Legal Support for a Polish Subsidiary of a Foreign Company

For a foreign entrepreneur, entering the Polish market is a strategic decision whose legal, tax and organisational consequences reach well beyond the choice of legal form. Polish law provides for several forms in which a foreign entrepreneur may commence business activity in the Republic of Poland. In practice, two structures are considered most often: (1) a branch of a foreign entrepreneur or (2) a Polish subsidiary, usually a limited liability company (sp. z o.o.) in which the foreign company is the sole or majority shareholder. Each form is governed by different rules on liability, operational scope and regulatory requirements, and the choice between them should follow a careful analysis of the client's business circumstances. This article focuses on the second form: the Polish subsidiary of a foreign investor.

Based on the facts of a matter handled by our Law Firm, we discuss the following issues:

1. Incorporating a Polish limited liability company as the subsidiary of a foreign investor,
2. Practical legal pitfalls in running a subsidiary linked to a foreign entrepreneur through capital and personnel,
3. The scope of ongoing corporate support provided to the subsidiary by the Law Firm in English,
4. Working with bilingual corporate documentation and supporting foreign members of the company's governing bodies.

The owners of a foreign company operating on the European market decided to start doing business in Poland. After analysing the available forms of doing business in Poland, the client chose to set up a limited liability company as a subsidiary, with the foreign company as its sole shareholder. The management board of the Polish company was composed of persons who are also management board members or shareholders of the foreign company.

The Law Firm provides ongoing corporate support to the Polish company in English and prepares all corporate documents in bilingual (Polish-English) form. The support covers corporate advice for the foreign entrepreneurs involved in the company, the drafting and review of agreements with Polish counterparties, and assistance with reporting obligations.

A Subsidiary as a Vehicle for Foreign Investment in Poland

A Polish limited liability company operating as the subsidiary of a foreign entrepreneur is a separate legal person with its own share capital, its own governing bodies and full capacity to perform legal acts in its own name. The most significant advantage of this form over a branch is that the shareholder (the foreign company) is not liable for the obligations of the Polish subsidiary (Article 151 § 4 of the Commercial Companies Code, the "CCC"), and that there are no restrictions on the scope of business activity the subsidiary may conduct.

As a separate legal person, the subsidiary may conclude contracts, incur obligations, employ staff and pursue its own commercial policy. A branch, by contrast, always acts in the name and on behalf of the foreign entrepreneur. The subsidiary form is also available to investors from any country, whereas companies from outside the European Union, the EEA and Switzerland may establish a branch only on a reciprocal basis, as required by the Act on the Rules for the Participation of Foreign Entrepreneurs and Other Foreign Persons in Economic Life in the Republic of Poland. These considerations led the client to choose this form of doing business in Poland.

Legal Pitfalls of a Subsidiary Linked to a Foreign Investor through Capital and Personnel

Running a Polish subsidiary whose sole shareholder is a foreign company, and whose governing bodies are made up of members of the parent company's management board or its shareholders, requires particular attention in several regulatory areas:

1. Formal requirements (Article 173 CCC). A declaration of intent made by the sole shareholder to the company must be made in writing, otherwise it is null and void, and, where the law so provides, in writing with a notarially certified signature.
2. Special representation in contracts with management board members (Article 210 CCC). In a contract between the company and a member of its management board, the company is represented by a proxy appointed by a resolution of the shareholders' meeting. In subsidiaries whose management board members also sit on the parent company's management board or are its shareholders, this requirement applies to every intra-group agreement involving them (service agreements, licence agreements, loans). We discuss this in more detail in our article Loan from a shareholder who is a management board member to a limited liability company: legal and tax requirements.
3. Transfer pricing. Transactions between the subsidiary and its parent company are related-party transactions. They therefore require arm's length terms, transfer pricing documentation and the filing of a transfer pricing information return (TPR).
4. CRBR (Central Register of Beneficial Owners). The Polish subsidiary must report to the CRBR the natural persons behind the parent company as its beneficial owners. This requires an analysis of the group's ownership structure on each occasion.

Scope of Ongoing Corporate Support in English

As part of its full legal support for the Polish subsidiary, the Law Firm provides a wide range of services adapted to the communication needs of the foreign entrepreneurs and the company's governing bodies:

1. Bilingual corporate documentation: minutes of Ordinary and Extraordinary Shareholders' Meetings, shareholder resolutions, management board resolutions, and documents relating to changes in the business activity codes (PKD), address, registered office and composition of the management board;
2. Support with reporting obligations: advice and corporate support for the annual approval of the financial statements and the management board's report on the company's activities, and for filing the relevant documents with the National Court Register (KRS);
3. Review and drafting of agreements with Polish counterparties: both agreements for ongoing services and one-off commercial contracts. All agreements are prepared in bilingual Polish-English form;
4. Corporate advice for foreign entrepreneurs: advice for the management board members and shareholders of the parent company on day-to-day matters concerning the Polish company, with particular regard to the differences between Polish law and the law of the country where the parent company has its registered office;
5. Representation of the company before the KRS, the courts and administrative authorities. All communication with the client and the members of the company's governing bodies is conducted in English, and all corporate documents are drawn up in bilingual (Polish-English) form. This allows the foreign members of the company's governing bodies to take decisions efficiently without external translations and reduces the risk of misunderstandings over the meaning of individual provisions of corporate and contractual documents.

Summary

Foreign entrepreneurs setting up a company in Poland need legal support suited to their situation, combining ongoing corporate work with communication in English and bilingual documentation. KHM's English-speaking lawyers in Poland provide this support from Kraków and remotely throughout the country.

Legal support for the subsidiary of a foreign entrepreneur requires several regulatory areas to be addressed at the same time: company law (the requirements for single-shareholder companies and the special representation rule in Article 210 CCC), the Accounting Act and the anti-money laundering legislation. Failure to meet obligations in any of these areas may give rise to liability on the part of the company's governing bodies.