Increasing contributions in a civil law partnership - is it possible?
A civil law partnership is a form of business activity that is created by concluding a contract by at least two entrepreneurs. It is important that the company is not a legal entity - it is business partners. The lack of legal personality means that when dealing with contractors, it is the partners, not the company, that conclude contracts. The partners are also responsible for the obligations of the company as natural persons, and not as an entity such as a civil partnership. Within the partnership, partners are obliged to pursue a common economic goal, in particular by making contributions. Is it possible to increase the contributions after the conclusion of the articles of association?
A civil partnership is established by partners who are natural persons - legal persons do not have such a possibility. This company does not constitute a separate legal entity. It is only a contractual relationship under which the partners undertake to act in the implementation of common economic tasks. The cooperation of partners consists in particular in managing the company's affairs and making contributions. This last aspect of the company will be dealt with in this article.
Contribution of contributions by partners
The matter of a civil law partnership is dealt with by the Civil Code (hereinafter referred to as the Civil Code) in the provisions of Art. 860 et seq. Pursuant to Art. 860 of the Civil Code, by establishing a company, the partners undertake to strive to achieve a common economic goal by acting in a marked manner, in particular by making contributions. In turn, art. 861 of the Civil Code specifies the subject of a partner's contribution in a civil law partnership, stating that it may consist in the transfer of ownership or other rights to the partnership or in the provision of services. The subject of the contribution may be money, receivables, stocks or shares in capital companies, an enterprise and the provision of services. The latter should be distinguished from the performance of work - as "work" (within the meaning of the labor law) for the benefit of the company cannot constitute a contribution. Additionally, the Civil Code introduces the presumption of equal value of contributions. If the partnership agreement does not contain any provisions, there is a presumption that the partners' contributions are of equal value. However, if a specific partner does not agree with such a recognition, it may rebut this presumption by pointing to evidence supporting a different statement.
Contributions made by partners should have an asset value or be reflected in money (e.g. if it involves the provision of services). Importantly, the definition of a contribution as an obligation to provide services does not require a separate agreement between the partners. The partnership deed itself obliges the partner to perform the activities specified therein within the time limit resulting therefrom. If the deadline is not specified, it is assumed that the work will be provided throughout the period of being bound by the civil law partnership agreement.
Are contributions necessary?
The main method of implementing a contract establishing a civil partnership is striving to achieve a common economic goal. Making contributions is one of a number of options for its implementation. Hence, it is assumed that it is possible that none of the partners will be obliged to make contributions. However, this is a highly controversial concept, as some doctrines hold the position that the lack of an obligation on the part of the shareholders in the contract to make contributions renders the contract invalid. Therefore, it seems that in order to ensure the company's operation in accordance with the law, shareholders should make contributions.
Increasing contributions and the form of a civil partnership agreement
The civil law partnership agreement requires a proprietary written form ad probationem, i.e. for evidentiary purposes. The provision of art. 860 of the Civil Code does not provide for the severity of nullity if the indicated form is not observed. This means that it is possible to establish a company orally or implicitly. A contract not made in writing will remain valid. However, the above does not exclude a situation where, due to the type of the agreed contribution (it concerns in particular real estate to the company), it will be necessary to maintain a different form, e.g. a notarial deed.
The Civil Code provides for the possibility of making new or increasing existing contributions. Such activity requires an amendment to the civil law partnership agreement. At the same time, the modification of the articles of association for the above-mentioned reasons requires the unanimous consent of all partners. Due to the fact that the civil law partnership contract must be in writing only for evidence purposes, its amendment by annexing it may take place in its original form. However, in the event that the subject of the new contribution were things that require, when transferring rights to them, a qualified form, the change of the contract also requires it.
The simplest form of contract modification is the preparation of an annex. There are no obstacles to introduce changes by drawing up a new contract. It should be noted, however, that it was drawn up to replace the previous one. Otherwise, a new company independent from the previous company will be established.
Increase in contributions and change in profit sharing
It may also happen that only one of the partners wants to increase his contribution to the company. Then, most likely, he will also expect an increase in the proportion of profits to his advantage. Pursuant to Art. 867 § 1 of the Civil Code, each partner is entitled to an equal share in profits and participates in losses in the same proportion, regardless of the type and value of the contribution. However, in the further part of this provision, the legislator gave the possibility of a different determination of the shareholders' share in profits and losses through an appropriate provision in the contract. It should be remembered that in the event of not stating it in the contract, the agreed ratio of the shareholder's share in profits also applies to the share in losses.
The provisions of the Civil Code make it possible to exempt some partners from participation in losses. However, they do not allow the partner to be completely excluded from participation in the profits.
If the profit share in question is to be changed, adjustments must be made to the contract. The form of changing the proportions depends on the contractual provisions of the company. The annex and the resolution must be prepared in writing. Importantly, if the articles of association do not contain provisions on the procedure for voting on resolutions, then the resolutions must be adopted unanimously.
A change in the share in profits and losses may not take place with a retrospective date, but only on the date of the annex or the adoption of a resolution, or at a later date indicated in the contract or resolution.
Modification of the contract in terms of the contribution and the tax obligation
The legal act consisting in drawing up a civil law partnership agreement, including its amendment, is subject to tax on civil law transactions. Pursuant to the provision of Art. 1 clause 1 point 1 lit. k) and point 2 of the Act on tax on civil law transactions (hereinafter referred to as the PCC Act), articles of association and amendments to these agreements are subject to tax, provided that they increase the tax base with the tax on civil law transactions.
In turn, according to art. 1 clause 3 point 1 of the PCC Act, an amendment to a civil law partnership agreement is considered to be a contribution or increase in contributions, the value of which increases the company's assets, a loan granted to the company by a partner, additional payments and the partner's transfer of property or property rights for free use. The tax obligation rests with the partners of the company. This liability is jointly and severally liable (ie each partner is responsible for the repayment of the entire benefit. If the debt is repaid by one person, the rest is released from further liability for the obligation).
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A tax on civil law transactions in the amount of 0.5% is collected on the articles of association. The same rate applies to amendments to the articles of association, including an increase in contributions. It should be remembered that the tax obligation arises only when the value of the contribution made increases the company's assets. Therefore, making a contribution to the company in the form of the provision of services will not increase the assets and thus increase the tax base.
In the event of a tax obligation, all partners must be indicated in the tax declaration, and all of them should also sign it. The deadline for submitting the declaration and paying the tax is 14 days from the date of introducing changes to the articles of association. The declaration must be submitted to the tax office competent for the company's seat. If the articles of association are made in the form of a notarial deed, then the notary public will collect the tax and remit it directly to the tax office.
Increasing contributions in a civil law partnership - summary
Increasing contributions in a civil law partnership is of course possible and does not require the extremely high involvement of the partners. However, it should be remembered that the increase in contributions involves the change of the entire articles of association, so it must be done through an annex to the existing contract or by drawing up a new one. Contract modifications should be made in writing for evidence purposes. However, if the subject of the contributions is real estate, the contract must be concluded in the form of a notarial deed. Shareholders must also remember that in a situation where the contributions made increase the company's assets, the appropriate tax must be paid in the amount of 0.5% of the value of the contributions.