is that British owner-managers taking a look at the Polish market can be put off by the code-based legal system, different to English Common Law. There is more bureaucracy (Poland is not placed high in rankings of countries where it’s easy to do business); procedures are more complex and more time-consuming.

The big investors can buy the best consultants, lawyers and accountants to help them move into the Polish market, one they can ill-afford to ignore. Owner-managed companies with smaller budgets need to think carefully about moving into Poland, yet this dynamically-growing market of 38 million people, secure within the EU, should not be overlooked. German, French, Italian and Scandinavian SMEs are thriving on the Polish market, so why should British entrepreneurs miss out?

The BPCC and its members are here to help you through the maze, to explain the system and to take you step-by-step through the hurdles you need to overcome when setting up in Poland.

In this article, Jerzy Woliński of law firm Kancelaria Adwokacka adwokat Jerzy Woliński explains the various types of business entity that exist in Poland, so that you can choose the form of doing business that’s most suitable to your needs.

Forms of business entity in Poland are:

  • Sole proprietor (jednoosobowa działalność gospodarcza)
  • Civil code partnership (spółka cywilna)
  • Registered partnership (spółka jawna)
  • Limited liability partnership (spółka partnerska)
  • Limited partnership (spółka komandytowa)
  • Limited joint-stock partnership (spółka komandytowo-akcyjna)
  • Limited liability company (spółka z ograniczoną odpowiedzialnością)
  • Joint stock company (spółka akcyjna)

Sole trader (jednoosobowa działalność gospodarcza)

The purpose of this form of business entity is to allow an individual to run a small business. In other words, an individual (‘natural person’ in Polish law) acts as an entrepreneur. The business uses the same name and tax ID number as its owner. This type of business activity may be established by an individual who can act in law without any limit. The entrepreneur can register for VAT in Poland voluntarily. However, you can choose not to pay VAT while the business’s incomes are less than PLN 100,000 per year.

Advantages:

  • easier to establish or dissolve than other forms
  • low cost of setting up and running a business
  • you are able to choose between two different systems of paying taxes: flat tax (19% regardless of income) and progressive tax (18% if income is under PLN 85,528 per year, and 32% if income is over PLN 85,528 per year, i.e. around PLN 7,127 per month) – PIT (Personal Income Tax)
  • no limits as far as the scope of business is concerned
  • it is possible to suspend the business if the company is not needed during a particular period of time
  • a simplified accounting system (low costs of accounting)

Disadvantages:

  • the owner bears liability with all his assets for the company’s obligations
  • the owner has to make a fixed monthly social security payment (around 800 zlotys a month regardless of income – for your first year in business it is reduced to 350 zlotys.) From 1 May 2010, however, a sole proprietor being a citizen of another EU member state may pay social security in this state where his permanent residence and centre of business activity is.
  • tax to be paid monthly (prepayments paid each month with a final annual settlement) NOTE: The Polish tax year runs from 1 January to 31 December.

Registered partnership (spółka jawna)

A registered partnership may be established by two or more individuals who can act in law without any limits. The purpose of registered partnership is to operate business on a small scale. This is a mix of partnership and limited liability company. In this form, the owners act as a company and they bear unlimited liability with all their assets for the company’s obligations. The company is registered in the National Court Register and can be owned by either individuals or registered companies. This type of partnership has no legal personality. It possesses a legal capacity and may acquire rights in its own name. Income is divided equally per capita.

Advantages:

  • suitable for smaller businesses
  • allows two or more individuals or companies to work for the same company
  • no limits as far as the scope of the business is concerned
  • easier fund-raising
  • a simplified accounting system (PIT as for a sole proprietor)
  • easy to develop and dissolve
  • easy to convert into a limited company
  • a possibility of making an annual account of profits and losses for the tax office

Disadvantages:

  • each owner bear unlimited liability with all his assets for the company’s obligations.
  • each owner acquires obligations in the name of the company without permission of the owners
  • the owners have to make a fixed monthly social security payment (around 800 zlotys a month for each partner regardless of income – for your first year in business it is reduced to 350 zlotys each.) From 1 May 2010, however, a partner in a civil code partnership being a citizen of another EU member state may pay social security in this state where his permanent residence and centre of business activity is.

Limited liability partnership (spółka partnerska)

A limited liability partnership can established for the purpose of pursuing certain freelance occupations. It is run under its own business name. Each partner is not liable for other partners' obligations that have arisen in relation to the practicing of their profession. Income is divided equally per capita.

