Liability in a Limited Liability Company (Sp. z o.o.). Do the CEO and Shareholder Really Not Pay the Company’s Debts?

I’ll set up a limited liability company and won’t be responsible for its debts,” thought Mr. Janek. And he ran into serious trouble.

Mr. Janek, like many young entrepreneurs, had a business idea. After long talks with colleagues, reading a few articles on online forums, and watching advice on TikTok, he concluded that a limited liability company (Sp. z o.o.) was the perfect solution for his business. “I won’t have to worry about the debts!” he thought. After all, everyone told him that since it’s a limited liability company, the management board member is not liable with their personal assets for the company’s obligations, and the shareholder’s liability in the Sp. z o.o. is only up to the amount of the share capital.

From Idea to Action!

Fascinated by this idea, Mr. Janek founded the Sp. z o.o., became its CEO, and got straight to work. The company grew quickly, and Janek commissioned more and more work, not worrying about payments—after all, the company had its own money. Unfortunately, at some point, the company started experiencing financial difficulties. Some invoices remained unpaid, and taxes accrued. “No problem,” Janek reassured himself, “they’re just the company’s debts, I’m safe.” That’s what he was told, but did Mr. Janek still not realize the reality of asset liability in an Sp. z o.o.?

The Moment of Awakening: A Summons from the Tax Office

A few months after closing the company, Mr. Janek, who had stopped thinking about his old businesses, received a letter from the Tax Office. At first, he thought it was a mistake—after all, his company had stopped operating long ago, and, according to assurances, he shouldn’t be liable for its debts. But the Tax Office claimed otherwise. The company’s tax arrears amounted to tens of thousands of zloty, and the Tax Office informed him that it was Mr. Janek, as the CEO, who was responsible for these debts.

Janek, shocked, started looking for answers. “How is this possible?” he wondered. He had formed a limited liability company precisely so he wouldn’t face financial consequences if something went wrong. It turned out, however, that the situation was more complicated than he had assumed.

Liability of Management Board Members in an Sp. z o.o.

Mr. Janek did not realize that the liability of the CEO of an Sp. z o.o. for company debts is not automatically excluded. According to regulations, if enforcement against the company’s assets proves unsuccessful, then Management Board members—including Mr. Janek—can be held liable for the company’s debts. This rule is governed by Article 299 of the Commercial Companies Code. But that’s not all! Under the provisions of the Tax Ordinance (Article 116), the CEO and Management Board members can be held liable for the company’s tax arrears if enforcement against its assets yields no results.

Mr. Janek began to recall that his company failed to pay several important invoices and overdue taxes. And now, it turned out that he—as the CEO—was personally responsible for it. Suddenly, the entire concept of a “safe” limited liability company no longer sounded so appealing.

Is It Possible to Be Released from Liability?

Janek sought legal help. Experienced legal counsel Marcin listened to his story, reviewed the documents, and sighed heavily. “I have many clients like you. This is what happens when you listen to TikTok instead of lawyers,” he said, and began to explain.

It turned out that everything could have gone differently if Mr. Janek had known earlier that the key to avoiding personal liability for company debts is to file for its bankruptcy in a timely manner. According to Article 299 of the Commercial Companies Code, he could have released himself from financial obligations had he only taken the proper steps before the situation spiraled out of control. Legal counsel Marcin looked Mr. Janek in the eyes: “But even if you had done that, the bankruptcy process wouldn’t have been a simple formality. Filing for bankruptcy involves a series of obligations and costs that might have overwhelmed you. The first step would be to submit an application to the bankruptcy court, which in itself requires significant involvement and a fee. You would have to precisely prove that your company is insolvent, meaning unable to settle its obligations, which requires a detailed inventory of the company’s assets and debts.”

And that would only be the beginning. The entire process could drag on for months, or even years, and Janek would have to cooperate with the trustee, who would manage the company’s assets, the entire time. The costs of the trustee, court fees, and the remuneration of specialists who would help him prepare the necessary documents—all of this would fall on his shoulders. Even by filing for bankruptcy on time, he couldn’t simply forget about the problem. The process would require his involvement and control over every stage, which meant additional stress and responsibility.

Janek understood that filing for bankruptcy was not a magic wand that automatically solved all problems. Yes, it could help avoid personal liability for debts, but the process itself was complicated, costly, and time-consuming.

Had Janek filed for bankruptcy on time, according to Article 299 of the Commercial Companies Code, he could have avoided liability for the company’s debts. Unfortunately, he failed to do so and now had to face reality—he was liable for the company’s obligations with all his personal assets.

The Supreme Court confirms that a Limited Liability Company (Sp. z o.o.) with two shareholders, where one holds a majority of shares and the other holds only a symbolic 1%, is still treated as a two-person company in the context of social insurance obligations.

Liability of Management Board Members in an Sp. z o.o. What About Former Management Members?

Mr. Janek asked his lawyer what would have happened if he had resigned from the CEO position before the debts emerged. The answer was not very optimistic. It turned out that even former Management Board members can be held liable for arrears that arose while they held their function. According to regulations, a former Management Board member can be held responsible if they failed to file for bankruptcy on time or if the application was not filed due to their fault.

Janek also heard that the Supreme Administrative Court had refused to issue a resolution that would clarify this issue. It therefore remains unclear whether a former Management Board member can be held liable for company debts that they only became aware of years later, long after they had ceased to be the CEO. In Janek’s case, however, this did not matter much—he was still the CEO when his company began to fall into debt.

What About the Neighbor Who Had Company Troubles But Still Drives a Mercedes? 

“And what about neighbor X, whose company faced bankruptcy but who still drives a Mercedes?” – Mr. Janek asked, irritatedly recalling an acquaintance who still lived the high life despite the company’s financial problems. At first glance, it might seem that the neighbor walked away from the trouble unscathed, but the reality was somewhat more complicated.

Legal counsel Marcin simply smiled: – Sir, Mr. X is the best example that Sp. z o.o.s are for the big players.

It turned out that Mr. Janek’s neighbor had significantly more resources at the start of his business and was well prepared for tough times. He used the help of experienced lawyers who advised him on how to conduct a restructuring process, rather than classic bankruptcy. Thanks to this, he could negotiate with creditors, and he managed to legally preserve some of his assets, including the luxury Mercedes. Restructuring, unlike bankruptcy, allows the company to continue functioning and its owner to maintain greater control over their assets. A well-executed process allows not only for the repayment of debts but also for the protection of personal assets, which was crucial for more affluent entrepreneurs like Mr. Janek’s neighbor.

Mr. Janek understood that what looks like a “way to avoid liability” actually requires knowledge, resources, and experience that he, unfortunately, lacked.

The Lesson from Mr. Janek’s Story

Mr. Janek’s story is a warning to everyone who thinks that a limited liability company completely protects them from liability for debts. While an Sp. z o.o. provides some protection, it is not absolute. Management Board members, and even former members, can be held liable for the company’s obligations, especially if they fail to file a timely application for bankruptcy.

Janek understood that the most important thing is conscious financial management of the company, monitoring its financial situation, and reacting to problems on time. By doing this, many troubles can be avoided, and the Sp. z o.o. will remain a truly effective tool for running a business.

At the end of this lesson, Janek decided not only to settle his arrears but also to better prepare for future business challenges. This time, he decided to hire legal counsel Marcin and a good accounting firm.