A growing business, larger contracts and increasing personal risk lead many sole traders to consider a limited liability company. The Commercial Companies Code (Kodeks spółek handlowych) provides them with a dedicated route: conversion of an entrepreneur into a single-member capital company. This is neither a liquidation of the business nor the simple incorporation of a new entity, but a procedure with its own requirements, costs and consequences that are worth understanding before the first appointment with a notary.
Conversion and setting up a new company are not the same thing
Under Article 551 § 5 of the Commercial Companies Code, a natural person carrying out business activity in their own name may convert the form of that activity into a single-member capital company: a limited liability company or a joint-stock company. The essence of this solution is continuity. The business is not liquidated, the assets are neither sold nor contributed in kind, and the activity continues uninterrupted in the new legal form.
In practice, the converted company succeeds to the rights and obligations of the converted entrepreneur. Contracts with business partners, employment contracts and leasing agreements do not have to be concluded again. This is the key advantage over the alternative of incorporating a new company and gradually shifting the business into it, where every contract must be transferred separately, often with the counterparty's consent. Contributing the business as an in-kind contribution to a newly formed company may be faster and cheaper, but it does not provide this continuity.
The procedure step by step
The first document is the entrepreneur's conversion plan, which must be drawn up in the form of a notarial deed. It contains at least a determination of the book value of the entrepreneur's assets as at a specified day in the month preceding the preparation of the plan. The plan must be accompanied by a draft conversion statement, a draft articles of association, a valuation of the assets and liabilities, and financial statements prepared for the purposes of the conversion.
The second stage is the examination of the plan by a statutory auditor as to its correctness and reliability. For the conversion of an entrepreneur this remains mandatory — unlike most company-to-company conversions, where the legislator has narrowed this requirement. The auditor is appointed by the registry court at the entrepreneur's request and then issues an opinion. It is worth allowing a time buffer for this stage, as its length depends on the court and on the auditor.
The third stage takes place before a notary: the entrepreneur makes the conversion statement, signs the company's founding deed and appoints the members of its governing bodies. The final step is the application to register the company in the National Court Register (KRS), filed electronically via the Court Registers Portal. The date of conversion is the date of the company's entry in the KRS, and from that moment the entrepreneur is removed from the CEIDG business register. Because of the mandatory notarial form, the procedure cannot be carried out through the simplified S24 online route.
What passes to the company and what stays with the entrepreneur
Under Article 584(2) of the Commercial Companies Code, the converted company remains the holder of, in particular, the permits, concessions and reliefs granted to the entrepreneur before the conversion, unless a statute or the decision granting them provides otherwise. That exception can be costly, so the wording of every administrative decision held should be checked before starting the procedure.
The natural person becomes a shareholder of the company on the date of conversion, but does not disappear from the liability picture. Article 584(13) provides that for obligations connected with the previously conducted business activity and arising before the date of conversion, that person is jointly and severally liable together with the company for three years counting from the date of conversion. Protection of private assets therefore only takes full effect for obligations arising after that date.
The position is similar in tax law. Article 93a § 4 of the Tax Ordinance provides that the company succeeds to the tax rights of the converted entrepreneur connected with the business activity, except for those rights that cannot be continued under the rules on the taxation of capital companies. Article 112b, in turn, provides that the company is liable with all of its assets, jointly and severally with that natural person, for the entrepreneur's tax arrears arising up to the date of conversion.
There is also a purely technical point that is easy to overlook: the company receives a new tax identification number (NIP) and a new statistical number (REGON). Details on invoices, in contracts, in counterparties' systems and at the bank must therefore be updated.
Tax, ZUS and accounting after the change of form
A limited liability company is a corporate income tax (CIT) payer. The basic rate is 19 %, while small taxpayers and companies starting out may apply a 9 % rate to income other than capital gains. Distribution of profit to the shareholder is taxed separately. This is the familiar double taxation, which must be calculated on your own figures rather than on general rules.
Social security often comes as a surprise. Under the Act on the social insurance system, the shareholder of a single-member limited liability company is treated as a person conducting non-agricultural business activity. This means an obligation to pay social insurance and health insurance contributions. Conversion alone is therefore not a way to escape ZUS.
Accounting changes as well. The company keeps full accounting books under the Accounting Act and prepares annual financial statements that are filed with the National Court Register. These are permanently higher servicing costs, which must be included in the profitability calculation alongside the one-off expenses for the notary, the statutory auditor and court fees.
When conversion makes sense and when it is better to wait
It most often pays off for businesses that genuinely put private assets at risk: those running high-value projects, taking on trade liabilities, employing a team or operating in sectors with high contractual exposure. Another argument is a planned entry of a co-shareholder or preparing the business for sale, since shares in a company are easier to dispose of than the enterprise of a natural person.
Arguments against include a small scale of activity, good tax efficiency of the current form, and a lack of readiness for higher fixed costs and greater formality. The decision should not rest on the slogan of limited liability alone. What is needed is a comparison of both options based on the company's actual financial data, taking into account the three-year liability for pre-conversion obligations.