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A limited liability company is one of Poland’s most popular business forms. The principal reason may be entrepreneurs’ widespread desire to limit liability, but also potential savings and greater business flexibility. Do all these advantages also apply to a single-member company? Read our article describing the main disadvantages and advantages of a limited liability company with only one shareholder.
A single-member limited liability company — is it definitely a legal business form?
Article 151 §1 of the Commercial Companies Code states: “A limited liability company may be formed by one or more persons for any legally permissible purpose, unless the act provides otherwise”.
There is therefore no obstacle to lawfully establishing and operating a single-member limited liability company. It has only one shareholder, holding all shares.
Like any limited liability company, it has separate legal personality. The company itself can acquire rights, incur obligations and bear responsibility for them independently.
Advantages of a single-member limited liability company
This leads to the first and seemingly most important advantage, which also fully applies to single-member companies.
It is, of course, the ability to limit liability.
Article 151 §4 expressly states that shareholders are not liable for company obligations. This includes single-member companies and means the sole shareholder generally risks only the contributions made. Sole proprietors have no such protection: the owner is liable with all personal assets for business obligations. However, a sole shareholder who is also a board member may be liable under Article 299, particularly for failure to file for bankruptcy on time.
The second significant advantage is flexibility. Limited liability companies allow substantial freedom in ownership structure, management rules and attracting investors. They are recommended not only for higher-risk activities but also for entrepreneurs planning investment, future sale of all or part of the business, and succession.
This flexibility is easier to use in a single-member company. The sole shareholder exercises all powers of the shareholders’ meeting, meaning no conflicts or need to count votes and a much shorter, simpler decision-making process.
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Disadvantages of a single-member limited liability company — costs, double taxation, special legal requirements and... compulsory ZUS contributions
Alongside these advantages, single-member companies have some clear disadvantages.
Primarily, basic establishment and operating costs are higher than for sole proprietorships , particularly mandatory accounting books and regular financial statements, as are potential liquidation costs.
Another serious disadvantage is possible double taxation of profits, because the company is subject to corporate income tax and its shareholder to personal income tax.
A single-member company also loses an advantage many entrepreneurs value in multi-member companies: not being subject to compulsory social insurance merely for holding shares. Article 8(6)(4) of the Social Insurance System Act expressly treats the shareholder of a single-member limited liability company as a person conducting non-agricultural business activity, required to pay compulsory social and health insurance contributions.
Remember also the inconveniences of special legal requirements for this particular business form.
Declarations of intent cannot, for example, be made orally to the company. Under Article 173, declarations by the sole shareholder to the company must be in writing on pain of nullity.
All agreements between the company and its sole shareholder who is also the sole board member generally must each take the form of a notarial deed, under Article 210 §2. Only certain transactions using a special electronic template in S24 are exempt.
If this article interested you, explore our tax advisory services and read how we can help you:
Summary
A single-member limited liability company — advantages and disadvantages
This lawful business form offers important advantages, notably considerable flexibility and limited liability.
Its disadvantages must also be remembered: costs, special legal requirements for agreements and declarations, and possible double taxation.
A single-member company offers no potential ZUS exemption. The law expressly treats its shareholder as conducting non-agricultural business activity, subject to compulsory social and health insurance contributions.
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