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What form of business should I choose?

Limited liability company, sole proprietorship, or maybe something else? From this article you will learn what are the pros and cons of the most popular business forms and why they are the most popular.
Filip Samczuk
Author of the article
Published
September 15 2022
Reading time
7 minutes
Professional business plan Warsaw
Table of contents

It is said that only one in five Poles is satisfied with his or her salaried job. Perhaps in your case, this is also a good time to become independent and realize the dream of your own business. Do you have a great business idea and are thinking about registering your company? Instead of reading the Code of Commercial Companies and other legal acts from the board, just read my article. In it you will find, condensed in a nutshell of knowledge, basic information about the most popular forms of business in Poland. This information will help you decide how to organize your business to save yourself time, nerves and money.

From this article you will learn what they are:

  • The available forms of doing business in Poland,
  • The forms of business most often chosen and why,
  • Pros and cons of the most popular forms of business.
Graphic with the caption "Contact us for fast help in setting up your business".

Forms of economic activity in Poland

The available organizational and legal forms in which you can operate as an entrepreneur are:

  • sole proprietorship,
  • partnership,
  • general partnership,
  • partnership,
  • limited liability company,
  • limited partnership,
  • limited joint-stock partnership,
  • joint stock company,
  • SIMPLE COMPANY.

Lots of different possibilities, right? A long book could be written about what characterizes each of the above-mentioned structures (even such are being written - written by law professors). But in this article I will focus on the practical (!) aspects of choosing the optimal form of business. If you are interested in a detailed description of each of the above forms, I encourage you to read the current version of the Code of Commercial Companies or other articles.

Are you curious about the form in which your friend or contractor conducts business? The fastest way to find out is to enter his or her data in the online CEiDG or KRS registers.

What you should know from the theory is the division into sole proprietorship and civil partnership, which are regulated mainly by the Law on Entrepreneurs (also the Civil Code in the case of a civil partnership) as well as other companies (corporations and partnerships), the characteristics of which are regulated in detail in the Commercial Companies Code (general partnership, partnership, limited partnership, limited joint-stock partnership. limited liability company, joint-stock company, simple joint-stock company). You will not find a civil partnership in this list, because it is a de facto structure of independent entrepreneurs. They already run their own business, and join forces most often to implement a specific project (such as a joint investment). Civil partnerships are not a popular form of business.

Remember: a civil partnership is governed by the Civil Code, it is not a commercial company. It is established by two or more entrepreneurs, concluding a contract for this purpose. It does not have to be written in the form of a notarial deed.

Differences continue

The differences between commercial law companies: partnerships and capital companies (described in detail in the Companies Act) relate to elements such as the liability of partners for the company's obligations, the manner of conducting day-to-day operations (e.g. directly by the partners vs. by the company's bodies), the presence of share capital or the need for a second partner. Some business forms and types are better suited to the individual needs of a particular profession - for example, they are an interesting option for professionals (partnership). For other reasons, few people are in favor of a general partnership. Joint stock companies are usually established for large-scale ventures and/or when there are many shareholders (partners).

What is worth paying attention to in each case is the liability for the company's obligations, and in particular whether the partner is liable for the company's obligations with all his assets. In this case, capital companies are the most interesting option, although also in the case of partnerships (e.g. limited partnership) this potential liability can be limited in some way. Also important is what costs and activities are involved in the formation of the company itself.

The most popular choice of entrepreneurs

In Polish conditions (as of 2022 - unchanged for many years), most often companies conduct business activities in the form of sole proprietorships or limited liability companies. These are the optimal forms of doing business in Poland for start-ups or ventures that have not yet reached a huge scale. 99% businesses in Poland are run precisely as sole proprietorships or limited liability companies. Why exactly are these forms of doing business the most popular? For what reason not a general partnership, a partnership or a joint stock company? Each of these choices can be justified by the individual, specific situation of the entrepreneur. However, statistically, in 9 out of 10 cases it will not be the optimal choice.

The popularity of the sole proprietorship is influenced by the simplicity of starting it as well as its ongoing operation. It does not require advanced legal or accounting knowledge, although even here one cannot do without an accountant/bookkeeper. On the other hand, in the case of a limited liability company, the main advantage is the limitation of liability for liabilities and the possibility of avoiding certain costs. E.g., paying Social Security contributions (under certain circumstances). For higher-risk ventures, this legal form is statistically the most popular. Taking into account the advantages and disadvantages of the available options, Poles most often opt for one of the two aforementioned options. Below you will find the advantages and disadvantages of both solutions.

It is possible to convert an already operating sole proprietorship into a limited liability company, but this comes at a cost. It is advisable to choose the optimal model already at the planning stage of the company.

Advantages and disadvantages of the most popular organizational forms of doing business

J. dz. gospod. - main advantages

  • simplicity of doing business,
  • low cost,
  • easy to set up and liquidate,
  • Lack of share capital (own contribution).

Ltd. - main advantages

  • Limited liability (in the case of partners, primarily no liability for the company's obligations),
  • low share capital (contribution),
  • No need to conclude a contract in the form of a notarial deed (simplified procedure available online).

J. dz. gospod. - main disadvantages

  • only an individual is authorized to conduct it,
  • The entrepreneur is liable with all his assets for the company's obligations,
  • lower credibility/prestige compared to, for example, limited liability companies or joint stock companies.

Ltd. - main defects

  • Higher cost of doing business (full accounting, financial statements, share capital),
  • Double taxation (corporate income tax + personal income tax),
  • A complicated, time-consuming decommissioning process,
  • the need to have a second partner if you want to avoid paying mandatory Social Security contributions,
  • No protection for the assets of the company's board members (with certain reservations).
Graphic showing the differences between a limited liability company and a sole proprietorship
Comparison of the cost of establishing a jdg and a limited liability company.

Summary - what to choose?

What legal form will be best for a newly established own company? There is no definite answer to this question. As usual, it all depends on the individual case. As of today, there is no single ideal structure that would guarantee no ongoing or upfront costs, yet no liability for liabilities or simple management. When making your decision, keep in mind additional aspects. Such as, for example, taxation or the need to pay Social Security contributions - regardless of whether the company is profitable or not. In addition, the forms of business described here are not a complete catalog of available options. You can always also consider taking advantage of the offer business incubator. Another popular choice in Poland is to run a business as a foundation.

What else to keep in mind

Also important for many people is the aspect of how much it costs to register a company or how long such a process takes. It often turns out that it is more advantageous to buy an existing company from other owners than to set it up on your own. Although exactly in this case the legislator met the expectations of entrepreneurs and made it possible to register a limited liability company in a fast-track mode - via the Internet (S24). This solution saves time and costs, a physical visit to a notary is no longer necessary. The vast majority of companies in Poland operate as sole proprietorships, so it is worth thinking about this way of doing business in the first place. Remember, too, that the regulations for running a company in Poland change very often. Therefore, it is necessary to update your knowledge in this area in order not to expose yourself to negative consequences or, above all, to be able to take advantage of the optimal solutions for a given moment.

Thinking about setting up a limited liability company? Be sure to properly formulate the provisions of the partnership agreement. Only then will you minimize the risk of conflicts with other partners and safeguard your interests.

Choosing the optimal legal form is not the only formality involved in setting up a business. Perhaps your business will be subject to special legal strictures and it is necessary to obtain a permit, license or meet other formalities. And even if not, you will still need sample documents such as an employee contract, customer agreement, etc. If you are not a lawyer, it is better to entrust these tasks to a person with relevant experience and knowledge to avoid problems at the start.

Graphic with the caption "Contact us for fast help in setting up your business".

This article is just a narrow slice of knowledge about the legal forms of doing business in Poland. If you have doubts about the choice of legal form, you can contact us. We provide legal advice and business to entrepreneurs from all industries. We are also happy to talk about the development of your business and help you with all the formalities.

You may also be interested in the following articles:

About the author

Filip Samczuk
For 12 years, he has provided substantive support to entrepreneurs in realizing their dreams of starting or growing a business. He advises on obtaining financing, business development and legal issues. Privately a fanatic of sports, travel and history of the 20th century.

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