Limited liability company in the statutory option as a flexible business model

This Article analyses the elements of the company which constitute its construction axis as a capital company. Personal elements of the company were also analysed, indicating its mixed – not only capital – nature. Such a construction of the company z o.o. distinguishes it from the pure form of the capital company, which is a public limited company, which may be attractive to persons planning to conduct business.

From among the close 600,000 Commercial law companies registered in the National Register of the Official Journal of the National Economy (REGON) of a limited liability company are about 500,000 entities, which represents a significant advantage over other commercial law companies, as well as a civil partnership, which is second the most widely chosen form of cooperation between entrepreneurs [1] .

The attractiveness of operating in the form of a limited liability company and the multiplicity of entities operating on the market in this form of a company derive largely from the ability to model, through a company contract, under a law, its personal or capital elements.

This ability to model the nature of the company, in terms of its shape directly linked to its capital or personal nature, demonstrates some flexibility in the formation of the company's structure by shareholders.

Partners may adopt a capital model in which the characteristics of the company are similar to the so-called the form of a full capital company, which is a public limited company, and may also take a different direction, in order to link the existence of the company with the persons of shareholders.

All the instruments discussed below allow for flexible structure of the company.

The statutory model of a limited liability company as a variant having mixed characteristics of a capital and personal company may be subject to modifications of the shareholders allowing the structure of the company to be adapted to the individual needs of the shareholders.

Structural characteristics of a limited liability company as a capital company

Article 4(1)(2) KSH points out that a limited liability company has been qualified, by the legislator, to a group of capital companies alongside a public limited liability company and a simple public limited liability company, which are broadly distinguished from shareholders/shareholders, often their founders.

This is due to their legal personality, according to the wording Article 12 KSH Article 33 Act of 23 April 1964 Civil Code (i.e. Journal of Laws of 2022, item 1360 as amended, hereinafter ‘KC’).

Another element of the limited liability company providing its capital is the separation of its assets from the assets of individual shareholders and the full liability of the company for its obligations, excluding the liability of its shareholders (Article 151(4) KSH).

In the case of capital companies, including limited liability companies, the company is responsible for its obligations to creditors of the property arising from, inter alia, the transfer by shareholders of the company, of contributions to the company's share capital (Article 152 KSH, Article 153 KSH and 154 KSH).

The last structural aspect of the Polish limited liability company., in which its capital character is visible and which is directly related to the way the company functions as a legal person, is the operation of the company through the authorities (Article 38 KC).

The bodies of the limited liability company, which determine the functioning of the company as a legal person, are: the meeting of shareholders, the board of directors and, in specified cases, the supervisory board or the review committee.

All the above-mentioned structural characteristics of the limited liability company, which determine its capital nature and, above all, give the company legal personality and thus its entity separation from shareholders, and the lack of liability of shareholders for the company's obligations are of fundamental importance to shareholders wishing to conduct business in the form of sp. z o.o., because they exclude their financial responsibility for the company's obligations to entities third.

Personal elements provided for in the statutory model of a limited liability company.

The provisions of the KSH relating to the operation of a limited liability company result in the following personal characteristics of a limited liability company included in the statutory model of the company: prohibition on the issue of documents: bearer, commissioned and named (Article 174(6) KSH), the right of control applicable to each shareholder of the company (Article 212 KSH), and the possibility of excluding a partner on the basis of Article 266(1) KSH [2] . These elements warrant the possibility of considering the statutory model of the company's structure as having a mixed capital-personal character, resulting in a greater influence of shareholders on the company's activities, resembling a model characteristic of the passenger companies.

Legal personality as the foundation of a limited liability company

The construction basis of each capital company, the regulations of which are contained in the Polish law relating to commercial companies, is the entity's separateness of the capital companies from their shareholders, defined in the legal nomenclature as legal personality.

According to the regulation contained in Article 12 KSH Article 37 KC a limited liability company in an organisation created as a result of its establishment through the conclusion of an agreement of a company acquires legal personality on entry in the relevant register and becomes the target company with limited liability. In the statutory model adopted, the limited liability company gains full legal entity at the time of its constitutional entry into the Register of Entrepreneurs of the National Court Register, which reflects the normative concept adopted by the Polish legislator for the creation of legal persons, different from the concept of general characteristics attributed to legal persons.

In addition, before obtaining an entry in the Register of Entrepreneurs of the National Court Register, the company with the o.o.

in the organization has the legal capacity, characteristic of the companies of commercial law, relating to the possibility for the company to acquire rights in its own name, including property ownership rights and other rights in kind, to enter into obligations, to sue and to be sued.

It follows from the above that as soon as the agreement was concluded, the company acquires a certain proportion of legal personality allowing it to enter into liabilities and acquire rights to its property, separate from its partners.

The assets collected by the company in the organisation are transferred to the target company (in its intended organisational form of a ‘full’ limited liability company) when the company is entered in the register of entrepreneurs, which is the moment the company acquires legal personality.

The legal personality of a limited liability company consists of: an indication in the law of a given organisational unit as a legal person (Article 33 KC), legal capacity, attributing to the legal person the effects of the conduct of natural persons, including the ability to act, legal relations between the persons constituting the legal person concerned and that person, the separate assets of the legal person and liability exclusively to that property for the obligations of the legal person, and the name and seat of the legal person [3] .

A particular legal significance for the operation of a limited liability company is the ability of the authorities to operate it, in accordance with the theory of the authorities of a legal person, and the possibility of managing separate assets based on share capital.

According to the provisions of the KSH, the authorities of the limited liability company are: the board, the meeting of shareholders and optionally (or in the cases set out in the KSH mandatory) – the supervisory board or review committee. All the aforementioned company authorities operate under the powers set out in the KSH regulations or the articles of association, carrying out a bundle of their prerogatives in specific spheres of operation of the company.

The elements of legal personality cited above, which form the basis of the activity of a limited liability company as an economic operator, testify to its capital nature. Without doubt, the company has a separate legal personality and elements of the company's structure immanently connected with that legal personality, including the establishment through the legal personality of the company of its separateness from its shareholders, and the limitation of their liability to the amount of contributions made to the participation in the company and to the coverage of share capital, are elements of the company that brings it closer to the classical and full form capital company, which is the public limited company.

Separation of the company's assets from its shareholders – the construction of the share capital as the basis for the company's assets.

The fundamental aspect of the operation of a limited liability company in the economic sphere is its property separateness from its shareholders. Under this distinction, a law institution safeguarding the interests of the company’s counterparties, i.e. share capital of a minimum amount, to which the partners must make contributions allowing it to operate on the economic market during the initial phase of its existence.

As per content Article 154 KSH's share capital of a limited liability company should be minimum 50,000 PLN and to be divided into shares with a minimum nominal value of 5,000 PLN.

This minimum amount of share capital and the non-ability to pay to shareholders the funds from the company's assets necessary to cover the full amount of share capital, according to the wording Article 189(2) KSH points to the guarantee function of the share capital in the economic turnover, which is also related to the nature of the limited liability company as a capital company.

The shareholders of the company do not have the power to withdraw from the company funds which, in correlation with their lack of responsibility for the company's obligations, are intended to perform a protective function for the counterparties and any attempt by the shareholders to abuse the form of the company from the company to activities not in accordance with the law.

The above considerations regarding the guarantee function of share capital confirm a number of regulations contained in KSH.

The main and, as seems to be the most important regulation relating to the guarantee of share capital Article 189(2) KSH, which contains a legal standard establishing that the shareholders of the company (who made contributions to cover share capital) cannot receive, for any reason, the assets of the company of payments needed to cover the share capital.

This regulation reflects the guarantee function of the share capital mentioned above, since no cash under any legal title can be paid from the assets of the company to shareholders.

Where, as a result of the payment to the shareholder of the company with which the company has concluded a contract of employment, remuneration for work, the company would have suffered a loss of assets which would not be sufficient to cover the full share capital, such payment may not be made [4] .

