Duties of the Chairman / President of the Management Board in a Limited Liability Company
Publication date: April 25, 2024
Competences of the President in managing the company’s affairs
The management board is an integral element of a Polish limited liability company. It is appointed by the company’s shareholders. The management board appoints its president, who heads it. This involves the president having many responsibilities that he must fulfill.
The president, as a member of the management board, has two functions in taking up matters, because he can take them up himself or he is the executive tool of the shareholders. The president, as a member of the management board, has the right to manage the company’s affairs. This applies to both judicial and extrajudicial matters. Article 208 § 3 of the Polish Commercial Companies Code allows the president to conduct matters not exceeding the scope of ordinary company activities, without a prior resolution of the management board. Activities of ordinary management may refer to internal and external affairs of the company. When deciding which activity exceeds the scope of ordinary activities, consideration should be given to circumstances such as the size and nature of the activity. In short, it is the amount of the company’s available financial resources. In proportion to the activity performed and the company’s budget, it can be concluded whether a given activity exceeds this scope. Of course, the company agreement (articles of association) may specify what activities fall under the ordinary management of the company. Therefore, decision weight is an abstract concept and depends on the conditions of a given entity. All decisions made should be rational, accompanied by documents justifying the decision.
An important thing, however, is that if at least one of the other members of the management board objects to this action, a resolution of the management board is required. The company’s articles of association may grant the President the right to manage the work of the management board, and in a situation where there is equality of votes when adopting a resolution, the vote of the president of the management board may be decisive. If there is no provision that would explain how the “deciding vote” should be understood, it should be assumed that the President is not entitled to a second deciding vote, but the vote cast by the President while voting on a given resolution is taken into account.[1]
Article 208§8 of the Polish Commercial Companies Code states that the limited liability company agreement may grant the president the authority to manage the activities of individual management board members, resolve doubts and any disputes, as well as to manage their work.
Representation of the company
Polish Commercial Companies Code grants the company’s management board the obligation to represent it. Art. 205 of the Polish Commercial Companies Code states as follows: If the management board consists of more than one person, the method of representation is specified in the company’s articles of association. If the company’s deed does not contain any provisions on this subject, the cooperation of two members of the management board or one member of the management board together with a proxy is required to make declarations on behalf of the company. To sum up, the rules for representing the company by the management board are usually included in the company’s articles of association. If the company’s articles of association do not regulate the issue of representation, the regulations contained in the Commercial Companies Code should apply.
Maintaining loyalty to the company
The president, as a member of the management board, cannot disclose any company secrets, even after he has completed his duties. Due to the professional nature of his activity, the CEO should exercise due diligence to maintain his loyalty to the company.
Prohibition of competitive activities
The Polish Commercial Companies Code prohibits the President of the Management Board from participating in a competitive company or conducting any activity that would be competitive with the company. The prohibition also covers the situation in which the president holds at least 10% of shares in a competitive capital company. The above prohibition may be lifted if consent to a given competitive activity is granted by an authority that has the power to appoint the management board.
Reporting obligation of the President
The management report on the company’s activities requires a resolution of the shareholders for its approval. Reporting is the responsibility of the management board and the President, as a member of the management board.
Liability for the company’s obligations
Article 299 of the Polish Commercial Companies Code refers to the ineffectiveness of enforcement proceedings against the company. In a situation where enforcement against the company turns out to be ineffective, members of the management board, including the President of the management board, are jointly and severally liable for the company’s obligations. Of course, it is possible to be released from the above-mentioned liability. This is done by demonstrating that a bankruptcy petition was filed in due time, or a decision was issued to approve the arrangement or open restructuring proceedings.
Demonstrating lack of fault in the above circumstances also excludes the president’s liability. If the creditor has not suffered any damage as a result of the management board’s failure to fulfill its obligation, the liability will cease to cover the management board members.
Article 299 § 4 of the Polish Commercial Companies Code states that members of the management board “shall not be liable for failure to submit an application for declaration of bankruptcy at the time of enforcement by compulsory administration or sale of the enterprise, pursuant to the provisions of the Code of Civil Procedure, if the obligation to submit an application for declaration of bankruptcy was created during an execution.” This is another circumstance that excludes liability.
Civil liability of management board members
Article 293 of the Polish Commercial Companies Code imposes an obligation on the President of the company to be liable for damage caused by his action or omission, if this action is contrary to the law or the provisions contained in the company’s agreement. If the president is not responsible for this, his liability is excluded. Therefore, the company’s president is liable on a fault basis. The President does not violate the obligation of diligence in making decisions of the company if he acts loyally to the company and acts within the limits of justified economic risk, based on information, opinions and analyzes that should be taken into account. If the damage was caused by several people, they are jointly responsible for the damage.
A lawsuit for compensation for damage
Art. 295 of the Polish Commercial Companies Code provides that in a situation where the company does not bring an action for redress of the damage caused to it within one year from the date of disclosure of the act causing the damage, the shareholder is entitled to file a lawsuit for redress of the damage caused to the company. It may be assumed that, pursuant to this provision, a shareholder has the right to bring an action for compensation for damage caused to the company by a person who participated in its formation, as well as by a member of the management board if he or she acted contrary to the law or the provisions of the company’s articles of association.[2] Therefore, this also applies to the President of the management board of a limited liability company.
Rights in a limited liability company
Each member of the management board of the limited liability company may, without a prior resolution of the management board, conduct matters not exceeding the scope of ordinary activities of the company. If a given matter exceeds the scope of ordinary activities of the company, a prior resolution of the management board is required. However, the above rules apply only if the company agreement does not provide otherwise.
President of the Management Board and the company
A limited liability company must elect a management board consisting of at least one person. The president and vice-president of the company may be appointed during the establishment of the management board or after a certain period of its operation.
The company’s chairman / president of the management board, despite having the title, is still an equal member of the management board. It is not a separate body, its capabilities increase only at the level of internal organization. All company decisions are made based on an absolute majority of votes. However, in accordance with the Polish Commercial Companies Code, it states that resolutions of the body are adopted by an absolute majority of votes, unless the company’s articles of association provide otherwise. The company’s articles of association may provide that in the event of equality of votes, the vote of the president, chairman or other member of the body is decisive.
Any modifications to the role of the president of the management board must be added to the company agreement and do not result from the Commercial Companies Code itself. When establishing a company, the shareholders must expressly express that in the event of equality of votes, the vote of the president of the management board is decisive.
The president may also be entrusted with organizational duties related to the work of the management board.
Art. 204. § 1. The right of a management board member to manage the company’s affairs and represent it applies to all judicial and extrajudicial activities of the company.
§ 2. The right of a management board member to represent the company cannot be limited with legal effect towards third parties.
Pursuant to Art. 204 of the Polish Commercial Companies Code, representation is also not statutorily transferred to the president, but it is possible to modify the method of representation in which the president will be entitled to single-person representation.
Being a member of the company’s management board is a special distinction, but performing this function also involves responsibility (both civil and criminal). The entity undertakes to properly pay taxes, keep accounting, and pay contributions to social security, health insurance and the Labor Fund. If enforcement against the company is ineffective, members of the management board are liable to creditors for the obligation that has not been properly settled.
[1]Olszak Krzysztof, The deciding vote of the President of the Management Board of a capital company in the event of equality of votes.
[2] Kidyba Andrzej, Dumkiewicz Małgorzata, Commentary updated to articles 1-300 of the Commercial Companies Code.
