The assets of a limited liability company (sp. z o.o.) are legally separate from the assets of its shareholders. Funds cannot simply be withdrawn from the company’s account at any time or in any amount. The law does, however, provide several legal routes for transferring money to a shareholder — and the right method depends on whether it concerns regular remuneration or a one-off distribution of profit.
What is a dividend and when can it be paid?
A dividend is the primary way of distributing profit among shareholders. Paying a dividend requires a resolution of the shareholders’ meeting on the distribution of profit, preceded by the approval of the annual financial statements. The amount available for distribution is determined on the basis of the profit for the last financial year (increased by undistributed profits from previous years and by reserve capital created from profit that may be used for this purpose).
The resolution also sets the so-called dividend record date — the date on which the group of eligible shareholders is determined — as well as the payment date. Unless the articles of association provide otherwise, the dividend is paid in proportion to the number of shares held.
As the above shows, a dividend is paid once a year, which may limit its usefulness for meeting a shareholder’s ongoing financing needs.
Can an advance dividend payment be made during the financial year?
Under certain conditions, a company may pay a shareholder an advance on the anticipated dividend — even before the financial year closes. For this to be possible, three conditions must be met:
There is, however, a limit on the amount of such an advance. It may not exceed half of the profit earned since the end of the previous financial year (increased by reserve capital created from profit that the management board may use for the purpose of paying advances), less any uncovered losses and treasury shares. In addition, the advance is provisional in nature — if it turns out at year-end that the company did not achieve a profit justifying its payment, the shareholder may be required to return it.
Regular payments from a limited liability company despite the absence of profit — Article 176 of the Polish Commercial Companies Code (KSH)
The Polish Commercial Companies Code allows for a shareholder to be paid on a regular basis where the articles of association oblige them to provide recurring non-monetary benefits, specifying the type and scope of those benefits (Article 176 KSH). This might involve, for example, supplying the company with a particular good, or making machinery or premises available to it. Importantly, the benefits should be periodic in nature, rather than continuous or repetitive.
In the situation covered by Article 176 KSH, whether the company makes a profit is irrelevant. Moreover, the shareholder’s claim to payment for this benefit is entirely independent of the shareholder’s right to a share in the company’s profit.
Regular payments from a limited liability company despite the absence of profit — civil-law contract
A shareholder may also be paid by the company on “conventional” terms. For instance, a shareholder may provide services to the company under a contract of mandate, a contract for specific work, or a business cooperation agreement carried out through a sole proprietorship. The specific form of cooperation chosen should reflect the actual nature of the work performed.
Each of the routes described above has its own formal requirements, and failure to comply with them (for example, paying an advance without an appropriate provision in the articles of association) may result in an obligation to return the funds paid out. Before deciding how to obtain financing in this way, it is worth checking whether the articles of association actually provide for the chosen mechanism — and, if necessary, considering an amendment to them.
The Polish Limited Liability Company (in Polish: spółka z ograniczoną odpowiedzialnością; sp. z o.o.) is the most common form of establishing a company in Poland. The LLC is frequently chosen by small entrepreneurs as well as by large international groups, both Polish and foreigners.
Polish business entities are differentiated between those that base on non-material assets such as personal involvement (partnerships) and those in which capital plays a greater role (companies).
Member of the Management Board can provide his management services for the company free of charge. However, he also might receive remuneration. There are many ways of remunerating the members, but every each of them is connected with different responsibilities.
