Understanding the Role of the Supervisory Board and Auditing Committee in Polish Company

Updated: 20.09.2024

The Supervisory Board is one of the key corporate governance bodies in Polish capital companies, such as limited liability companies (LLC) and joint-stock companies (JSC). Its primary role is to oversee the activities of the management board and protect the interests of the company and its shareholders.

The basic rules on appointment of the Supervisory Board, its composition, and operations are regulated by the Commercial Companies Code (CCC). In the scope not regulated in the Commercial Companies Code, issues concerning competences, principles of appointment, dismissal of members, their duties and principles of cooperation with other company bodies are specified in the articles of association (LLC) or statute (JSC).

How to Appoint a Supervisory Board in a Polish Company?

The Supervisory Board should consist of at least three members (in public JSC’s – at least five members), although the company’s articles of association or statute may provide for a larger number.

The members of the Supervisory Board are elected by the shareholders’ meeting or the general meeting of shareholders, in accordance with the provisions of the articles of association (LLC) or the company’s statutes (JSC).

In LLC’s, the appointment of the Supervisory Board is mandatory only if:

• the company’s share capital exceeds 500,000 PLN and
• the number of shareholders exceeds twenty-five.

In JSC’s, the appointment of the Supervisory Board is mandatory regardless of the share capital, size, and the number of shareholders.

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What Are the Competences of a Supervisory Board in Poland?

The competences of the Supervisory Board are broad and include both the oversight of the management board’s activities and the performance of specific control tasks. The primary competences of the Supervisory Board include:

– Oversight of the company’s activities:

The Supervisory Board exercises ongoing supervision over the activities of the management board, which includes the right to inspect the company’s documents, control its assets, and request explanations from the members of the management board.

– Evaluation of financial statements:

The Supervisory Board evaluates the company’s annual financial statements, management board reports, and proposals regarding profit distribution or loss coverage. The results of this evaluation are then presented to the shareholders’ meeting.

– Approval of transactions:

In some cases, the company’s articles of association or statute may require that certain key management board decisions, such as incurring significant financial obligations, be approved by the Supervisory Board.

– Collaboration with auditors:

The Supervisory Board may use the services of auditors and other experts to conduct a thorough review of the company’s activities. In JSC’s such an audit is obligatory when it comes to preparation of the annual financial statement of the company, while in LLC’s the audit is obligatory only in cases when the conditions specified in the Accountancy Act are met.

– Compliance monitoring:

The Supervisory Board ensures that the company’s activities comply with applicable laws and internal regulations.

Essential Duties of the Supervisory Board in Polish Companies

The Supervisory Board has specific duties that must be performed in accordance with the law and the company’s internal regulations (e.g. Supervisory Board regulations):

– Regular meetings:

Supervisory Board meetings should be convened as needed, but no less than once in each quarter of the financial year. Participation in meetings may also be done remotely, unless prohibited by the company agreement or statute.

The work of the Supervisory Board is managed by the chairman of the Supervisory Board. Resolutions of the Supervisory Board are passed by an absolute majority of votes, but the company agreement or the statute may establish other rules in this respect.

– Reporting:

The Supervisory Board prepares an annual report on its activities, which is submitted to the shareholders’ meeting or the general meeting of shareholders. This report should include an assessment of the management board’s activities, the company’s financial results, and conclusions regarding its future operations.

– Adopting resolutions:

The Supervisory Board adopts resolutions on key issues related to the company’s operations, such as:

• approving financial statements,
• evaluating financial results, and development strategies,
• granting the management board consent to take actions specified in the act, articles of association or statute.

These resolutions are adopted at Supervisory Board meetings and require an appropriate quorum and majority of votes, as specified in the company’s articles of association or statute.

– Safeguarding the company’s interests:

Supervisory Board members are obliged to act in the best interests of the company, which means making decisions that consider the interests of all shareholders. This includes ensuring transparency in the Management Board’s actions and monitoring the company’s strategic goals.

– Reporting misconduct:

If any misconduct or irregularities in the company’s activities are identified, the Supervisory Board is obligated to inform the relevant company bodies and, if necessary, law enforcement authorities.

Supervisory Board Membership: Key Criteria and Responsibilities

A member of the Management Board, commercial proxy, liquidator, head of a branch or plant, persons directly subordinate to a member of the Management Board or liquidator cannot simultaneously be a member of the Supervisory Board. The same restrictions are applied to a chief accountant, attorney at law or barrister-at-law employed by the company. Individuals convicted of certain economic crimes are also excluded.

Usually, unless the company agreement or statute provides otherwise, Supervisory Board members are appointed for a 1 year. In the case of joint-stock companies, a limitation applies to the maximum term of office – it cannot be longer than 5 years.

Supervisory Board members may (but do not have to) receive remuneration for their work, determined by the articles of association or the general meeting of shareholders. This remuneration may take the form of a fixed salary, attendance fees for meetings, or performance-based bonuses. Remuneration should be commensurate with the scope of duties and responsibilities of Supervisory Board members.

