Resolution
The Supreme Court, in response to the question:
“Is a partner in a two-member limited liability company holding 99 per cent of the shares, which enables him to freely shape the content of resolutions at the partners’ meeting and to take decisions concerning the company’s operations, subject to social insurance under Article 6(1)(5) in conjunction with Article 8( 6(4) of the Act of 13 October 1998 on the social insurance system?”
adopted the following resolution:
“A partner in a two-member limited liability company holding 99 per cent of the shares is not subject to social insurance pursuant to Article 6(1)(5) in conjunction with Article 8(6)(4) of the Act of 13 October 1998 on the social insurance system (consolidated text: Journal of Laws of 2023, item 1230).”.
The crux of the issue
For many years, company shareholders have been in dispute with the Social Insurance Institution (ZUS) regarding whether, in a situation where a shareholder holds an overwhelmingly dominant number of shares (e.g. 99 to 1), such a shareholder meets the definition of a sole shareholder of a limited liability company, as such a partner is treated under the provisions of the Act of 13 October 1998 on the social insurance system as a person conducting non-agricultural business activity (Article 8(6)(4)) and, as such, is subject to social insurance obligations.
This issue was considered on two levels, namely:
- where such a partner entered into an employment contract with the company in their capacity as a member of the management board,
- where they held only the status of a partner, without entering into an employment contract with the company.
The Supreme Court had previously ruled on both situations. Specifically:
- in the first case, it indicated that if a partner with an overwhelming majority of shares enters into an employment contract with the company, the contract is absolutely void, because as a person exercising almost complete control, there can be no question of any real supervision or relationship of subordination, and therefore, under such a contract, he was not subject to compulsory social insurance, but was subject to compulsory insurance as a person carrying out non-agricultural business activity,
- in the second case, it was pointed out that the fact that the other partner holds even just one share means that the limited liability company ceases to be a single-member company.
An analysis of the case law of the common courts in cases such as that discussed in the resolution in question reveals, however, that there were instances in which the courts erroneously referred to the Supreme Court’s case law issued in cases concerning the determination of the insurance obligation of a controlling partner of a company entering into a contract with their own company, and applied that Supreme Court case law to cases falling under the second of the aforementioned scenarios.
The Supreme Court’s position to date
As mentioned above, the Supreme Court has also previously ruled in a manner consistent with the adopted resolution; for example, in the judgment of 16 December 2020, file ref. I UK 225/19, it was stated that
“The disposal of even a single share in a single-member limited liability company results in the shareholder losing their entitlement to social insurance under Article 8(6)(4) of the Act of 13 October 1998 on the social insurance system.”
The ordinary courts have also expressed similar views (e.g. the judgment of the Court of Appeal in Poznań of 25 July 2019, ref. no. III AUa 876/18; judgment of the Court of Appeal in Poznań of 18 September 2019, ref. no. III AUa 887/19; judgment of the Court of Appeal in Poznań of 7 April 2022, ref. no. III AUa 1313/20).
A different position was also held in legal practice, according to which a partner holding, for example, 99 out of 100 shares was to be subject to social security contributions as a person carrying on a business rather than on the basis of an employment relationship (e.g. judgment of the Supreme Court – Labour and Social Insurance Chamber of 26 August 2021, ref. no. III USK 226/21).
It is therefore to be hoped that the resolution adopted will finally dispel the existing doubts of both the Social Insurance Institution (ZUS) and the courts adjudicating in similar cases.
We are currently awaiting the grounds for the decision; however, it can be anticipated that they will contain considerations similar to those presented by the Supreme Court in the judgment cited above (case no. I UK 225/19).
Frequently asked questions
Does a partner holding 99 percent of shares in a limited liability company have to pay ZUS contributions as a person conducting business activity?
No, the Supreme Court confirmed that such a partner is not subject to social insurance obligations under the provisions on non-agricultural business activity. The key factor is having at least one share held by another person, which excludes the status of a single-member company.
Why does holding 99 percent of shares not make the company single-member within the meaning of insurance law?
The law treats a company as single-member only when one partner holds all shares. Even having just one share held by another person means that the company is two-member, which changes the basis for insurance coverage.
Can a dominant partner enter into an employment contract with their limited liability company?
The Supreme Court indicates that such a contract is absolutely invalid because there is no real supervision and subordination relationship when one partner exercises almost complete control. As a result, no insurance obligation arises from this employment relationship.
Is the Supreme Court’s position in this matter new and does it resolve practical doubts?
This resolution confirms existing case law, which was sometimes incorrectly applied by common courts. This ruling is intended to finally resolve doubts regarding the status of dominant partners and their obligations toward ZUS.
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The practice includes ongoing advice on administrative and tax law. He has extensive experience in handling judicial, administrative, tax and judicial-administrative proceedings concerning both individual clients and business entities, including that gained through many years of providing services to local government units and other units of the public finance sector.
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