Doing business in Poland – legal aspects.

Radosław Czarnecki

Startups are currently a hot topic. The main associations that come to mind are innovation, change and rapid development; it is not so „hot”, however, if we consider a formal aspect. For startup activity does not differ from other businesses formally and is subject to the same legal regulations: the Freedom of Business Activities Act, the Civil Code, the Code of Commercial Partnerships and Companies or tax measures. The Polish legal system offers business organization a wide range of legal instruments and in this respect does not differ much from other developed legal systems of continental Europe. A great majority of legal institutions are modelled on German or French patterns.

Basic forms of business organisation are:
- sole entrepreneur,
- partnerships,
- limited companies.

Business development in Poland is based on similar basic principles both Poles and foreigners. In principle, there are no differences for the citizens of the European Union. Minor differences relate to people from outside the EU and relate mainly to sole entrepreneurs and some types of partnerships (it can be run by a person authorized to permanent or temporary residence or in the EU)

Usually, more than one person is involved in startup projects. The typical structure of these businesses involves the separation of functions between individuals who in exchange for carrying out their functions expect future profits. A traditional working party involves people dealing with the substantial aspect of the venture and people responsible for "business", i.e. mainly finance and commercialization.


This model of a structure is also typical for partnerships that derive, among others, from exactly the same types of relations and where work and the level of personal involvement (along with capital – non-monetary and monetary contributions) are the main indicators of a profit-sharing structure. In other words, in partnerships, the owners are involved not only financially but also personally. On the other hand, the limited companies, as the name suggests, are primarily making capital investments. Of course, we find the whole spectrum of intermediate situations in real life; the Polish legal system provides flexible solutions that can be tailored to your needs.

It is relatively easy to run a startup business in the form of general partnership. It is the easiest and the basic for of business at the same time. It is entered in the Commercial and Companies Register, has its tax identification number and can sign contracts/enter into agreements and be a party in potential litigation. The general partnership is liable for all its obligations, however, if the execution is ineffective, all partners are responsible for its obligations with all their substance. It is typical in startup situations where obtaining financial support is conditioned by the partners’ personal assets to be used to satisfy business debts and liabilities. A general partnership is easy to run and enables great flexibility in distributing and sharing profits or business management. Everything depends considerably on the way the articles of association have been worded.

Private partnership. It is worth remembering that in Poland there is also the institution of a private partnership , but it is not a typical company in the sense of a legal identity separated from its owners, but rather a form of a joint venture agreement. From the perspective of other legal systems, it is more like a consortium agreement and not a typical company. It is important that the general partnership (just as private partnership ) does not have to maintain full accounts or apply accounting principles if its annual turnover does not exceed 1.2 million. Partners of a general partnership determine their tax obligations in Poland on the basis of revenue and expense ledger. It's an easy way of reporting, in which revenue and expense is subject to posting .


A limited partnership is a slightly more advanced form of business. It is a kind of hybrid of a partnership and a limited company, also very flexible and convenient. Like a general partnership it must have at least two shareholders. The idea is that one of the partners, i.e. general partner is liable with all his/her assets (as if he/she was a partner in a general partnership), while the responsibility of the latter, i.e. limited partner is limited to the sum of the limited partnership (a fixed specified limit of liability). General partner is responsible for running the company, and so he/she is the "management" of the company and the role of limited partner is legally passive. Thus, the partners having a significant impact on operations usually play the role of general partners, while shareholders performing other roles are usually limited partners (these for example are employees with a right to share the profit or passive financial investors).

The limited partnership is obliged to maintain full accounting from the very beginning of its operations, which, as in the earlier case, may be outsourced. In practice it means that the increased reporting responsibilities are merely limited to slightly higher fees for outsourced services. Establishing a limited partnership makes sense if we use legal properties, for example when we acquire an external financial investor for a startup; you can then assign him - in exchange for a financial contribution - the role of a limited partner, or investor with limited liability (commendam sum) and limited impact on running the company.

Both a general partnership and a limited partnership are very flexible in terms of the distribution of profits. It is possible to change the provisions related to profit distribution depending on the business needs of the partners. It is very useful in a situation where the partners are to receive bonuses for personal " merit " that are not necessarily proportional to the degree of the capital they invested in the company.

