A limited liability company is a capital company whose governing body is the management board. In accordance with the Code of Commercial Partnerships and Companies, the Management Board conducts company affairs and represents the company. The management board consists of one or more members. Persons may be appointed to the management board from among the shareholders or from outside. A member of the management board is appointed and dismissed by way of a resolution of the shareholders (unless the articles of association provide for a different procedure for appointing and dismissing members of the management board). The consequence of appointing a given person as a member of the management board is the establishment of a corporate relationship between that person and the company. One can either stop at the appointment itself or enter into an agreement with a member of the management board which will regulate the rights and obligations of the parties. So what form of employment is possible?
If a member of the management board is appointed by force of a resolution of the shareholders’ meeting, or the articles of association, and no agreement is made, the appointment will constitute the basis for the member’s actions.
In case of such a form of employment, it is worthwhile to specify in the resolution (or the articles of association) all important issues concerning the work of a member of the management board (amount of remuneration, method and date of its payment, scope of duties). It is important to remember that the appointment of a member of the management board by virtue of a shareholders’ resolution does not constitute an appointment within the meaning of the Labour Code; therefore, no automatic employment relationship within the meaning of Article 68 § 1 of the Labour Code is established between the company and the member of the management board (Supreme Court judgement of 13 March 2009, III PK 59/08). The employment of a board member on the basis of the appointment is characterised by the lack of obligation to pay contributions to ZUS. Only income tax is paid on the remuneration paid to the appointed member of the management board. A member of the Management Board may be dismissed from this function at any time.
This form of employment is good if the company is looking for a solution that generates the lowest costs. Additionally, this solution is also good when the shareholders are also members of the management board and do not perform other services for the company than its management.
Civil law contract
This form of employment is commonly referred to as a “management contract” and is in fact one of the civil law contracts – a contract for the provision of services or a management contract (which is a type of innominate contract). The management contract may specify in detail the conditions of employment of a member of the management board in the company, i.e. remuneration, liability for results, scope of duties performed for the company or contractual penalties. Management contract is an agreement that is subject to paying contributions ZUS; it requires the payment of both contributions and income tax.
This solution is recommended when the management board consists of persons from outside the company. The agreement will be able to regulate in detail all relevant cooperation issues.
In case of employing a board member on the basis of an employment contract, the provisions of the Labour Code governing the employer-employee relationship shall apply. The employment contract also obliges to pay social security contributions and income tax.
This solution is recommended when the shareholders want to influence the company’s decisions.
The agreements referred to, in parallel to the corporate relationship, are civil law sources of the relationship between the company and the member of the management board. In order to determine which form of employment of a board member in a limited liability company is optimal, it is necessary to decide whether the costs of employment are to be as low as possible; whether the management board consists of people from the company or from the outside; whether there is a need to regulate certain detailed issues with the board member in the contract and what the degree of independence of the board member in the management of the company is; and, at the same time, the influence of the shareholders on the decisions of the company.
Marta Strzecha-Bociąga, attorney-at-law