legal and administrative regulation
Polish Information and Foreign Investment Agency proposes to familiarize with the information on the main aspects of doing business in Poland.
According to the Economic Freedom Act of July 2nd, 2004 foreign persons from the EU and European Free Trade Agreement zones belonging to the European Economic Area may undertake and run business on the basis of the same rules applicable to Polish entrepreneurs.
As a general rule other foreign persons have the right, unless international agreements state otherwise, to undertake and run business activity only in the following forms:
- limited partnership
- limited joint-stock partnership
- limited liability company
- joint-stock company
They have also the right to enter these kind of partnerships or companies and purchase their shares.
Furthermore foreign entrepreneurs may run business activity in the form of branch office, and also set up representative offices on the territory of Poland.
Within the meaning of the law, a foreign person is:
- a natural person residing abroad, without Polish citizenship,
- a legal person with a seat (registered office) abroad, an organisational unit with a seat abroad, which is not a legal entity, but has a legal capacity.
According to the law, a foreign entrepreneur is a foreign person running a business activity abroad.
1. Forms of conducting business activity in Poland - Introduction
Business activity in Poland may be conducted in forms similar to those found in other European countries. Available types of business activity include:
- commercial companies comprising:
- corporations (limited liability company and joint-stock company);
- partnerships (general partnership, limited liability partnership, limited partnership, limited joint-stock partnership);
- branch offices of a foreign company;
- representative offices of a foreign company;
- individual business activity (also as part of a civil partnership).
Cooperatives, associations, foundations and cross-border vehicles such as the European Company, or the European Economic Interest Grouping, which may also be used in conducting business in Poland, are not covered by this study.
2. Freedom of business activity
Polish law stipulates the principle of freedom of business activity. This means that anyone has equal rights in undertaking business activity of their choosing.
However, this principle does not offer absolute freedom of business activity. Crucial in this respect are restrictions as to the subject (i.e. who can undertake business activity) and the object (i.e. the requirements that must be met in order to conduct a given type of activity).
2.1 Restrictions as to the subject
The rules applicable to Polish citizens (i.e. with respect to selecting the type of business activity) with regard to undertaking business activity also apply to natural persons, legal persons and other organisational units with legal capacity:
- from the Member States of the European Union;
- from Norway, Iceland and Liechtenstein;
- from countries that are not signatories to the Agreement on the European Economic Area, pursuant to agreements entered into by those states with the European Union and its Member States;
- citizens of countries other than those listed above, indicated in the Act on Freedom of Economic Activity, including persons who have obtained permission for permanent residence in Poland, residence for a long-term resident of the European Union, temporary residence (in certain circumstances provided for in the Foreigners Act), refugee status, supplementary protection, consent for residence for humanitarian reasons or consent for a tolerated stay, permission for temporary residence and who are married to a Polish citizen living in Poland, temporary residence in order to engage in economic activity, granted on account of continuation of economic activity already engaged in on the basis of an entry in the Central Registration and Information on Business, who have temporary protection in Poland or who hold a valid Polish Charter.
The above list includes entities able to take advantage of the freedom of business activity in the broadest scope. Other persons may solely operate as: (i) limited partnerships, (ii) limited joint-stock partnerships, (iii) limited liability companies or (iv) joint-stock companies.
However, international agreements may grant more extensive rights to persons not included in the catalogue.
2.2 Restrictions as to the object
The most important restrictions as to the object are those that require the entrepreneur to obtain a prior administrative decision that enables them to undertake a given activity.
Concessions are issued in areas of business activity that carry particular importance for national security or the safety of the citizens or other important public interest.
The requirement of obtaining a concession concerns activities that involve:
- exploring and identifying hydrocarbons and solid mineral ores subject to mining proprietorship, exploring or identifying a subterranean carbon dioxide deposit complex, extracting minerals from ores, subterranean non-reservoir storing of substances, subterranean depositing of waste and subterranean depositing of carbon dioxide;
- manufacturing and trading in explosives, weapons and ammunition, as well as military and law enforcement products and technologies;
- manufacturing, processing, storing, transmitting, distributing and trading in fuels and energy, transferring carbon dioxide for its subterranean depositing;
- protecting people and property;
- distributing radio and television programming, save for programming distributed solely using the ICT system, which is not broadcast terrestrially, by satellite or over cable networks;
- air transportation;
- running casinos.
Before issuing a concession, the administrative body may verify if the entrepreneur meets the requirements of conducting business activity that requires a concession and whether it guarantees proper conduct of such activity.
The number of available concessions may be limited. In such cases, the relevant administrative body organises a tender. The winner is the entity offering the highest price for the concession.
A promise of a concession, i.e. an undertaking to grant a concession once certain requirements are met, may also be obtained. Such a promise is issued for at least six months. During its term, a concession cannot be denied unless the entrepreneur failed to meet the relevant requirements or unless the information contained in the promise application has changed.
2.2.2. Permits, licences, authorisations
Another manifestation of the restriction of economic freedom as to the object is the requirement for the entrepreneur to obtain a permit, licence or authorisation. However, the different names do not mean that we are dealing with different acts. All of these types of administrative decisions are equivalent – they carry the same legal effect with respect to the ability to conduct business. Therefore, the collective term permit will hereinafter be used to refer to all of these.