A fundamental characteristic of a partnership, from the perspective of tax regulations, is that they are not taxed with an income tax. Income tax is only paid by the shareholders - so there is only one level of taxation. The income tax for business entities such as partnerships amounts to 19 % of the taxable income in Poland.

Limited companies represent a higher level of organisation: limited liability company („ltd”) or a joint stock company (Plc). Limited companies are more popular. The minimum capital necessary to start this sort of business amounts only to 5000 PLN. (in Plc it is 100.000 PLN). Ltd has its legal identity – that is an independent economic entity which is completely independent of its shareholders in terms of legal liability. The limited company is also flexible when it comes to relationship between shareholders. In reality, a limited liability company often replaces partnerships when partners (shareholders) still want to keep flexibility and benefit from limited liability. It is worth mentioning that partners (shareholders) of partnerships are not liable for the debts of the company while the members of the board are liable with all their personal assets for the company’s liabilities including tax liabilities (however, this is not a direct liability and may be executed after the company’s assets have been exhausted and under certain conditions). Limited liability companies must keep full accounting records. Limited liability companies are typically established when a higher capital need arises. Limited liability companies make trading of shares relatively easy which does not require any changes in the articles of association (in case of partnerships a new partner must join the company).

Joint stock companies, on the other hand, are entities which is never legally used in startups but rather in a later stage of business activities. Joint stock companies are primarily necessary when the capital is raised from public bids, e.g.: by listing a company on the stock exchange.

The biggest “flaw” of limited companies is their taxation with the income tax of 19% of the taxable income, irrespective of shareholders. Thus, in case of distribution of profits in the limited liability company a double taxation may occur: 19% at a company level and 19% at the shareholders’ level.

We should add that foreign companies can operate directly in Poland, e.g.: as foreign companies running their businesses in Poland or as agencies or branches. A direct operation is more often recommended for occasional activities e.g.: when there is no need to open an office in Poland, to recruit any employers and so on and so forth – when the activity requires a permanent residence in Poland, a number of accounting and tax-related issues may come up. A subsidiary is a part of a foreign company and may be established to run a permanent office focused on marketing and advertising activities. A branch, on the other hand, is also a part of a foreign company (agency) which is meant to run regular and full business activity. In many respects, it resembles a branch resembles a partnership, it is, however, obliged to keep a complete set of accounts.

Registration of a limited liability company, general partnership and limited partnership can be made via the Internet. Unlike a traditional method of registration of companies, the Internet registration is very fast and registration of companies can be executed within 24 hours. It must, however, be remembered that it is not possible to use the online registration if assets are contributed as consideration other than in cash (contribution). All official or court matters require the knowledge of the Polish language, and all company documentation (contract and accounting) must be written in Polish. Moreover all official websites to handle business matters run by the state administration are in Polish. It should also be noted that while the commercial or civil law are fairly logical and do not deviate from European standards, the administrative law, especially the Polish tax law is quite intricate. This is mainly due to the uncertainties and ambiguities of regulations and also very frequent (on an irrational scale) changes in tax law.

What is unique in Poland is the availability of numerous grants for investment, innovation and human capital. A subsidy or preferential financing can be obtained by aalmost every operation related to an innovative investment project. Thus, every venture is worth testing in this respect.

It is therefore advisable to have recourse to a specialist assistance of specialized companies when starting or running a company in Poland. Legal, tax or consulting companies will be helpful in setting up companies and obtaining grants /funding. It is reasonable to hire an accounting office to do your everyday reporting. You should not only take into account the fee (rates may vary significantly), but also experience in the relevant market when selecting your service provider. It must be remembered that experience in corporate entities does not necessarily mean the ability to understand the needs of entrepreneurs getting involved at the stage of a startup, taking the risk. Competition on the market of professional services, particularly in major business centers in Poland is very high. In addition to global brands, there are many small companies offering long standing experience, high quality of service, network of contacts and support in a foreign language. Polish embassies or government agencies, n the other hand, despite their promises are not a good source of significant assistance when you locate operations in Poland (except large investment projects); that function is performed rather by chambers of commerce, which are also a good source of business information.

Radosław Czarnecki
- Business and tax adviser with twenty years of experience. One of the founders of Accreo consulting company specialising in tax and legal consulting as well as obtaining financial support.

This article was written under “Get Inspired - entrepreneurship, startup, cooperation”
project co-financed by the Polish Ministry of Foreign Affairs
as part of the "Cooperation in the field of public diplomacy 2015" contest.