A limited partnership is often chosen by investors conducting business in Poland. There must be at least one partner who is liable for the partnership’s obligations with their assets (the so-called general partner) and one partner who is liable for the obligations only up to the amount of the so-called limited liability amount specified in the articles of association and is not held liable with regard to the contribution made (the so-called limited partner).
What makes it so appealing?
First of all, flexibility
As in the case of a limited liability company, a limited partnership also requires executing articles of association in the form of a notarial deed and making an entry in the register of entrepreneurs. It is only then that the partnership can operate as an entity with rights and obligations. Provisions of the Polish Code of Commercial Companies and Partnerships provide for significantly more freedom in creating an agreement between the partners of a limited partnership. There is no minimum amount of capital to be contributed by the partners. This is always subject to agreement at the discretion of the partners with no specific restrictions. Moreover, the type of contribution made can also be determined quite freely by the partners. It can be cash, machinery, real estate or work of a particular partner subject to appropriate valuation.
In the standard model distribution of profit earned depends on the contribution made beforehand. In the case of a limited partnership, this does not have to be the case. This means that if, for example, a partner contributes only 20% of the total capital, they may receive e.g. 50% of the profit in a given year under the relevant provisions of the articles of association. The above mechanism is applied first of all when the investor, when opening a business in Poland, does not want to contribute their assets to a new business and only wants to derive profits. This is possible because the contribution enabling to start a business in Poland may be made by other partners.
Under currently applicable legislation, a limited partnership is a good solution for those who want to disburse profits. Limited partnerships are not subject to tax on distributed profit. This means that the amounts paid to the partners by way of profit earned are taxed once only, i.e. the partners pay tax directly on the income they earned.
Undoubtedly, shareholder safety in terms of liability for company obligations is one of the greatest advantages of a limited liability company. It should be emphasized again that the shareholders of a limited liability company are not liable for the company’s obligations. Such responsibility is borne by the management board only if and when the company’s assets are insufficient to repay the liabilities incurred by the company.
So is it possible to apply the above mechanism in a limited partnership?
An appropriate construction of a limited partnership can ensure safety similar to that of a limited liability company. The partner who bears full responsibility for the contracted obligations (the so-called general partner) may be a limited liability company. Therefore, the other partners risk only with their own contribution.
Contact us for more information about limited partnerships in Poland, the rules of investing in Poland through such partnership or opening a business in Poland.