An overview of commercial activity in Poland | In Principle

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An overview of commercial activity in Poland

The Polish system of law recognises the freedom of commerce. The main act governing this area of law is the Act on Freedom of Economic Activity. The act sets down the rules applicable to the activity of business entities.

Under the act, an entity may undertake commercial activity upon submission of an application for entry in the Central Registration and Information on Business (Centralna Ewidencja i Informacja o Działalności Gospodarczej, CEIDG) or upon entry in the commercial register of the National Court Register (Krajowy Rejestr Sądowy, KRS). There are some exceptions to this general rule; for example, certain types of activity may require administrative permits.

Business forms that are not separate entities

The Act on Freedom of Economic Activity governs the commercial activity of individuals and the operation of branches and representative offices by foreign business entities in Poland.

A sole trader (or proprietorship) is an individual who owns and operates a business, earns all the profits, and has unlimited liability for all losses and debts. This type of commercial activity is often selected for small businesses primarily because the owner is personally liable for any losses incurred in the course of operations. This means that his or her personal assets are also taken into account in such circumstances. Another reason is that it involves considerably fewer legal and administrative formalities than other available forms of business (e.g. in principle, filing with CEIDG is sufficient to commence business). Sole traders can therefore commence activity in a relatively short time.

A branch is managed directly by a foreign business entity, which must appoint a representative at the branch. A branch may conduct business only within the scope of the foreign entity’s activity. A branch is not a separate legal entity, and all actions of the representative are directly binding on the foreign entity. A branch may only start commercial activity after entry in the National Court Register.

A foreign business entity may also establish a representative office in Poland to engage in marketing and promotion. The representative office may commence activity upon entry in a register maintained by the Minister of Economy.

Partnerships and companies

Another way of engaging in commercial activity in Poland is to set up a partnership or a company through entry in the National Court Register. The fundamental law in this area is the Commercial Companies Code, which regulates the establishment, operation, merger and transformation of partnerships and companies.

Partnerships are autonomous entities with significant attributes. Above all, a partnership may acquire rights and incur obligations, as well as sue and be sued in its own name. Also, it operates an enterprise under its own business name. One of the most important characteristics is that partnerships own their property, but, with certain exceptions, the partners are liable for the partnership’s debts if enforcement against the partnership proves ineffective. The Polish commercial law system distinguishes four types of partnerships: a registered partnership (spółka jawna or sp.j.), a professional partnership (spółka partnerska or sp.p.), a limited partnership (spółka komandytowa or sp.k.) and a joint-stock limited partnership (spółka komandytowo-akcyjna or SKA).

In contrast to a partnership, a company is entirely separate from its shareholders and there is no subsidiary liability of shareholders for company debts. For this reason, companies are often used for major ventures. The code distinguishes two types of companies: a limited-liability company (spółka z ograniczoną odpowiedzialnością or sp. z o.o.) and a joint-stock company (spółka akcyjna or SA).

Companies are governed by majority rule and proportionality of rights and obligations in relation to the number of shares held, whereas partnerships are in most cases subject to principles of equality and unanimity (unless specific provisions state otherwise). In a company, the management board is appointed to manage affairs and provide representation, whereas in a partnership each partner usually has the right and duty to conduct its affairs.

The Commercial Companies Code provides for a two-tier internal structure for companies by explicit separation of managerial and supervisory powers. Supervisory and management boards constitute two distinct bodies of the company and membership in both at the same time is forbidden.

It is important to consider the amount and type of formalities required by law when differentiating companies from partnerships. There are considerably more mandatory legal requirements in a company with regard, for example, to enacting and amending the articles of association or the company statute. For companies, there are minimum requirements for the share capital and other requirements regarding contributions to the share capital. Partnerships in most cases enjoy a certain leeway in this regard. Apart from these basic requirements there are many others, for example concerning convening and conducting shareholder meetings, preparing financial statements, changes in shareholding structure, and so on.

The right to undertake commercial activity, which is granted by the Polish Constitution as the supreme law of the land, may be subject to limitations (Constitution Art. 22). The Act on Freedom of Economic Activity makes certain types of activity dependent on obtaining a concession (the most restrictive requirement) or a licence, permit, consent, or entry in a register of regulated activity (the least intrusive measure).

Natalia Kobyłka, Corporate Law, Restructuring, and Business-to-Business Contracts Practice, Wardyński & Partners