The choice of the appropriate business vehicle is the most important stage for every investor entering Polish market. This decision has many implications in future performance of the company registered in Poland. There are many options offered by company formation providers, however all of them have their pros and cons. In this article we will analyze all options in details.
Legal type of Polish business entity
Please note that the analysis below does not take into consideration the choice of the actual legal type of business entity. We will devote another article to this issue.
Intention of setting up a business in Poland
The main factor that needs to be taken into consideration for a choice between brand new company formation and shelf company solution in Poland is the actual intention of an investor. There are various reasons that lead foreigners to establish business in Poland. This might be (for investors with non-EU origin) a wish to register a subsidiary in Europe and start trading in European Union through Poland. This allows such investor to enjoy Polish low cost of operation together with the easy access to whole EU market due to Polish membership in European Union.
On the other hand some investors just want to get a trading vehicle fast and without the need to visit Poland very often. This might be just because of trading partner requirements or the speed up the transactions with Polish business partners.
Furthermore other businessmen want to just get a vehicle which is ready to take part in public bidding or to purchase a property. Then, there are some foreign investors who need a company just in case some opportunity comes up.
Also very often there are also cases where there is a need to get the company with some history or appropriate age (incorporated for example 5 or 10 years ago). This all brings us to the comparison below of all the possible options of entering Polish market with own business vehicle registered under Polish law.
Opening a business in Poland – options
Registering a company in Poland from the scratch is the best solution when the investor’s intention is serious engagement in Poland. This way of entering Polish market allows all necessary company’s customization. Memorandum and Articles of Association can be adjusted perfectly to the needs of business venture. Also scope of activity can be defined properly from the start. The investor can choose the city where the company will be registered as well (as opposed to a ready made company where change of the city requires amendments in Articles of Association).
This solution also reduces the risk and increases the credibility of a company, because:
- the name of the company can be chosen,
- the first director of the company will be the director nominated by the investor,
- first shareholder will be the investor himself.
Those two above mentioned factor are beneficial because all the data of previous company names, directors and shareholders is stored in the National Court Register – KRS. Thus every business partner is able to check easily that the company was registered as a brand new one, which in Polish reality increases the credibility.
In case of a newly registered company a formation provider needs to prepare:
- Memorandum and Articles of Association,
- assist the client at the notary,
- register new company with Central Statistical Office (REGON),
- register new company with Tax Office (NIP, PL-VAT, EU-VAT),
- register company with the KRS (National Court Register).
Brand new registered company can usually start trading within 7 days (when tax office issues VAT number) when investor uses experienced and fast formation firm. This includes sales of goods and services. However a brand new company registered in Poland can acquire other companies or enter into legal contract immediately after formation at the notary.
Purchase of an already registered shelf company in Poland
A shelf company is usually the company which was registered some time ago by a company formation provider. It already has REGON, VAT number and KRS. It is a little bit faster solution than brand new registration. However in Poland the difference in speed is not that significant. Investor who buys the shelf company can start trading (selling goods and services) immediately after purchase.
Polish shelf company is also better solution when investor wants the process to be done as remotely as possible. Share transfer agreement requires less formalities than the registration of a brand new company (which usually requires personal visit of a shareholder/shareholders to Poland.
Below the list of weaknesses of shelf company solution.
- Already set name (in order to change name Articles of Association need to be amended),
- Inherited Articles of Association (Click here to see possible errors in M&AoA),
- Already set scope of activity that might not include investor’s industry (in order to change Articles of Association need to be amended),
- higher risk for example previous director dishonest activity,
- hidden liabilities might be in the company when investor uses services of dishonest provider.
Very often investors are looking for an aged company. That is the company which was registered long time ago. In some people’s opinion the company like this can enjoy higher credibility in the eyes of potential business partners. Of course this is not always the truth. There are certain other requirements to achieve good company image.
Not many firms can deliver a reliable aged company service in Poland. The choice of the provider is very important as it would be very unpleasant situation when investors started business using defected vehicle.
Company with trading history in Poland
Sometimes, for various reasons, foreign investors are looking for a company that has already been trading. This might be because of a need to show some credit history or to present company activity to potential business partners.
Companies with trading history can be divided into:
- those that made a loss,
Purchase of a company that made a loss in history might be profitable due to tax reasons. Such a company can enjoy possibility to make tax free profit up to the limit of historical losses. That is why some foreign investors are interested in this option. However this solution requires caution and engagement of trustworthy consulting firm.
- those that made a profit,
When somebody want to get a credit on behalf of the new acquired company in Poland, as it is sometimes useful to prove to a bank or a supplier that the company is making a profit. This would enable it to get more favorable conditions for crediting.
Taking into consideration all above mentioned options that can be used in different circumstances it is always a good idea for an investor to find a reliable formation company and explain them all the needs and business idea itself so the best solution of a business vehicle can be suggested.
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