A permit allows an entity to undertake and perform a specific type of business activity provided that it meets the relevant statutory requirements.
Presented below are examples of activities that require a permit:
- business activity within a special economic zone, which is eligible for public aid;
- activity that involves maintaining a regulated market (stock exchange and over–the–counter);
- the activities of pension funds;
- banking activities involving risk for entrusted funds subject to repayment;
- provision of payable services as a domestic payment institution;
- collective water supply or waste removal activities;
- activities involving the manufacturing or importing of medicinal products;
- scheduled and special transportation services;
- conducting insurance activity in the Republic of Poland;
- the activities of investment funds.
A permit is granted to an entrepreneur upon finding that it has met the statutory requirements. These requirements primarily concern the protection of human life and health, safety and public order, state secret and the nature of business activity covered by the permit. Detailed provisions on the procedure of issuing permits are set forth in the relevant acts. If the entrepreneur has met the requirements for conducting a given type of activity, the administrative authority is required to grant a permit.
Most common types of business activity in Poland
The most common types of business activity are commercial companies, in particular, the limited liability company and the general partnership. According to the Polish Central Statistical Office, as at the end of 2014, limited liability companies accounted for approximately 83 per cent of all commercial companies, with general partnerships accounting for approximately 8 per cent. Further down the list are the joint-stock company, the limited partnership and the limited joint-stock partnership. The smallest group are limited liability partnerships, accounting for approximately 0.5 per cent of all commercial companies in Poland. However, it should be noted that in recent times, the highest growth was reported for the limited partnership. The above is due to the ability to optimise taxation in the structures of such a partnership as revenues are taxed at the level of the partners in that partnership rather than the partnership itself.
Many natural persons choose to pursue individual business activity. In the private sector, these entities account for 72 per cent of all entrepreneurs. Individual business activity may also be conducted in the form of a civil partnership, i.e. an association of at least two entities for the purpose of conducting for–profit activity. Unlike a corporation, a civil partnership is not a separate legal entity – only its partners are separate legal entities.
Foreign investors also take advantage of the branch office structure, through which they can operate in Poland to the extent they operate in their country of origin.
3.1 Commercial companies
A commercial company is a form of for-profit cooperation between at least two persons, save for the limited liability company and the joint-stock company, which may be established by a single entity, provided that the founder itself is not a one-person limited liability company.
A company is established upon concluding an agreement in which the shareholders agree to pursue a shared goal by making contributions and, potentially, by cooperating in another defined manner.
The activities of commercial companies are regulated by:
- the applicable laws,
- the shareholders in the articles of association or statute.
- In partnerships, utmost importance is attached to the person of the partners, their credentials and work performed. As a rule, they are liable for the obligations of the partnership up to the full value of their assets.
- In corporations, the emphasis is on the equity provided by the shareholders, on which the operations of the company are based. The shareholders are not liable for the company’s obligations - their risk is limited to the amount of the contribution made, which may not be recovered if the business fails.
3.2 Branch office of a foreign company
A foreign company may conduct business through a branch office in Poland to the extent such activity is conducted in its country of origin.
3.3 Representative office
Having a representative office in Poland enables a foreign entrepreneur to conduct business solely with respect to advertising and promoting its activities.
4. Criteria for selecting the form of conducting business activity
4.1 Investor’s country of origin
The investor’s country of origin is crucial in determining its ability to conduct business activity in Poland. As stated in detail in point 2.1 above, persons from outside the European Union, Norway, Iceland, Liechtenstein or countries with which the European Union and its member states did not conclude agreements on the freedom of business activity, as well as other persons who have been granted the right to engage in business activity on the same principles as Polish citizens, may select from among types of business activity limited to the following entities: (i) limited partnerships, (ii) limited joint-stock partnerships, (iii) limited liability companies and (iv) joint-stock companies.
4.2 Type of activity
In principle, business activity may be conducted in any form permitted by the applicable laws. However, in some cases, legislation stipulates the use of a strictly defined form of activity, e.g. in the case of banks, insurance companies and universal pension fund companies, which may operate solely as joint-stock companies.
4.3 Scale of activity
A general rule is to select partnerships (except for limited joint-stock partnerships) for business activity on a smaller scale, and use corporations and the limited joint-stock partnership for larger-scale business ventures. The above is primarily related to the distribution of risk incurred by investors, the need for their personal involvement in running the affairs of the company and the ability to obtain equity from the market.
4.4 An investor’s liabilityfor the obligations of the entity through which it conducts business
In a general partnership, all of its partners have unlimited liability for the partnership’s obligations. In a limited partnership and limited joint-stock partnership, this rule applies in full to the general partners. The scope of liability may be optimised through appropriate design of the structure of the limited partnership or limited joint-stock partnership (corporation as a sole general partner). The limited partner in a limited partnership is liable up to the amount of the limited sum, while a shareholder in a limited joint-stock partnership is not liable for the partnership’s obligations.
On the other hand, in corporations, the shareholders are not liable for the company’s obligations. Their risk is limited to the contributions made in the event that the business fails.