Updated: 21.10.2024
A limited liability company (sp. z o.o.) is a popular form of doing business in Poland, chosen by both Polish and foreign investors. One of the key elements in the operation of any company is the manner of its representation and management, which are regulated under the articles of association.
In the context of passive representation of the company (acceptance of declarations of intent), service of letters on the company can be made on any member of the management board or a proxy, which is an important aspect of the functioning of limited liability companies in the context of commercial law.
In this article we explain the issues related to the way of representation of a limited liability company, who can be a member of the body representing the company, what conditions on behalf of the company are required according to the provisions of the Commercial Companies Code and what are the key principles of the board of directors.
Who represents the company?
First, it is necessary to determine what the concept of representation is. Representation in a limited liability company refers to the way in which the company acts externally, making decisions and entering into agreements with third parties. Among other things, it refers to making statements, entering into contracts and incurring obligations, as well as appearing on behalf of the company in court or before public administration authorities.
A limited liability company in Poland is represented by a board of directors. The management board consists of one or more members, who are responsible for representing the company to third parties and managing its day-to-day affairs. The management board has the right to conclude contracts, make declarations of intent and represent the company’s interests in courts and other institutions.
Who can be a member of the management board?
Members of the board of directors of a limited liability company can be both shareholders and non-shareholders. In practice, this means that foreign investors can appoint both themselves and third parties to the board to act on behalf of the Comapny.
As a general rule, board members are appointed and removed by a shareholders’ resolution, but the company’s articles of association may provide for other rules, such as granting these powers to the Supervisory Board or another body. This flexible approach allows the management structure to be tailored to the individual needs of the company.
However, there is a lack of complete freedom in terms of who can be a member of the management board in a limited liability company. A board member can only be:
- An individual, having full legal capacity,
- A person who has not been sentenced by a final judgment for certain crimes against the activities of state institutions and local government, as well as those related to the performance of functions in the company’s bodies (as defined by the provisions of the CCC).
What are the ways of representation of the company?
The articles of association of the company determine the manner in which the board of directors represents the entity. Depending on the provisions of the company’s articles of association, representation can take place in several ways:
- Self-representation – each member of the board of directors may represent the company independently.
- Joint representation – the company is represented by several board members jointly.
- Joint representation with a commercial proxy – the company is represented by one board member together with a proxy
In the case of multi-member boards, unless the articles of association specify otherwise, the cooperation of two members of the board of directors or one member of the board of directors together with a proxy is required to make statements on behalf of the company.
The articles of association may also specify special rules for representation, for example, requiring the signature of two board members for transactions exceeding a certain value.
It is worth noting that, despite internal limitations on representation, to third parties, board members cannot limit their right to represent the company, which provides legal certainty for counterparties.
Exceptionally, regardless of the adopted method of representation in the company, the signatures of all members of the board of directors may be required only in situations where the law expressly provides for it (Article 19 of the Companies Act), for example, in the case of filing the company for registration, which requires the signatures of the entire board of directors.
What is the board of directors responsible for and when can it not represent the company?
The rules of representation may vary depending on the provisions of the company’s articles of association. However, it should be remembered that the board of directors is responsible for managing the day-to-day affairs of the company.
This means making strategic, financial and operational decisions. However, there are situations in which the board of directors cannot perform a representative function. These include:
- Conflict of interest – if there is a dispute between the company and a member of the management board, the company must be represented by the Supervisory Board (if there is one) or an attorney appointed by a resolution of the shareholders.
- Contracts between the company and a member of the management board – such contracts require the company to be represented by the Supervisory Board or an attorney appointed by a resolution of the shareholders.
Term of office and mandate of a member of the management board
The term of office of a member of the board of directors is specified in the company’s articles of association. Normally, a board member’s term of office expires on the date of the Annual Meeting of Shareholders approving the financial statements for the first full fiscal year of his or her term.
In the case of board members appointed for a longer term, the mandate expires after the approval of the report for the last full fiscal year of the board member’s term. Members may also lose their mandate in the event of:
- resignation,
- dismissal,
- death,
- opening of liquidation of the company.
Representation of the company by a commercial proxy
However, the board of directors is not the only body authorized to represent the company. The company may also be represented by a commercial proxy.
A commercial proxy is a person who can represent the company on the basis of a power of attorney granted by the board of directors. A proxy is not a member of the board of directors, but may act on behalf of the company in judicial and extrajudicial matters, including entering into partnership agreements, representing the entity before authorities and taking other actions in the course of business.
The establishment of a proxy requires the consent of all members of the board of directors, and his power of attorney can be revoked by any of them. You can read more about the proxy in a limited liability company HERE.
Board meetings and decision-making
Meetings of the board of directors are convened by the chairman of the board of directors or a board member designated in the company’s articles of association. Normally, decisions of the board of directors are made by resolutions adopted by a majority vote. However, the company’s articles of association may stipulate that in the event of a tie, the President of the Management Board has the casting vote.
Importantly, the board of directors is responsible not only for the company’s rights to represent the company externally, but also for managing the company’s internal affairs, which includes, among other things, making operational, strategic and financial decisions, overseeing the company’s operations, and ensuring its compliance with the law.
How the company is represented is determined by the company’s articles of association
It is important for foreign investors to understand how the board of directors works in a Poland limited liability company, as it is the board that plays a key role in both representing the company externally and managing its internal affairs. Properly structured company representation and properly selected board members can affect the smooth functioning of the company and its success on the Poland market.
FAQ on Representation in a Limited Liability Company
How does representation in a limited liability company work?
Representation in a limited liability company (sp. z o.o.) refers to how the company acts externally, enters into contracts, and makes statements. The board of directors is responsible for representing the company in external dealings, as outlined in the company’s operating agreement.
Can a limited liability company have only one board member?
Yes, a limited liability company (LLC) can have only one member, known as a single-member LLC. For representation purposes, the single member can represent the company independently.
Can foreign investors form a limited liability company in Poland?
Yes, foreign investors can form a limited liability company (LLC) in Poland. The company’s representation and management are defined in the company’s articles of association.
Foreign investors can appoint themselves or third parties to the board of directors, and depending on the business structure, the company may benefit from limited liability protection and favorable tax treatment under Polish state laws.
Are there personal liability risks for board members of a limited liability company?
Members of a limited liability company (LLC) are typically protected from personal liability for the debts or obligations of the company. However, in certain circumstances, such as when debt enforcement proves unsuccessful, directors may be held personally liable. To retain this protection, legal actions must be pursued in accordance with the relevant legislation.
Can a limited liability company be represented by a proxy?
Yes, a limited liability company can be represented by a proxy. A proxy acts on behalf of the company in various legal matters, ensuring flexibility in the company’s representation and allowing board members to delegate authority.
What is the difference between a sole proprietorship and a limited liability company?
A sole proprietorship has only one owner and does not provide the same legal protection as a limited liability company (LLC). In an LLC, shareholders have limited liability, meaning their personal assets are protected from the company’s liabilities.
A single-member LLC is managed by an individual owner, while a multi-member LLC is managed by multiple members, with flexible membership interests and management structures.
Can foreign LLCs operate in Poland with flexible membership structures?
Yes, foreign LLCs can operate in Poland with flexible membership structures, allowing for multiple members or even a sole member to manage the business. The operating agreement of the LLC defines the roles of its members and can include both foreign and local members.
Foreign LLCs can also establish their business presence in Poland, provided they comply with local state laws and meet the requirements for foreign business entities.