Furthermore, it should be pointed out that there are rules relating to the formation of a limited liability company and to the contributions which the partners make to the company.

According to Article 158(2)(3) KSH of the remuneration due in connection with the provision of services to the company related to its formation cannot be paid out of the funds paid to cover the company's share capital as well as counted against the shareholder's contribution for the shares covered.

This regulation is of practical importance and is intended to prevent contributions to share capital from corresponding to the nominal value of the shares covered or becoming fictional, which has affected the financial condition of the company.

At the same time, to make it difficult for shareholders (not members of the company's board of directors) to section 3 KSH pointed out that the subject of the contribution remained at the sole disposal of the company’s management, and therefore of persons acting as professional managers and bearing greater responsibility for the damage caused to the company.

In addition, Article 163(2) KSH shows that, in order to form a company, it is necessary to make a contribution to cover the entire share capital and therefore a limited liability company in its full legal form cannot arise before the shareholders make a contribution to cover the entire share capital, which is confirmed by the entire board of directors at the time of submitting the application for registration of the company in the Register of Businesses of the National Court Register.

Additional collateral for the reality of the share capital and the real increase in the company's assets is the prohibition laid down in Article 14(1) KSH stating that non-monetary contributions to the company must not be made to provide work or services.

All of the above regulations have an impact on the guarantee nature of share capital as a specific minimum of assets to which the company should be paid and which should remain ‘inviolable’ to shareholders.

Share capital as a structural element of capital companies which are included in giving them legal personality and property separate from shareholders must also be considered in the context of the liability of shareholders and the risks they take. The shareholders of the capital company, when entering into an investment in the form of a Polish limited liability company., risk the contributions to the company to cover the shares covered and, in principle, only bear the financial risk.

The above aspects of the operation in a limited liability company of a share capital institution support the capital character of the company, due to the mere specificity and construction of share capital, which is characteristic of capital companies, which are lacking in passenger companies.

Action of a limited liability company through authorised bodies as an example of the operation of a capital company

Another important aspect of the operation of a limited liability company is its practical presence in the economic market. A limited liability company as an organisational entity, which is a legal person, has its legal bodies, according to its content Article 38 KC. It is only permissible that these bodies include only natural persons who naturally have the capacity to express their will and knowledge.

It follows from the above that certain actions of natural persons in situations defined by law will be eligible as actions of a legal person and will have effects only in the legal sphere of the organisational unit in which the natural person was present at the time.

In accordance with the strict meaning of that word, the body of a legal person is ‘a person or natural persons who are formally appointed to serve in a body and whose conduct, under the conditions laid down by law, is treated as the conduct of a legal person’ [5] .

Therefore, it should be considered that the bodies of a legal person, as a legal institution, which are part of the design of a legal person, which is a limited liability company, is its structural element which is indescribably linked to the possibility of a real functioning of an economic entity and which is also of a capital nature, since the legal personality assigned to a legal person and which is intrinsically linked to the company having bodies acting on its behalf, is characteristic of all capital companies governed by commercial law, as defined in Article 4 KSH.

Under the regulation relating to a limited liability company, it can be indicated that its internal corporate relations are contingent on the interlinking of the company's organs, as well as providing for a kind of three-way division of power between authorities with certain functions and with a certain structure of the company, a bundle of competence.

The board of directors of the company as a body of a legal person has the right to represent the company, i.e. it acts on behalf of the company in external relations, as well as conducts the current business of the company (Article 201 KSH).

Supervisory Board or review committee, if appointed or if the termination of their appointment follows the provisions of the KSH (Article 213 KSH), have control functions in the company and, in certain statutory cases, also supervisory functions.

The last body of the company of the greatest importance for the functioning of the company is the meeting of shareholders, who have legislative powers.

The meeting of shareholders in the resolutions adopted makes the most important decisions for the functioning of the company, including specifying the subject matter of the company's activities, and appointing and recalling members of other bodies of the company.

A meeting of shareholders is created in a limited liability company, automatically, without the need for any action by other bodies of the company. Each time a member of a meeting of shareholders becomes a person acquiring shares in the company's share capital, which is linked to the acquisition of the status of shareholder.

