How to convert a civil partnership into a sole trader?

The process of company conversion

The transformation of companies is governed by the Commercial Companies Code (Art. 551 et seq.). The transformation of a company involves a change in its legal form, which is most often undertaken to adapt the company’s legal form to its current business activities and to changing economic conditions. As a result of the conversion, only the legal form of the business conducted by the company changes, whilst the company retains its legal identity in terms of rights and obligations. The date of conversion is deemed to be the date on which the converted company is entered in the National Court Register (KRS), and at the same time the company that has been converted is struck off the KRS.

The status of a civil law partnership versus commercial companies

As mentioned above, a civil law partnership should not be equated with commercial companies. Unlike commercial companies, a civil law partnership is a contractual relationship; it has no legal personality and does not constitute an organisational unit with legal personality like partnerships, but is a structure governed by the Civil Code. It is the partners of a civil law partnership, and not the partnership itself, who are legal entities. However, in several respects, the legislator has provided for regulations concerning civil law partnerships within the Commercial Companies Code, including, amongst other things, in the context of conversion. As follows from the provisions of the Commercial Companies Code, the following are both permissible:

• The conversion of a civil law partnership into a general partnership – Article 26 § 4 sentence 1 of the Commercial Companies Code
• The conversion of a civil law partnership into a commercial company other than a general partnership – Article 551 et seq. of the Commercial Companies Code

However, neither the Commercial Companies Code nor the Civil Code explicitly refer to the conversion of a civil law partnership into a sole proprietorship. This does not, however, mean that it is not possible to change the form of business activity, including from a civil law partnership to a sole proprietorship.

Conversion of a civil law partnership

Changing the form of business from a civil law partnership to a sole proprietorship is not a process directly regulated by law, which distinguishes it from the conversion of commercial law companies. In practice, this requires a series of steps to be taken to change the form of business.

First and foremost, to change the form of business from a civil law partnership to a sole proprietorship, one must:

• dissolve the civil law partnership (or the partner wishing to continue the business individually must withdraw from it),
• update the entry in the CEIDG,
• transfer the rights and obligations (including, in particular, contracts) to the sole proprietorship,
• notify the relevant authorities and institutions of the changes.

Withdrawal of a partner from the partnership

The possibility of a partner withdrawing from a civil law partnership may, first and foremost, be regulated in the partnership agreement. In the absence of contractual provisions, the Civil Code stipulates that a civil law partnership established for an indefinite period may be terminated with three months’ notice to the end of the financial year. As a general rule, a partnership agreement concluded for a fixed term cannot be terminated. However, the partnership agreement may be terminated at any time for valid reasons, e.g. a partner’s prolonged illness or inability to act in matters material to the partnership’s interests (cf. P. Nazaruk [in:] Civil Code. Commentary, ed. J. Ciszewski, Warsaw 2019, Art. 869).

The partnership agreement may also regulate mutual settlements between the partners. The partners should agree on any settlements in the event of the partnership’s dissolution to avoid potential conflicts following the dissolution.

If the articles of association do not contain additional provisions, in accordance with Article 871 of the Civil Code, a partner withdrawing from the company shall be returned in kind the assets which he contributed to the company for use, and shall be paid in cash the value of his contribution as specified in the articles of association, and in the absence of such a specification – the value that the contribution had at the time of its contribution. The value of a contribution consisting of the provision of services or the use by the company of items belonging to the partner is not refundable. Furthermore, a withdrawing partner is also entitled to a cash payment of that part of the value of the joint assets remaining after deducting the value of all partners’ contributions, which corresponds to the proportion in which the withdrawing partner participated in the partnership’s profits.

Division of assets following the dissolution of a civil law partnership

From the moment of the partnership’s dissolution, the provisions on fractional co-ownership apply mutatis mutandis to the partners’ joint assets. From the assets remaining after the payment of the partnership’s debts, the partners’ contributions are returned to them, applying mutatis mutandis the provisions on the return of contributions in the event of a partner’s withdrawal from the partnership. However, any remaining surplus of the joint assets is divided amongst the partners in the same proportion as their share in the partnership’s profits.

If you are considering changing the form of your business from a civil law partnership to a sole proprietorship, please contact HWW Hewelt Wojnowski Lindner i Wspólnicy. Our experience and personalised approach will ensure you receive full support throughout every stage of this process.

Author

Martyna Dobkowska

Associate

She specializes in civil, commercial and business law. In the corporate and energy department, her activities are mainly based on providing corporate services to companies, reviewing and preparing commercial contracts, drafting litigation and non-litigation pleadings and preparing analyses and legal opinions, particularly in the sphere of business law and energy law. She also has professional experience in administrative and civil proceedings, which she gained in Warsaw law firms. She supports the Firm's…

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