When Does a Management Board Member's Term of Office End in a Limited Liability Company?

The management board is the company's executive body. Its tasks include managing the company's internal affairs, performing all acts and representing the company externally. The management board is entitled and obliged to keep the accounts, prepare financial statements, file applications with the National Court Register (KRS), grant powers of attorney to represent the company, and conclude contracts on behalf of the company with counterparties, employees and associates. The articles of association may specify the powers of individual members of this body as regards representing the company. The Commercial Companies Code (CCC) introduces the principle of a presumption of the management board's competence, where statutory provisions or the articles of association do not assign a given matter to another body. An experienced attorney-at-law (radca prawny) can, among other things, carry out an appropriate analysis of the articles of association (in Polish).

In this article we discuss the following issues:

1. Appointment of the management board and rules of representation in a limited liability company (sp. z o.o.).
2. Rules of representation of the company.
3. Term of office and mandate.
4. Length of the term of office of a management board member of a limited liability company.
5. Extending the term of office of a management board member.

Appointment of the Management Board and Rules of Representation in a Limited Liability Company

As a rule, unless the articles of association or statute provide otherwise, a management board member of a limited liability company is appointed and dismissed by a resolution of the shareholders. The members of the first management board are appointed when the articles of association are concluded (most often the first composition of this body is stated in the articles of association themselves). The persons appointed to the management board must, of course, consent to holding the office.

Statutory provisions impose no restrictions on shareholders of the company holding the office of management board member. The two functions may therefore be held at the same time.

The management board may consist of one or more members (the articles of association may specify the number of members of this body). Shareholders usually set a flexible range for the number of management board members in the articles of association, to avoid a situation where gaps in the composition of the management board produce what is known as a rump body, unable to represent the company. For example, the articles of association may provide that the management board has from 1 to 5 members.

See also: Court Mediation

The articles of association also lay down the rules of representation, that is, the management board's authority to represent the company in a specified manner or through a specified number of management board members. Where the management board has a sole member, the company is always represented by that member, whatever the articles of association provide. To avoid doubts on the part of counterparties, however, it is worth including the following provisions in the articles of association:

• "where the management board has one member, the management board member is authorised to represent the company independently";
• "where the management board has more than one member, statements on behalf of the company require the cooperation of two management board members or of one management board member together with a commercial proxy (prokurent)" or "where the management board has more than one member, each management board member acting independently is authorised to make statements on behalf of the company" or "where the management board has more than one member, the president of the management board acting independently or two management board members acting jointly or one management board member acting jointly with a commercial proxy are authorised to make statements on behalf of the company".

Statutory provisions or the articles of association may also impose restrictions on the representation of the company. Certain acts may require a resolution of the shareholders' meeting or the management board, or the cooperation of a larger number of management board members. Representation of a limited liability company is also described at length in a separate article.

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Term of Office and Mandate

Although the mandate and the term of office of management board members most often coincide, the concept of a mandate must be distinguished from that of a term of office. A mandate is a management board member's authority to hold office, whereas a term of office is the predetermined period for which the mandate is valid. This period may be specified in the articles of association or, where there are no such provisions, may follow from statute. When the term of office ends, the mandate expires, and with it the authority to continue holding the office.

Length of the Term of Office of a Management Board Member of a Limited Liability Company

In a limited liability company, Article 202 § 1 CCC introduces a presumption that the term of office of a management board member lasts 1 year, unless the articles of association provide otherwise. A management board member of a limited liability company may therefore be appointed:

1. for a fixed period: if the articles of association contain no special provisions, the period of holding office is 1 year; if the articles of association specify the period for which management board members hold office, a member may be appointed for a different period, for example 3 years or 5 years;
2. for an indefinite period: the articles of association may also provide that management board members hold office for an indefinite period.

Under Article 202 CCC, where the term of office of a management board member lasts 1 year, the member's mandate expires on the date of the shareholders' meeting approving the financial statements for the first full financial year in which the member held office. If the articles of association of a limited liability company provide for a term of office of management board members other than one year, the mandate of a management board member expires on the date of the shareholders' meeting approving the financial statements for the last full financial year in which the member held office.

See also: Business Law (in Polish)

Regardless of the above, in all cases the mandate of a management board member expires on death, resignation or dismissal from the management board. Dismissal from the management board, however the length of its members' term of office is set, may therefore take place at any time on the basis of a resolution of the shareholders' meeting.

Bear in mind that including a provision in the articles of association under which management board members are appointed for an indefinite period excludes the application of Article 202 § 1 and 2 CCC, and the mandate of a management board member appointed for an indefinite period will expire only on death, resignation or dismissal from the management board.

Example:

The articles of association of a limited liability company state that the term of office of a management board member lasts 3 years. Jan Nowak was appointed as a management board member by a resolution of the shareholders' meeting for the period from 15 March 2021, so his term of office lasts until 15 March 2024. However, the shareholders did not hold the general meeting approving the financial statements and the activities of the management board until 30 June 2024. What happens in this situation?

The term of office, that is, the period for which the mandate is valid, lasts 3 years, and therefore until 15 March 2024. Jan Kowalski's mandate will not, however, expire on 16 March 2024. He will hold office as a management board member until the date of approval of the financial statements for the previous year, that is, until 30 June 2024. Under Article 202 § 2 CCC, the mandate of a management board member expires on the date of the shareholders' meeting approving the financial statements for the last full financial year in which the member held office, that is, for 2023. The year 2023 is the last full year in which Jan Kowalski held office as a management board member of the company, and the financial statements for 2023 will be approved on 30 June 2024. Jan Kowalski's mandate will therefore expire on 30 June 2024.

The rule is that a mandate lasts as long as the office is held. A term of office should be understood as a technical legal term that indicates the period for which a management board member has been appointed to hold that office. A mandate, by contrast, is the authority to perform the duties and exercise the rights of a management board member. In this context, the start of the term of office coincides with obtaining the mandate. The end of holding office, on the other hand, is inextricably linked to the moment the mandate is lost. In other words, a management board member who holds a mandate is entitled to exercise all the powers of a management board member, despite the expiry of the term of office for which that member was appointed. It follows that the period of actually holding office (the validity of the mandate) is significantly longer than the one-year term of office. Judgment of the Supreme Court of 20 October 2022, II USKP 192/21, LEX no. 3514267.

Despite the expiry of the term of office on 16 March 2024, the management board member therefore holds office until 30 June 2024 (the mandate expires on that date).

Extending the Term of Office of a Management Board Member

In a limited liability company, a management board member is appointed and dismissed by a resolution of the shareholders, as mentioned earlier in this article. After the term of office ends and the mandate expires, a management board member may be reappointed to the office. The Commercial Companies Code imposes no restrictions in this respect.

At the annual General Meeting, management board members present the report on the management board's activities for a vote by the shareholders, in a sense submitting their activities to the shareholders' assessment. In this report, the management board gives material information on the company's assets and financial position, including an assessment of the results achieved and an indication of risk factors and a description of threats. Once the mandates of the management board members have expired, the shareholders may appoint the same or other persons to the body by a resolution, based on their assessment of the actions of the outgoing management board. Bear in mind that the shareholders may at any time adopt a resolution dismissing a given management board member and appoint another person to the management board in that member's place (or appoint another person in addition).

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