This is one of the questions I get asked most often by my clients. These clients are often Dutch companies in the process of setting up a Polish subsidiary or which have just acquired one. In most cases, we are talking about a Polish limited liability company.
Often they will have found a country manager or inherited the former management board after acquiring the shares of an existing company. The questions which then come up are: can we trust the local management, should we trust them and how much control should we exercise?
One will get very different approaches from different clients. I have seen those who simply trusted the existing management in a company they acquired, which led to them being robbed by that management. But on the other side of the spectrum, I have seen clients who sat on the management board of a Polish company without really understanding what was going on, without being present in Poland, but being personally liable nevertheless. As I concluded in Bulletin 32 (available on my firm’s website), the potential liabilities of being on the board of a Polish company should not be underestimated.
Before we get to what is a desirable management structure from a shareholder’s point of view, let us go back to basics and look at what the Polish Code of Commercial Companies has to say on this.
A Polish limited liability company has to have a management board (zarząd) consisting of one or more members. The articles of association will determine whether the company can be represented by one or by two members. The management board normally also has a president. An alternative form of representation is the “president together with another board member”.
The general meeting of shareholders is the other mandatory corporate body or simply the shareholder when there is only one.
An optional but common feature is the permanent-proxy holder (in Polish the “prokurent”). There are two types of permanent-proxy holders: the independent one, who can sign on his own, and the joint one, who can only sign together with another permanent-proxy holder. This is quite a dangerous institution because the permanent-proxy holder has very similar powers to represent a company to a management board member, but without the potential liability.
Lastly, it is possible to institute a supervisory board consisting of one or more members. It is not possible, as is common in Anglo-Saxon countries and also possible in the Netherlands, that the supervisory directors and executive directors sit on one board together. I will leave the rare audit committee for what it is.
In addition, the Polish Civil Code also offers help in the form of an ordinary power of attorney. Then there is the management contract or employment agreement.
Now, what to make of all this? My advice is usually that the management structure should reflect reality. There is nothing worse for the local member of the management board than if all decisions are taken at shareholder level, while they bear all the risk of criminal and civil liability in Poland. Of course, in this article, “they” means “he” or “she”.
So, before designing the final management structure, the question has to be answered as to who will take the real business decisions on a daily basis, and who will decide what will be declared to the tax office. If this is the local manager, they should probably be on the management board.
The shareholders’ interests can then be dealt with by putting stringent control mechanisms in place (in the articles of association and/or in the agreement with the manager). Alternatively, if the real business decisions will be taken abroad, the responsible person at shareholder level should probably be on the board and the country manager can function perfectly well with a power of attorney allowing them to deal with a specific list of day-to-day issues.