Advantages:

  • no minimum starting capital required
  • low cost of setting up and running a business
  • easier to raise funds
  • a simplified accounting system (PIT as for a sole proprietor)

Disadvantages:

  • the owners have to make a fixed monthly social security payment (around 800 zlotys a month for each partner regardless of income – for your first year in business it is reduced to 350 zlotys each.) From 1 May 2010, however, a partner in a civil code partnership being a citizen of another EU member state may pay social security in this state where his permanent residence and centre of business activity is.

Limited partnership (spółka komandytowa)

A limited partnership may be established by two or more individuals or legal entities.In this partnership at least one partner (‘general partner’) bears unlimited liability towards the creditors for obligations of the partnership and the liability of at least one partner (‘limited partner’) is limited to a certain sum of money.

The purpose of a limited partnership is to run a business under its own name. This legal form is suitable for businesses of any size. It is mainly used for start-ups in which some shareholders give capital and others run the company and take liability for it. This way people who do not have any money but have a good business concept can raise funds for the implementation of their ideas. Some companies also use this form for creating subsidiaries. Income is divided in proportion to the contribution paid by each partner.

Advantages:

  • no minimum starting capital required
  • suitable for business of any size
  • no limits as far as the scope of the business is concerned
  • allows easier fund-raising

Disadvantages:

  • relatively difficult to establish
  • full and complicated accounting. The company pays Corporate Income Tax (CIT) 19% of income, if shareholder is a legal entity; PIT – if shareholder is an individual.

Limited joint-stock partnership (spółka komandytowo-akcyjna)

This partnership may be established by two or more individuals or legal entities.In this partnership at least one partner (general partner) bears unlimited liability towards the creditors for obligations of the partnership and the liability of at least one partner is a shareholder. Shareholder does not bears liability for the company’s obligations.

The partnership’s share capital must be at least 50,000 zlotys. Income is divided in proportion to contribution paid by each partner.

Advantages:

  • suitable for business of any size
  • no limits as far as the scope of the business is concerned

Disadvantages:

  • high starting capital requirement
  • relatively difficult to establish
  • full and complicated accounting (CIT – 19% of income, if shareholder is a legal entity; PIT – if shareholder is an individual)

Limited liability company (LCC) (spółka z ograniczoną odpowiedzialnością)

A limited liability company may be established for any legitimate purpose by one or more individuals, by legal persons or organisational unit without a legal personality, who can act in law without any limits. An LLC is a legal entity. Its share capital cannot be lower than 5,000 zlotys. Shareholders generally are not liable for the company's obligations and their commercial risk is limited to the value of shares they hold. An LLC is a legal form suitable for business of any type and size. On the one hand, it gives the owners security in the case of bankruptcy and on the other hand, it gives them many mechanisms by which they can control the company. This is the most flexible form for a company. An LLC may always issue more shares to acquire new capital. Income is divided in proportion to contribution paid by each shareholder.

Advantages:

  • low taxes
  • no limits as far as the scope of the business is concerned
  • no need to pay taxes for the owners if the company does not generate any profits
  • no need for the owners to pay social security payments (ZUS)
  • relatively easy to sell, transfer or convert

Disadvantages:

  • difficult to establish or dissolve
  • full and complicated accounting (CIT – 19% of income)
  • the company must have a starting capital of at least 5,000 zlotys, in by cash or in assets
  • all actions undertaken by the company have to be confirmed in writing

Joint stock company (spółka akcyjna)

A joint stock company may be established by at least two individuals, by legal persons or an organisational unit without its own separate legal personality, who can act in law without any limits. The company’s share capital must be at least 100,000 zlotys. Shareholders are not liable for the company's obligations. This form of company can operate under its own name and may be listed on stock exchange. This legal form is suitable for larger businesses. Income is divided in proportion to the contribution paid by each shareholder.

For more information, please do not hesitate
Jerzy Woliński
Attorney at law

e-mail: attorney@wolinski.pl
www.wolinski.pl
tel. (+48) 22 828-50-50
tel/fax (+48) 22 826-06-06

Law Office
ul. Smolna 8/200, 18th floor
00-375 Warsaw
Poland

Author: Jerzy Woliński - Attorney-at-law, specialising in small and medium-sized foreign business in Poland Member of the Warsaw Bar Council, member of the BPCC. With Keith Groucott, UK business advisor, and Michael Dembinski, BPCC Head of Policy Publication date: 2012-01-12 Number of pages: 1 Price: 0