Management board in a limited liability company – key information and regulations

This article will answer the following questions:

• What is the management board of a limited liability company?
• What is the composition of the management board of a limited liability company and what does it involve in practice?
• What is the function of the management board of a limited liability company?
• What is the liability of members of the management board of a limited liability company?

Taking up a position on the management board of a Polish limited liability company involves a number of rights and obligations, and failure to comply with the regulations that define the liability of board members and the requirements they face may result in unpleasant legal consequences and even negatively impact the company's operations. Here are the most important principles of the functioning of the board in a limited liability company.

What is the management board of Polish limited liability company?

The management board is one of the compulsory bodies of a limited liability company. It is its executive body, which means that it runs the company's affairs and represents it externally. 

The competences of the management board in the field of managing the company's affairs are regulated in the Commercial Companies Code (CCC) and constitute a kind of base that can be extended or limited under the articles of association.

It is further assumed that the company's management board may make decisions on all matters not reserved to the competence of other company bodies. The competence of the management board is also determined by its position in the structure of the company's bodies – including whether supervisory bodies have been established in the company.

What is the difference between managing the affairs of a limited liability company and representing it? 

Managing the affairs and representing the company are among the basic competences of the management board, or – practically speaking – among the competences of the management board members acting in accordance with the model of representing a limited liability company.

Managing the company's affairs involves activities such as:

• making decisions related to managing the company's current (i.e. daily) activities and managing its assets;
• overseeing the taking of organisational and factual actions related to activities undertaken within the company.

To sum it all up in one sentence, managing the company's affairs means all actual actions (such as adopting resolutions, issuing decisions and opinions) that are undertaken in accordance with the company's business activity and whose main purpose is to carry out its tasks.

Representation, on the other hand, means submitting and accepting declarations of will on behalf of the company externally. The scope of duties related to this concept is therefore completely different than in the case of managing the company's affairs (which includes only actions within the company). Representing the company includes authorising a member of the management board to act in matters of the Code and beyond the Code, in accordance with the method of representation disclosed in the National Court Register (NCR).

Composition of the management board in a limited liability company

One-person or multi-person management board

Pursuant to the provisions of the Commercial Companies Code, the permitted number of management board members is determined by the provisions of the company's articles of association.

The company's partners may determine the number of board members individually, according to their discretion and needs. The management board may consist of one or more members. However, it should be remembered that the precise specification of the number of board members in the articles of association - e.g. indicating that the company's board consists of two members - is associated with the necessity of always staffing the board with exactly this number of people. Otherwise, the board will be incorrectly staffed (i.e. the creation of a so-called non-quorum board) or – in the case of appointing more board members than indicated in the articles of association – doubts will arise as to the mandate (authorisation) of individual board members.

Non-quorum board

Staffing the management board below the threshold specified in the articles of association will result in the management board being practically incapable of functioning, because – as it is improperly staffed – it will not be able to represent the company and manage its affairs.

The remaining members of the non-quorum management board will not be able to take any actions, including those falling within the scope of an ordinary management board^1,2. A management board member is a member of the management board as a body – and it is the body operating in accordance with the representation model disclosed in the NCR that may represent the company.

It is worth emphasising that the actions taken by the non-quorum board have no legal force and cannot be confirmed by a board member who will, in a way, "supplement" the board to ensure the minimum number provided for in the articles of association. The same will apply in a situation where a board member is appointed to the company's board exceeding the limit specified in the articles of association.

Who can be appointed to be a member of the management board of a Polish limited liability company?

Any natural person with full legal capacity may become a member of the management board – including a partner of a limited liability company. 

The condition for being appointed to the management board is that a given person has not been convicted by a final court judgment for the offences listed in Article 18 § 2 of the CCC, i.e. for the offences specified in Articles 587-587², Article 590 and Article 591 of the CCC and Articles 228-231 and Chapters XXXIII-XXXVII of the Criminal Code, i.e. for:

• announcing or presenting false data to the company's bodies, state authorities or a person appointed to audit;
• failure to provide information, documents, reports or explanations on time or providing them inconsistently with the factual state, or concealing data significantly affecting the content of such information, documents, reports or explanations;
• hindering access to documents and failure to provide information;
• enabling unlawful voting;
• participating in unlawful voting;
• venality;
• bribery;
• influence peddling;
• abuse of office;
• offences against the protection of information;
• offences against the credibility of documents;
• offences against property;
• offences against economic turnover and economic interests in civil law transactions;
• offences against the turnover of money and securities. 