All component elements related to the functioning of the bodies in the framework of the structure of the limited liability company are in favour of its capital nature, which is particularly evident when the personal composition of the shareholders' meetings, in which membership depends on holding a stake in the company, and therefore, to make a specific contribution (capital) to the inclusion of those shares in the company, is analysed.

Individual control of shareholders

The right of individual control of the shareholders of the company is laid down in Article 212 KSH and is a personal corporate law of partners, because, ex lege, is related to participation in a limited liability company [6] . It is a typical right of shareholders of partnerships.

From the wording of the standard in Article 212 KSH shows that the shareholders of a partnership may restrict or even exclude their rights, but such exclusion should be included in the articles of association and meet certain conditions resulting from the Article 213(3) KSH, i.e.

the company must have a supervisory board or review committee.

According to the literal wording of the provision, ‘the right of control serves each partner’. Membership of the company and the status of a shareholder are intrinsically linked to holding shares in the company's share capital. In the case of the entitlement in question, the amount of shares held and their value shall not matter. The partner is both the person who has 99% shares as well as the one that has 1% share capital of the company [7] .

When exercising the right of individual control, the partner may take the following steps:

• • review the books and documents of the company,
• • draw up a balance sheet for its own use,
• • request clarification from the Management Board

The actual activities carried out by the audit partner have been taken broadly [8] , giving the shareholder the opportunity to examine and verify the company's financial condition and the issues related to its operation, which allows to assess the compliance of the company's activities with legal provisions, contract provisions and other files in force in the company [9] .

Any of the above considerations leads to the conclusion that the scope of the control partner is similar to that of the partnerships. As incorporated by law in the construction of a limited liability company, it introduces a significant employee element directly linked to the shareholders of the company.

It gives the company, in terms of control by shareholders, a personal character.

Request for the exclusion of a limited liability shareholder

The demand for the exclusion of a shareholder, in a limited liability company, is essential for the proper functioning of the company and the mutual relationship between the shareholders, as it may constitute a preventive and disciplining measure for shareholders in the event of an action incompatible with the interests of the company. Therefore, when deciding to establish a company with an o.o., it is important to keep in mind the rules relating to the possibility of excluding a partner from the company.

The standards for the exclusion of a partner are ius cogens and may not be excluded or limited by contractual provisions. The only possibility of a change in the scope of this institution, subject to modification by the shareholders, is to extend the active legitimacy to bring an action from Article 266 KSH.

The regulation in question by virtue of its design may be considered as a personal or capital element, but due to the typicality of institutions excluding a partnership for companies, it is appropriate to assume, in accordance with the prevailing voice of the doctrine, that the regulation is of a personal nature, which also confirms a comparison of the rules contained in: Article 63(2) KSH relating to the exclusion of a shareholder in a flagship company, which is a public company and an institution of the so-called "extract" minority shareholder provided for in Article 418 KSH a relating to a joint stock company which is a ‘mature’ form of capital company.

The comparison of these regulations leads to the conclusion that the construction of the exclusion of a partner in a company with a limited liability company is similar to the regulation of the exclusion of a partner in partnerships.

According to Article 266 KSH excludes a partner in a limited liability company only for a ‘important reason’ concerning the partner. This condition is out of focus. From the common meaning of these phrases it can be concluded that this reason cannot be trivial. Doctrine and judicatura ‘filled’ the above condition with specified content.

According to the accepted view, the reason for disqualifying a partner does not have to be due to his fault [10] . It is of particular importance here that the shareholder act contributes to the company's injury.

Lack of loyalty to the company and competitive activity, which can take a different form: conducting a competitive activity similar to that of the company [11] whether the use, contrary to the interests of the company, of information available to shareholders, in connection with the exercise of the right of individual control constitutes an abuse of a corporate right within the meaning of Article 5 KC [12] .

