Although a limited liability company (LLC) is the most commonly chosen commercial company by Polish entrepreneurs, the regulations governing its operation can still be challenging in practical application. Therefore, it is natural that people planning to establish or already managing a limited liability company may have doubts and questions.
We presented basic information about a limited liability company in our “Short Guide” so if you haven’t read it yet, we strongly encourage you to do so.
In today’s article, we will answer the most frequently asked questions about a limited liability company that we receive from entrepreneurs we work with.
We hope these answers will help clarify any uncertainties that may arise in the course of managing this type of company or when deciding to establish one.
Is a limited liability company a legal entity?
Yes, a limited liability company has legal personality, meaning it is a separate entity from its shareholders. This means that it can acquire rights (e.g., property ownership), incur obligations (e.g., take out loans), and act as a party in court proceedings in its own name.
A limited liability company becomes a legal entity upon its entry into the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy – KRS).
What are the advantages of a limited liability company?
The biggest advantage of a limited liability company is that its shareholders are not personally liable for its obligations. If the company’s debts exceed its assets, the shareholders can only lose the contributions they made to cover their shares. The company’s creditors cannot seek satisfaction from the personal assets of the shareholders.
Another advantage of a limited liability company is its operational flexibility. It can have any number of shareholders who can shape the company’s agreement according to their needs and influence key business decisions through the shareholders’ meeting.
What are the disadvantages of a limited liability company?
One of the biggest disadvantages of a limited liability company is the cost of its establishment, operation, and dissolution. The company must bear notarial and court fees as well as the costs of maintaining full accounting.
Another drawback is the formalism and reporting obligations imposed on the company. It must notify the National Court Register of any changes to its data and regularly submit annual financial statements.
How to establish a limited liability company?
A limited liability company can be established in two ways – traditionally at a notary or electronically through the S24 system. The company comes into existence upon its entry into the National Court Register, so after concluding the company’s agreement, it is necessary to submit an application for registration with the KRS. For a traditionally established company, the application must be submitted via the Court Registers Portal, while for an electronically established company, it must be done through the S24 system.
What is a limited liability company in organization?
A limited liability company in organization comes into existence upon the conclusion of its agreement by the shareholders and exists until it is registered by the court in the National Court Register. Although a company in organization does not have legal personality, it can conduct business operations to a limited extent.
What can a shareholder contribute to a limited liability company?
When establishing a limited liability company or joining an existing one, a shareholder is required to contribute capital to cover their shares. The contribution can be monetary or non-monetary (so-called in-kind contribution). An in-kind contribution can be a movable asset (e.g., a car) or an immovable asset (e.g., a commercial property designated as the company’s headquarters).
An in-kind contribution to a limited liability company cannot be an inalienable right or the performance of work or services.
Note: The performance of work or services can constitute a non-monetary contribution in a simple joint-stock company, as we discussed in one of our articles.
Can shares in a limited liability company be sold?
Yes, shares in a limited liability company are transferable.
However, the company’s agreement may impose certain restrictions in this regard. The agreement may introduce, for example, the right of first refusal, pre-emption rights, or the requirement to obtain the company’s consent for the sale of shares.
Before selling shares, it is advisable to review the company’s agreement to check for any existing restrictions.
Is a limited liability company liable only up to the amount of its share capital?
No, the amount of a limited liability company’s share capital has no connection with its liability towards creditors. The company is liable for its debts with all of its assets.
Who signs documents on behalf of a limited liability company?
As a rule, the company is represented by the management board, and this body signs documents on its behalf in accordance with the company’s representation rules.
As we explained in one of our articles, in the case of a multi-member management board, the requirement for joint representation may apply. In such a case, each document should be signed by two or more management board members as stipulated in the company’s agreement.
Employment-related activities on behalf of the company may be carried out by another internally designated person (e.g., signing employment contracts).
The management board may also appoint a commercial proxy (prokurent) who can represent the company in all judicial and extrajudicial activities related to running the business. Depending on the company’s agreement, the proxy may have the authority to act independently or jointly with a management board member.
The management board may also appoint an attorney who can act on behalf of the company within the scope of the power of attorney granted.
A special case of company representation arises when the company intends to enter into an agreement with a member of its management board. In such a case, the company should be represented by the supervisory board or a special attorney appointed by a resolution of the shareholders’ meeting. We have dedicated a separate article to this topic and encourage you to read it.
Who appoints the management board members in a limited liability company?
As a rule, the management board members in a limited liability company are appointed and dismissed by the shareholders’ meeting through a resolution.
However, the company’s agreement may delegate this power to the supervisory board. The right to appoint a management board member may also be a type of share privilege, in which case the right is granted to the shareholder holding those privileged shares. The appointment of a management board member may also be a personal privilege granted to a specific shareholder.
These principles can be freely combined, for example, by stipulating in the company’s agreement that:
- one management board member is appointed by the shareholders through a resolution,
- the second management board member is appointed by the supervisory board,
- the third management board member is appointed by a shareholder holding privileged shares,
- the fourth is appointed by a specifically named shareholder with a personal privilege.
What are the duties of the management board in a limited liability company?
The management board’s powers in a limited liability company can be divided into two categories:
- managing the company’s affairs (internal relations) and
- representing the company (external relations).
We invite you to read our article, where we provide a more detailed discussion of the rights and duties of the management board in a limited liability company.
Does a limited liability company have to have a president of the management board?
No, the regulations do not require a limited liability company to appoint a president of the management board. Thus, all management board members may hold equal status and have the same rights.
Summary
The regulations governing the functioning of a limited liability company may raise doubts among both its shareholders and its governing bodies. To make an informed decision about establishing a limited liability company, joining one, or managing it effectively, it is worth expanding your knowledge and seeking support from experienced advisors.
Today’s article does not cover all the questions we encounter daily, so we can already announce that a second part will be published.
If you have additional questions, doubts, or need more detailed information about a limited liability company, we invite you to contact us and take advantage of our team’s expert advice.