It is not uncommon for courts to examine whether a board member has been legally convicted of committing one (or more) of the above-mentioned offences and only after establishing this circumstance do they make an entry confirming the change in the management board (appointment of a board member) in the register of entrepreneurs of the NCR. If the appointed board member has been convicted of one of the above offences before being entered in the register, the court will refuse to register them in this respect. The same will apply if a board member is legally convicted of one of these offences (or becomes legally incapacitated) after being appointed to this role. In such a case, the board member's mandate expires automatically by operation of law.

It is worth adding that the articles of association or resolution of the partners may provide for additional requirements that must be met by a person appointed to the company's management board.

Appointment and dismissal of management board members: how to do it?

The appointment and dismissal of members of the management board shall be made by a resolution of the company's shareholders' meeting and shall usually require written form. The resolution shall be adopted in accordance with Article 247 § 2 of the CCC in a secret ballot, by an absolute majority of votes.

The method of appointing members of the management board may be regulated differently in the company's articles of association. The regulations contained therein may transfer the competence to appoint the management board to other company bodies; it is also possible to grant personal rights to a partner to appoint members of the management board or to give preference to shares in the matter of appointing members of the management board.

Interestingly, it is also possible for third parties to appoint members of the management board of a limited liability company.

Mandate and term of office – what is it?

Although functionally related, mandate and term of office are two separate concepts.

The term of office is the period for which a board member has been appointed. The mandate, on the other hand, is the authorisation to perform the functions of a board member.

The term of office affects the validity period of the mandate. Without a valid mandate, a board member will not be able to perform their function.

When does the mandate expire then? This occurs as a result of the following situations:

• expiry of the term of office, after the shareholders' meeting approving the financial report for the last year of the term of office; in such a case, however, it is worth noting that if the articles of association regulate the term of office as one year or shorter, or if the articles of association do not mention the term of office and it is not indicated that the management board is appointed for an indefinite period, the mandate of the management board member will expire on the date of the shareholders' meeting approving the financial report for the first full financial year of service as a management board member (Article 202 § 1 of the CCC);
• death of the management board member;
• resignation of the management board member;
• dismissal of the management board member;
• conviction of the management board member by a final court judgment for offences specified in Article 18 of the CCC. 

Restrictions of the management board towards the company: Art. 207 of the CCC

In performing their duties, board members are subject to certain restrictions towards the company. These restrictions are listed in the Commercial Companies Code, the articles of association and (unless the articles of association provide otherwise) in shareholders' resolutions.

Violation of the above restrictions may result in:

• absolute invalidity of legal acts (except for Article 230 of the CCC);
• liability for damages towards the limited liability company as a result of unlawful actions taken;
• contractual liability;
• corporate liability (suspension from duties or dismissal from a function).

Therefore, before taking any action, it is worth remembering the above restrictions and, if necessary, analysing the regulations and source documents of the company in order to avoid any unpleasant consequences.

How does a non-compete clause work for a management board member?

Pursuant to Article 211 of the CCC, a member of the management board of a limited liability company must obtain consent from the company for activities such as dealing with competing interests, participating in a competitive company as a partner in a civil partnership, partnership or as a member of a body of a capital company, as well as participating in another competitive legal person as a member of a body.

This prohibition also covers holding a share in a competitive capital company if a member of the management board holds at least 10% of the shares of that company or the right to appoint at least one member of the management board.

And what is competitive activity in practice? Competitive activity can be said to occur when a board member is involved in interests that overlap with the scope of the business activities of the company in which they hold a position, or when they participate in any way in a company conducting similar activities. However, only activities related to competitive participation in the market will be activities that are contrary to the interests of the company.

What are the risks for a board member if they engage in competitive activities against the company? If such a situation occurs, the board member may be financially liable for damage caused by an unlawful act or omission (if they fail to act despite their obligation).

