Spółka z.o.o. metodą na Polski Ład? – English

As we mentioned in previous articles, the changes introduced under the Polish Deal, coming into effect from 1 January 2022, will significantly impact the profitability of sole proprietorships (hereinafter: SP). In light of the possibility of some board members avoiding the health insurance contribution, and the lack of social security contributions (ZUS), one of the most advantageous alternatives is to establish a limited liability company (Ltd). Sole proprietors may consider several options to achieve this: dissolve their business and set up a Ltd “from scratch”, transform the business in accordance with the provisions of the Commercial Companies Code, or contribute the enterprise as a non-cash contribution (apport) to a new or existing company. To help with the choice, we briefly outline the recommended methods of transformation and their key aspects.

Transformation of the business under the Commercial Companies Code (CCC)

The Commercial Companies Code contains regulations regarding the transformation of a sole proprietorship into a Ltd. This process primarily requires:

• Preparing a transformation plan for the sole proprietorship along with attachments and an auditor’s opinion;
• Submitting a declaration of transformation by the entrepreneur;
• Appointing the members of the transformed company’s governing bodies;
• Concluding the company agreement or signing the articles of association of the transformed company;
• Registering the transformed company and deregistering the transforming entrepreneur from the Central Register and Information on Economic Activity (CEIDG).

All of the above actions require appropriate legal and tax knowledge, and their correct implementation may involve additional procedures and fees. For example, preparing the transformation plan generally requires establishing the book value of the sole proprietorship’s assets (which may require paying an auditor). The cost of the valuation may be around PLN 1,000, but the final amount depends on the size and nature of the assets. Additionally, drafting the transformation plan requires a notarial deed (incurring notarial fees) and review by an auditor (which also involves remuneration).
In practice, entrepreneurs opting for this process most often engage professional legal assistance.

Contribution of the enterprise as a non-cash contribution (apport)

An alternative to the above method is to contribute the sole proprietorship (enterprise) to a new Ltd as a non-cash contribution (apport). In return for the non-monetary contribution, the entrepreneur operating the sole proprietorship will receive shares in the newly formed company. The apport of the enterprise is very popular due to its tax neutrality (it is exempt from personal income tax (PIT) on the entrepreneur’s side, corporate income tax (CIT) on the company’s side, and VAT). Furthermore, it allows avoidance of the costs associated with hiring an auditor and preparing opinions and transformation plans. However, there remains the separate issue of transferring any licences, contracts with clients, and other rights and obligations of the sole proprietorship to the Ltd.

The use of this method depends on the existence of the Ltd, which means that if the entrepreneur running the sole proprietorship is not a shareholder in the company to which they intend to contribute the enterprise, they will have to establish a new company, which involves carrying out another procedure.

Dissolution of the sole proprietorship and establishment of a new company

The last possible option is to establish a Ltd as an entirely separate entity from the existing sole proprietorship and dissolve the sole proprietorship. In this case, the entrepreneur should prepare for the sequential necessity of dissolving the sole proprietorship, setting up a new company, and transferring individual assets from the sole proprietorship to the company. Each of these actions has tax consequences.

Which method to choose?

When choosing the form of transformation, one should familiarise themselves with the amount of administrative fees, the taxation methods applicable to particular legal actions (e.g., apport), and the degree of formalisation of the various procedures.

Beyond the above remarks, there are numerous other aspects that the entrepreneur should consider during the transformation process. To conduct a proper analysis, it is recommended to seek professional assistance, who can also supervise the entire procedure. Especially in view of the forthcoming amendment to the Polish Deal, expert support will help avoid mistakes. Should you wish to obtain legal assistance, we encourage you to contact the experts at ATL LAW Legal Counsel Anna Błaszak’s Office, who have many years of experience in servicing sole proprietorships and companies. We will help choose the most advantageous transformation method, provide support in both legal and tax aspects of the selected procedure, and minimise the risk of costly errors.