Legal Differences Between Shareholders and the Management Board in a Limited Liability Company (Sp. z o.o.) in Poland
(Author: Kacper Warzecha, Legal Counsel. Edited by CT)
A limited liability company (spółka z ograniczoną odpowiedzialnością, sp. z o.o.) is one of the most popular forms of conducting business activity in Poland. Polish Commercial Companies Code precisely defines the roles and responsibilities of two key groups within such a company: shareholders, who are its owners, and the management board, which is responsible for representing the company and managing its affairs. In this article, we outline the main legal differences between shareholders and the management board in a limited liability company, including their competencies, liability, and decision-making powers.
Who Are the Shareholders of a LLC?
1. Legal Status of Shareholders
Shareholders are the owners of the company, holding shares in its share capital. Their rights and obligations are defined both by the company’s articles of association and by the provisions of the Polish Commercial Companies Code. Key characteristics of shareholders:
- Ownership: Shareholders are the owners of the company, possessing shares that reflect their participation in the company’s share capital (Article 151 of the Polish Commercial Companies Code).
- No Direct Representation Rights: Shareholders do not have the right to directly represent the company in external dealings (Article 201 of the Polish Commercial Companies Code).
2. Competencies of Shareholders
Shareholders exercise their rights through participation in the general meeting of shareholders (Article 228 of the Polish Commercial Companies Code). Their competencies include:
- Passing resolutions on strategic matters such as:
- Amendments to the articles of association,
- Increasing or reducing share capital,
- Assigning tasks to the management board.
- Deciding on the distribution of profits or covering losses (Article 231 of the Polish Commercial Companies Code).
- Granting consent for management board actions that exceed ordinary business operations (e.g., the sale of real estate).
3. Liability of Shareholders
Shareholders are liable for the company’s obligations only to the extent of their contributions to the share capital. Their personal assets are generally shielded from the company’s creditors (Article 151 §4 of the Polish Commercial Companies Code).
Who Constitutes the Management Board of a LLC?
1. Legal Status of the Management Board
The management board is an executive body within a limited liability company that acts on its behalf and handles its day-to-day affairs. Members of the management board can be appointed from among the shareholders or external individuals unrelated to the company. Key characteristics of the management board:
- Representation of the Company: The management board represents the company in external relations, such as signing contracts or initiating legal proceedings (Article 201 §1 of the Polish Commercial Companies Code).
- Operational Decision-Making: They are responsible for managing the company’s day-to-day operations and implementing its business objectives.
2. Competencies of the Management Board
The management board’s responsibilities include:
- Handling the company’s affairs (e.g., managing projects, hiring staff).
- Signing contracts and making decisions within ordinary business operations.
- Representing the company in external dealings.
- Preparing financial statements and reports for the general meeting of shareholders.
3. Liability of the Management Board
Management board members face broader liability compared to shareholders. Their liability includes:
- Civil Liability: Subsidiary liability for the company’s obligations if enforcement against the company’s assets proves ineffective (Article 299 of the Polish Commercial Companies Code).
- Criminal Liability: For actions or omissions related to running the company, such as falsification of documents or failure to file for bankruptcy.
- Fiscal Liability: For failing to pay taxes or contributions to social insurance (Article 116 of the Polish Tax Ordinance).
Key Differences – Shareholders vs Management Board in a Limited Liability Company
1. Role in Company Structure
- Shareholders: Owners of shares who make strategic decisions during general meetings.
- Management Board: Executive body responsible for the day-to-day management and external representation of the company.
2. Representation of the Company
- Shareholders: Do not have the right to represent the company.
- Management Board: Exclusively authorized to represent the company in external dealings unless a shareholder is granted power of attorney.
3. Operational Decisions
- Shareholders: Make strategic decisions through resolutions at general meetings (e.g., approving the sale of real estate).
- Management Board: Handles day-to-day matters (e.g., signing contracts with suppliers).
4. Liability
- Shareholders: Liable only up to the amount of their contribution to the company’s share capital.
- Management Board: Liable with their personal assets in the event of subsidiary liability and may be subject to criminal or fiscal penalties.
Conclusion
Shareholders of a limited liability company act as owners with limited liability, focusing on strategic decisions at general meetings. The management board, in contrast, is the executive body that handles the company’s day-to-day affairs and represents it externally. These key distinctions – in terms of representation, decision-making, and legal liability – create a clear separation of powers and responsibilities within a limited liability company. Understanding these differences enables better governance and mitigates potential legal risks.
Sources:
- Polish Commercial Companies Code (Kodeks Spółek Handlowych):
- Full text: Polish Commercial Companies Code – isap.sejm.gov.pl
- Article 151: Shareholders’ status.
- Article 201: Management board competencies.
- Article 228: Shareholders’ general meeting competencies.
- Article 299: Subsidiary liability of the management board.
- Polish Tax Ordinance (Ordynacja Podatkowa):
- Full text: Tax Ordinance – isap.sejm.gov.pl
- Article 116: Liability of management board members for tax obligations.
- Expert Commentary and Literature:
- K. Osajda, “Commentary on the Polish Commercial Companies Code”
- A. Kidyba, “Commercial Law”
- Practical Legal Guidance:
- Overview of shareholders in a limited liability company:
