Simplified joint-stock company or limited liability company?

Starting from March 1st, 2021, entrepreneurs will have to choose whether to set up a simplified joint-stock company P.S.A (hereinafter referred to as the “P.S.A.” [Pol. prosta spółka akcyjna.]) or limited limited liability company. In the following text we would like to indicate some pros and cons of both solutions to help the reader make a decision.

Lower capital stock for the P.S.A start and no initial share capital.

One of the main arguments of the P.S.A supporters is the low amount of required capital stock for start-up in the amount of PLN 1. Capital stock can also be more freely disposed than initial share capital.

In our opinion, these are not any special advantages, because who would like to cooperate with an entrepreneur who has only assets of PLN 1. To establish a limited liability company, PLN 5,000 is required, which is also not high enough to constitute a real barrier to starting a business.

The argument of free disposal of share capital is also eliminated. In the case of a limited liability company, shareholders may set the company's initial share capital at the lowest amount, and recapitalize the company through partner's loans that are not taxed on TCLT. Such loans can be freely granted and returned by the company, and they do not require an entry in the register, as opposed to an increase or decrease in the capital stock.

The use of electronic communication in adopting resolutions, deformalization.

Another advantage of the P.S.A is the wide application of electronic communication, including for conducting shareholders' meetings and therefore limiting formalities. This argument is also not convincing, because the limited liability company founded by s24 (electronic registration system) is also quite well formalized, and its partners closely related to each other often work together and do not prevent them from adopting a resolution in writing or granting a power of attorney. Most resolutions in small limited liability companies are adopted unanimously, because of the relationships between partners, which also affect the way they behave in a rather loose manner.

As in the case of the P.S.A, in a limited company, which was founded by S24, it is possible to sell the shares without involving a notary. In the case of such a limited liability company, this can be done via the Internet using the S24 system.

Contributions in the form of work and services.

Unlike in a limited liability company in the case of the P.S.A, a partner's contribution may be to provide work or services. Although the catalog of contributions in this case is indeed wider, the partner who makes such a contribution will be required to pay contributions to Social Security, and the money received for such activities will be double taxed (due to CIT and dividend). A limited partner in a limited partnership would already be in a better position because they would pay tax only once. In addition, the contribution in the form of work or services will not increase the capital stock.

Formalities when registering the company.

Both companies can be founded via the Internet (S24 system), as well as with the participation of a notary public in a traditional form. In the case of the P.S.A, contributions must be made within 3 years of its registration, unlike in a limited liability company. However, this is not an obstacle either, as partners can establish a limited liability company with minimal share capital, and then flexibly finance it with a loan.

The cost of maintaining the share register.

In the case of the P.S.A, the company will be required to sign a contract for keeping a register of shares, it will certainly not be for free. There is no such cost in the case of a limited liability company.

Additional burden on the partner in the P.S.A.

The provisions concerning the P.S.A stipulate that a shareholder may be required to pay, even if they have made full contributions. Namely, in the event of a court decision on the resignation of a shareholder from the company, the company and the other shareholders are jointly and severally liable for payment of a fair price for its shares. There is no similar regulation in a limited liability company so in this respect it is safer for the partner.

A simpler P.S.A solution.

In the case of the P.S.A, it will be possible to terminate its operations without liquidation by joining the shareholder in the company's rights and obligations. This seems tempting, but the shareholder will be responsible for the company's debts, even if they did not know about them. Therefore, maybe it would be better to carry out the liquidation and live peacefully.

In addition, such an easy liquidation method may raise contractors' concerns as to the credibility of this legal form, as to the fact that the P.S.A will suddenly disappear with their debts, because at the time of conducting the simplified procedure of termination of its operations, the registration court does not necessarily have to have information about all its obligations.

Prices for accounting and legal services.

The regulations regarding the P.S.A are a novelty, so they will require training and knowledge acquisition, which is associated with costs and the fact that fewer entities provide services to such companies. This will probably involve a higher cost of legal and probably accounting services.

Conclusion.

If entrepreneurs are wondering whether to choose a limited liability company or the P.S.A in the vast majority of cases a limited liability company will be the better choice. However, if the partners think about a joint- stock company in the future, a public issue of shares, simplified joint-stock company may be a better choice to start instead of S.A (limited liability company), which is much more expensive and formalized.