Do the restrictions on establishing a single-member limited liability company apply to foreign companies?

Source of the problem and position of case law

The question of whether the prohibition under Article 151 § 2 of the Commercial Companies Code also applies to foreign companies arose under the previously applicable provisions of the Commercial Code. At that time, the subject of the dispute was Article 158 § 3 of the Commercial Code, which prohibited a single-member limited liability company from being the sole shareholder of another limited liability company. The issue was whether this restriction applied only to Polish companies or also to single-member foreign companies with a similar legal structure.

In its decision of April 28, 1997 (II CKN 133/97), the Supreme Court ruled that a single-member foreign company with characteristics similar to those of a Polish limited liability company is subject to this prohibition. This position was met with both approval and criticism in legal doctrine. Some authors argued that such a prohibition essentially constitutes a restriction on the legal capacity of the company, and since the personal statute of the company is subject to the law of its country of residence, the Polish legislator should not interfere with the scope of this capacity in relation to foreign entities.

This dispute has not lost its relevance after the entry into force of the Commercial Companies Code and the current Article 151 § 2. The difference, however, is that the current regulation does not concern “being a partner,” but the very admissibility of a specific configuration of the process of establishing a limited liability company. This shift in emphasis is important for assessing whether the prohibition can also apply to foreign entities.

The nature of the prohibition and the applicable law

The legal classification of the prohibition under Article 151 § 2 is of key importance. If it is considered a restriction on the legal capacity of a company, then reference should be made to its personal statute, i.e., the law of the country of its registered office. From this perspective, it could be argued that the Polish prohibition should not apply to foreign companies.

However, it is increasingly accepted that this provision does not introduce a restriction on legal capacity, but regulates the admissibility of a specific corporate structure under Polish company law. What we are dealing with here is a specific capacity to participate in a specific legal relationship, namely the process of establishing a Polish limited liability company. In private international law, it is accepted that such specific restrictions are subject to the law applicable to the legal relationship in question, and not to the law applicable to the entity as such.

This means that if the subject of the assessment is the admissibility of establishing a Polish limited liability company, Polish law applies.

The possibility of circumventing the prohibition in practice

Although the legislator has introduced a clear prohibition on the creation of a “chain” of single-member limited liability companies, practice shows that its significance is sometimes limited. The structure of the provision makes it possible to circumvent it in a manner that is formally legal.

The most common solution is to temporarily introduce a second partner into the founding company, even with a minimal share. In this configuration, the company ceases to be a single-member company and can act as the sole founder of a new limited liability company. After the registration process is complete, it is possible to return to a single-member structure by selling the shares. The doctrine emphasizes that this is a case of circumventing the prohibition, not circumventing it in the sense of an act contrary to the law and affected by invalidity.

Similar effects may be achieved by appropriately timing the effective date of the sale of shares, especially since, for the sale to be fully effective vis-à-vis the company, the company must be notified of the transfer of shares. As a result, the formal status of the company as a multi-member company may be maintained for the time necessary to establish a new entity.

As a result, the prohibition in Article 151 § 2 of the Commercial Companies Code, although clear in its wording, does not in practice constitute a serious barrier to the creation of multi-level capital structures. On the one hand, it fulfills the objective of limiting the excessive accumulation of single-member companies, but on the other hand, the possibility of easily circumventing it raises questions about the actual effectiveness of this instrument. Therefore, when planning a holding structure, it is crucial not only to be aware of the prohibition itself, but also to understand its practical consequences and how it works in business transactions.

Are you planning to establish a Polish limited liability company with foreign participation or a holding structure? Find out how to correctly classify the legal form of the company and avoid registration risks.