Importantly, however, competitive activity does not affect the validity of legal actions undertaken by a management board member.

Article 210 of the CCC – what about the authorised representative?

The provision of Article 210 of the CCC regulates the method of proceedings in a situation where a company and a member of the management board appear on two different parties of the trial or on opposite parties to a contract.

In this case, the company should be represented by the supervisory board or a representative appointed by a resolution of the shareholders' meeting.

If all the shares of a company are held by a single partner who is also the sole member of the management board, then a legal act between the partner and the company does not require the appointment of an authorised representative. However, it should be concluded in the form of a notarial deed, about which the notary public must each time notify the registry court (doing so via an electronic system).

The appointment of an authorised representative aims to protect the interests of the company, its partners and creditors. The conclusion of contracts and appearance in the lawsuit by the same persons appearing on both sides of the barricade constitute the so-called acts with oneself. The catalogue of this type of activity also includes unilateral acts aimed at the cessation of existing relations between the company and the member of its management board, including the modification of these relations.

From a legal standpoint, contracts concluded or legal actions taken in this manner are absolutely null and void. This means that, as a rule, there is no possibility of their subsequent confirmation. It is definitely worth bearing this in mind and carefully analysing the company's situation before planning any actions in the relationship between the company and a member of the management board.

Liability of members of the company's management board

The primary (but not the only) provision regulating the liability of members of the management board of a limited liability company is the provision of Article 299 of the CCC.

In light of this provision, members of the management board are jointly and severally liable for the company's obligations if enforcement against the company proves ineffective. However, it is possible for a member of the management board to be released from liability for these obligations. The condition is to prove that:

• the member of the management board filed for bankruptcy in due time, or
• at the same time, a decision was issued to open restructuring proceedings or to approve an arrangement in proceedings concerning the approval of an arrangement, or
• the failure for bankruptcy was not due to the fault of the member of the management board, or
• despite the failure to file for bankruptcy and the lack of issuance of a decision to open restructuring proceedings or to approve an arrangement in the proceedings on approval of an arrangement, the creditor did not suffer any loss.

The essence of the provision of Article 299 of the CCC is to protect the limited liability company and its partners and creditors against improper management of the company's affairs by members of its management board. This impropriety in the management of affairs focuses on the risk of causing harm (failure to satisfy) to creditors through the inability to carry out effective enforcement against the company's assets. This provision therefore allows for holding members of the management board, who performed their function during the period when the circumstances necessitating filing for bankruptcy or opening restructuring proceedings arose, liable for the improper management of the company's affairs.

We will discuss these circumstances in more detail in our next article. We encourage you to follow our posts. 

The role of a management board member in a limited liability company requires a lot of attention

As we can see, the concepts of the management boards, management of affairs and representation of a company are not that simple and are associated with a large number of regulations that can cause many problems in practice. It is therefore worth familiarising yourself with all the regulations related to this role before making a decision to take on the position of a management board member and gaining full knowledge of all the pros and cons of managing the company's activities. After taking on your role, it is also worth regularly using the help of professional legal advisors.

If you have any questions or concerns, please contact us.

¹ Z. Jara (ed.), Kodeks spółek handlowych. Komentarz do art. 201. 5th Edition, Warsaw 2024

²See the dissenting opinion expressed by the Supreme Court in the resolution of 18 July 2012, III CZP 40/12, Legalis; judgment of 5 November 2010, I CSK 63/10, Legalis, with an approving commentary by M. Borkowski, Lex 2013; judgment of 21 January 2005, I CK 528/04, Legalis; the judgment of the Voivodship Administrative Court in Szczecin dated 30 October 2013, I SA/Sz 559/13, Legalis; or even J.P. Naworski, in: R. Potrzeszcz, T. Siemiątkowski, KSH. Komentarz, vol. 2, 2011, Article 201; see also A. Szajkowski, M. Tarska, A. Szumański, in: S. Sołtysiński et al., KSH. Komentarz, vol. 2, 2005, pp. 456–457 – where the authors also allow for conducting matters in the mode of Article 208 § 3 of the CCC.