Moreover, involvement in competitive activities may result from events which are independent of the shareholder, e.g. inheritance of the competing company [13] . Part of the doctrine indicates that this scope is also covered by non-execution of benefits under the articles of association (subsidies, recurring non-monetary benefits) [14] .

In addition, the exemption may be granted to a partner who, by exercising the right of individual control, is allowed to harass members of the Management Board [15] . He boycotts the gatherings of partners, does not place himself at the gatherings of partners, which makes it impossible to make decisions.

However, the absence of shareholders' meetings may not be the basis for exclusion if it was of a incidental nature, and in particular if the number of shares in the capital of the absent shareholder did not block the possibility of adopting a resolution [16] .

The catalogue of important reasons on which the exemption is based is not closed and, since the decision is taken by the court, it must be considered that the judicature will extend and supplement the scope of that condition.

Exempt from the company may become a partner, and thus a person having at least one participation in a limited liability company. The reason for the exclusion of the shareholder must be for the partner, although this does not preclude the exclusion of more partners in the event of their joint, damaging activities if the capital requirements for the application of the standard are maintained Article 266 KSH, however, in the course of the trial, the Court should examine the proceedings of each of the partners in a separate manner.

Prohibition of incorporating equity rights in bearer, name and order documents

The regulation of a public limited liability company, which provides for the issuing by the company of documents embodying the shares held (name and bearer shares), is not reflected in the rules on a limited liability company.

A joint stock company, as a corporation created to carry out large business ventures, often lacks information concerning its shareholders, as trading in shares, and therefore associated raising of funds for investment purposes, often takes an anonymous character. On the other hand, in a limited liability company, which is mainly intended for small and medium-sized business, where the partners do not remain anonymous to each other, the company cannot assume the character of an open company [17] .

The main function of this provision is to restrict access to the company, in the sense that the shareholder structure of the company is influenced by the partners, which leads to the inability of anonymous trading of shares [18] . In the doctrine, it is accepted that the content of the provision in question limits the possibility of issuing shares in a company with securities, which is intended to limit speculation by shares [19] .

Separation of securities types in Article 174(6) KSH is of fundamental importance in determining which securities cannot be issued for shares in the company of o.o. [20] .

The practice of trading allows the management to issue so-called equity certificates, which are not the embodiment of equity rights, and can only provide evidence of acquisition of shares in the company [21] .

Moreover, the provision demarcates the shares and the right to profit, and it should be stressed that the right to profit, which is one of basic property rights, is inextricably linked to participation [22] . However, certificates in circulation do not constitute securities and as such cannot be considered.

Introductory Article 174(6) KSH's prohibition on the issue of securities to shares in a limited liability company constitutes a significant contrast to that of a public limited liability company in terms of operating in the economic market also as a capital company with a personal component, in terms of ‘limitation’ of trading in shares.

Eligibility of the statutory corporate model with limited liability

The above-mentioned structural characteristics of the limited liability company included in its statutory model, despite the legal classification in the group of capital companies, lead to the conclusion that the limited liability company in its model/statutory variant is a mixed capital-personal company with the overwhelming structural characteristics of the capital company.

This is due to its legal personality, its property separateness from its partners, its activities through bodies, and its possession of personal elements provided for in the KSH regulations.

These personal elements, characteristic of a personal company, distinguish a limited liability company from the full form of a capital company, which is a public limited liability company.

These characteristics of the limited liability company are not dependent on the shareholders of the company and do not, in principle, have any influence on their shape. By adding certain additional personal or capital characteristics to the company, the contract may lead to its constructional approximation to the full form of the capital company, which is a limited company or a partnership, which makes the Polish limited liability company. an attractive form of business.

Written by Michał Witek

Legal advisor included on the list of legal advisers led by the District Chamber of Legal Advisors in Warsaw. In years 2018 - 2020 conducted an advisory application conducted by the District Chamber of Legal Advisors in Warsaw. Graduated from the Faculty of Law and Administration of the University of Warsaw.

He gained his experience working in leading Polish law firms and at one of the largest Polish developers. He specializes in civil and administrative law matters, with particular emphasis on real estate law and commercial law.