The Supervisory Board can appoint advisors to support its oversight functions. The advisor’s role is to provide expert opinions, conduct analyses, and offer recommendations on various aspects of the company’s operations. This helps enhance the effectiveness and thoroughness of the Supervisory Board’s supervisory activities, ensuring better compliance with corporate governance standards and contributing to the overall success of the company.

The Supervisory Board may establish an ad hoc or permanent committee of the Supervisory Board, consisting of members of the Supervisory Board, to perform specific supervisory activities, which, however, does not release the members of the Supervisory Board from responsibility for exercising supervision.

What Are the Liabilities of Supervisory Board Members?

Supervisory Board members are liable for their actions and omissions that may affect the company’s operations. This liability can be:

1. Civil liability:

Supervisory Board members may be held civilly liable to the company for damages caused by their actions or omissions if they acted in violation of the law or the provisions of the articles of association or statute.

This liability may include the obligation to compensate the company for damages resulting from incorrect decisions or lack of oversight over the Management Board’s activities.

2. Criminal liability:

Supervisory Board members may be held criminally liable for, among other:

• announcement of false information to company bodies,
• state authorities or a person appointed to audit,
• for acting to the detriment of the company,
• for managerial bribery,
• unlawful disclosure or use of business secrets,
• and other offenses.

The Supervisory Board operates as a collective body, meaning that responsibility for decisions made by the Board can be shared among all its members. In practice, this means that all Supervisory Board members can be held accountable for decisions made by the Board, even if they were not individually initiators of those decisions.

To mitigate liability risks, Supervisory Board members may take advantage of Directors and Officers (D&O) insurance, which provides protection against financial consequences of claims related to supervisory functions.

Therefore, serving as a Supervisory Board member requires not only appropriate qualifications but also a high level of responsibility and diligence in performing assigned duties. Supervisory Board members should act with due care, guided by the best interests of the company and its shareholders.

FAQ – Supervisory Board in Polish Company

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Audit Committees

An audit committee, also referred to as a “revision committee,” is an optional internal supervisory body within a limited liability company (it is not possible to appoint an audit committee in a joint-stock company or simple joint-stock company) that plays a crucial role in overseeing the financial and operational activities of the company. Its primary function is to ensure that the company adheres to proper financial management practices, operates efficiently, and complies with relevant legal standards.

Although the creation of an audit committee is not mandatory for most LLCs in Poland, some companies opt to establish this body in their articles of association to enhance corporate governance and internal control, however, it happens very rarely.

An LLC may have a supervisory board and an audit committee at the same time – these two bodies are not mutually exclusive.

Composition of the Audit Committee

The audit committee typically consists of independent individuals appointed by the shareholders. These individuals are not involved in the day-to-day management of the company to ensure objectivity in their review and evaluation tasks, as it is done by a supervisory board. According to Polish Commercial Companies Code (CCC), the audit committee (revision committee) in an LLC must consist of at least three members. This ensures a balanced assessment of the company’s activities and provides adequate oversight of its financial and operational performance.

Members of the audit committee should have the necessary qualifications and expertise, especially in finance, law, or auditing. They should be capable of performing comprehensive evaluations of the company’s financial health, risk management policies, and compliance measures.

Appointment and Removal of Members

Members of the audit committee are usually appointed by a resolution of the shareholders’ meeting, unless otherwise stated in the company’s articles of association. The process may vary depending on the specific structure of the LLC, but the typical steps involve a proposal of candidates, followed by a vote by the shareholders.

The term of office for committee members is usually specified in the articles of association, which may range from one year to several years or even for an indefinite period. In some cases, the articles may also allow for reappointment after the term expires.

Members of the audit committee can be removed at any time by the shareholders in case of a failure to perform members’ duties satisfactorily or act against the company’s interests. The removal process generally requires a shareholders’ resolution, with a majority vote being the common method of dismissal.

Competencies of the Audit Committee

The competencies of the audit committee, as outlined by the Polish Commercial Companies Code, primarily involve:

• Reviewing Annual Financial Statements: The committee’s primary responsibility is to review and evaluate the company’s annual financial statements, as well as management board reports, before they are submitted to the shareholders’ meeting.
• Providing an Opinion on Profit Distribution: The audit committee also offers an opinion on the management board’s proposals regarding profit distribution or loss coverage, ensuring that these are in line with the company’s financial situation and shareholder interests.
• Reporting to Shareholders: The audit committee prepares and presents reports to shareholders regarding its findings on the company’s financial documents.

The audit committee is not a permanent supervisory body. Instead, its role is typically limited to the periodic review of the company’s annual financial documents. By focusing primarily on reviewing financial statements and providing an opinion on profit distribution, the audit committee operates on a more ad hoc basis, which can help reduce the costs associated with ongoing supervision. This makes it an attractive option for smaller companies that seek to maintain a degree of oversight without the expense of a full-time supervisory body.

However, in practice, in cases where the appointment of a supervisory body is mandatory under Polish law, shareholders often prefer to establish a supervisory board instead of an audit committee. The supervisory board offers broader oversight, including constant supervision over the activities of the management board and other key company operations, making it a more comprehensive solution for ensuring corporate governance.