A single member limited liability company
A single member limited liability company is a company where all shares belong to one partner. There are two ways to create a single member company, the primary and secondary. The primary method is one in which the company was registered by one person, while the secondary one is one when, as a result of the legal actions taken, one person gathers in his/her hand all shares that were initially divided between different partners.
While a limited liability company formed by several partners brings many benefits, in the case of its single person form it is a bit different.
Experts distinguish two main advantages of a single member LLC. First, according to the Commercial Code of the Companies, the sole shareholder exercises all the rights vested in the shareholders’ meeting. When voting, you do not have to count votes, because the only partner has all the votes, and thus, does not have to carry out secret ballots. An additional advantage is that the only partner does not have to formally call the shareholders’ meetings, but it should be taken into account that it does not absolve him from the obligation to create protocols of adopted resolutions for evidentiary purposes. The second advantage is the same as in the case of a traditional limited liability company, namely the reduction of business risk.
What are the disadvantages of running a single member limited liability company? One of the inconveniences already appears at the beginning of the company’s registration. Pursuant to the Code of Commercial Companies, the sole shareholder has no right to represent the company when it is still in the so-called “organization”, with the exception of registration in the National Court Register. However, a problem arises here, because to enter a company in the National Court Register, it is necessary to determine the address of its headquarters, and thus sign a lease agreement, which is not possible, because as we wrote before, the sole partner can not represent companies during that period. The only option left to us is to appoint a second member of the board and establish the rules of representation, or if we do not have an appointed board of directors, we can appoint a proxy who will represent our company in given legal activities. Additional inconvenience to us is the obligation to conclude, in writing, all services provided by a member of the management board to the company and the obligation to enter into any legal transaction between the partner and the company in the form of a notarial deed. Another downside is that in the light of the law, the status of the sole partner will be equated with an entrepreneur running a business, which means the obligation to pay social security contributions.
As you can see, a single member limited liability company is different from the one in its traditional form. Therefore, it is worth considering our individual needs and assessing whether we are ready for the many inconveniences related to running a single member limited liability company.