How to choose the right business structure in Poland

The business structure you choose influences everything from day-to-day operations, to taxes and how much of your personal assets are at risk. You should choose a business structure that gives you the right balance of legal protections and benefits.

Choosing the right business structure is a critical aspect of successful entrepreneurship. There is no one-size-fits-all and choosing the right business entity from a start increases your chances of success. Poland remains one of the most popular investment locations in Europe and this trend is going to continue. Your business structure will determine which set of rules and taxes will apply to your business in Poland. Broadly, there are three most common types of business structures available for foreign investors in Poland:

Sole proprietorship: A sole proprietorship (or a sole trader) means being in business on your own. It’s a relatively straightforward structure, where you are self-employed and, legally speaking, you and your business are considered as one. It’s the most common structure used by self-employed individuals and small businesses in Poland. This option is available without any restrictions to the EU citizens but it is not avaiable to non-EU nationals or non-EFTA nationals.

With a sole proprietorship, you are the sole owner of the business, which means there is no separation from the business entity and you as a person.

The distinct advantage of this structure is that you can make all of the decisions alone; it gives you maximum control over your business. Moreover, this simple business structure is fast and easy to set up and does not incur a lot of costs. To set up your sole proprietorship, you only need to register your trade name in order to secure the local registration.

The downside of being a sole trader is that you can be held liable for debts and contracts of the business.

Limited liability company (LLC): LLCs create a separate legal business entity that protects the business owner from personal liability, thus protecting your personal assets. This makes it an attractive proposition for a foreign investor looking to establish a business in Poland. Separate legal entity status enables the company to enter into contracts directly and offers you or your parent company protection from the subsidiary’s liabilities. It must be remembered that directors of the LLC are personally liable for the debts of the Polish company in the situation where the enforcement against the company turns out to be ineffective.

Establishing a LLC in Poland is a straightforward process which can usually be completed within two days (in the case of online registration) or within 2 weeks (in the case of traditional route and signing the deed in front of the notary public).

Joint stock company: A joint stock company has a personality that is separate from its shareholders and directors (exactly as in the case of a limited liability company). Separate legal entity status enables the company to enter into contracts directly and offers the parent company protection from the subsidiary’s liabilities. A joint stock company is intended for large businesses. It should be remembered that the joint stock company requires also substantial paperwork and administrative work therefore it is intended usually for large well-established businesses that need substantial liability protection.

Establishing a joint stock company can usually be completed within 2 weeks.

When you are evaluating which structure to choose, it is important to think through these three factors:
 

Entity	Description	Summary legal features	Summary tax features
Sole proprietorship or the so called "economic activity" (does not apply in the case of non-EU or non-EFTA nationals)	This is the most basic form of business. In essence you and the business are the same in everything but name.	The main legal concern is around liability. Running your business as "economic activity" means you personally are liable for any claims against your business. This means that a creditor could call upon your own personal assets in the event of a claim.	You are taxed on business profits according to the personal income tax but in many cases you can apply 19% tax rate which makes this option very advantagous. In addition you have to pay national insurance.
Limited liability company	A company has a personality that is separate from the individual who owns the company.The company is the entity that is a party to contracts and the one that makes profits.   Extracting money from the company is possible through the payment of dividends.	The individual owners of the company are liable up to their capital contribution to the company (i.e. the money which they paid in). They are not liable for the company’s debts. However, there are rules in place that directors are liable for the company’s debts in case the company does not pay.   From the admin point of view, accounts and annual returns need to be filed with the commercial register on an annual basis. The financial information in the accounts is also publicly accessible.	The company is subject to tax on its profits, it files a corporation tax return and pays corporate tax (19%).   Upon payment of dividends, there is additional layer of tax. The amount of tax depends on the double taxation treaty.
Joint stock company	A company has a personality that is separate from the individual who owns the company. The company is the entity that is a party to contracts and the one that makes profits.   A joint stock company is intended for large businesses.	The individual owners of the company are liable up to their capital contribution to the company (i.e. the money which they paid in). They are not liable for the company’s debts.	The company is subject to tax on its profits, it files a corporation tax return and pays corporate tax (19%).   Upon payment of dividends, there is additional layer of tax. The amount of tax depends on the double taxation treaty.