The law is changing even faster than front-end frameworks.
According to industry media, 125,890 new legal acts were announced in Polish official journals in 2020. 22,567 acts were amended at least once. The Covid Law alone has been amended 66 times. Moreover, we have EU law - regulations, which apply in the same terms in all member states, and directives (which a member state must implement in its local legal order within a certain period).
Every software house in Poland has to deal with a great number of regulations of common law. Where to start, what does an entrepreneur have to deal with?
Economic activity - so in what way?
In Poland, it is possible to conduct business in several ways. Below we discuss the basic types:
- within a single-person economic activity, registered in the Central Registration and Information on Economic Activity
- as a commercial company;
- as a civil partnership;
- as an association or foundation.
However, since we do not recommend doing business as a civil partnership as well as associations and foundations - those are not creations that are designed with business in mind, we will skip discussing these forms.
A single-person economic activity
A single-person business is characterized by the entrepreneur's full responsibility for all obligations of the "company." It should be pointed out that: we are not dealing here with some detached assets of the "company" (regardless of the accounting solution adopted for the purchase of assets), because both the receivables and debts of the "company" belong to the entrepreneur.
This form has its advantages, but also disadvantages. The advantages surely include a reduction in the cost of operating a "company" - an entrepreneur registered in the Central Registration and Information on Economic Activity does not need to have complex bookkeeping, such as, for example, a limited liability company. Another advantage is the ease and rapidity of registering a business, which can be done without moving from home (provided you have a trusted profile, with which you can submit an application to the city officials responsible for the company's location). Business can be operated single-handedly in this form, and the non-necessity of having a trusted partner can be taken as another advantage.
The main drawback is an unlimited liability with one's assets towards the "company's" obligations. If the entrepreneur is married with a community of property, creditors can also seek collection of debts from the joint property of the spouses.
Another disadvantage, more of an image one, is that an entrepreneur registered in the Central Registration and Information on Economic Activity may be perceived as less reliable in business relations than a company. However, it is not always the case, because, for an individual who understands the rules of conducting business in various forms, a self-employed person will be more credible than an artificial company set up just to remove the actual entrepreneur (the founder of the company) from its obligations.
Commercial company
In Poland, we can choose from several types of commercial companies: general partnership, professional partnership, limited joint-stock partnership, limited liability company, simple joint-stock company, and joint-stock company. We will not discuss each of these companies, however, a few points should be made.
Firstly, a professional partnership, limited partnership, and limited joint-stock partnership are unlikely to interest a soon-to-be entrepreneur. A professional partnership is reserved only for the so-called independent professions, while a limited joint-stock partnership is impractical and unfavorable in terms of taxes. Unfortunately, the tax disadvantage in 2021 also became visible in a limited partnership, which is now subject to double taxation (the partners are taxed - with Personal Income Tax and the partnership itself - with Corporate Income Tax).
Secondly, after considering the companies mentioned above, the only partnership really worth mentioning is a general partnership. It is characterized by the fact that the partners of this partnership are liable with their full assets for their obligations when the partnership becomes insolvent. In the general partnership, the relationship of the partners (at least two - they can be individuals, but also companies) to the company is the closest. A general partnership is relatively less formalized and less costly to operate and is recommended for those who want to conduct business together, reduce the costs associated with the operation of the company, and at the same time are not overly afraid of liability for the company's obligations (due to, for example, the profile of services provided or clients served).
For the IT industry, we do not recommend doing business in this form and recommend directing attention toward capital companies - discussed below. The authors of this article conduct business in the form of a general partnership, but this is due to the fact that legal advisors - as proffesion of public trust - cannot conduct business in the form of a capital company (they must remain formally and personally liable for their obligations). The IT industry is not affected by this limitation.
Thirdly, a limited liability company, a simple joint-stock company, and a joint-stock company are so-called "capital" companies. The relationship between the partners (shareholders) and the company is not tight. Such companies are represented by a management board. These are companies with highly formalized "operating" instructions but are also more expensive to maintain (required bookkeeping, requirement to pay a minimum share capital). The advantage of capital companies is much greater legal security for those running the company. The liability of shareholders for the company's obligations is excluded. On the other hand, the liability of board members is limited in the case of a limited liability company and a simple joint-stock company, and significantly limited in the case of a joint-stock company.
Despite various disadvantages, running a business in the form of a company also has quite a few advantages. In our opinion, the optimal form of business for a software house is a limited liability company or a joint-stock company - especially in the case of larger-scale operations and implementation of projects that generate the risk of far-reaching damage to clients. When establishing and registering a company and completing needed procedures, it is recommended to use the reliable legal support.
Personnel
No matter what business you run, you can establish cooperation with the personnel you hire in various ways. With personnel, you can conclude:
- an employment contract;
- a civil-law contract;
- a business cooperation agreement (a b2b contract).
In addition to this, the rental of employees and even entire teams (so-called body leasing and team leasing) comes into play, as discussed in our other publications.
An employment contract
An employment contract is a formalized legal relationship, and the content of this relationship is determined by the Labor Code and other specific regulations. An employment contract cannot be in conflict with labor laws, which means that if the employer wants to introduce an incompatible clause to the disadvantage of the employee (even slightly), the clause will not apply - the relevant labor law provision will apply instead.
On the one hand, the employment contract is expensive for the employer. To pay an employee PLN 5,000 “take-home pay” the employer must bear a cost of approximately PLN 8,400 (the salary paid to the employee, however, is entirely tax-deductible for the employer). An employment contract means normal working hours, the obligation to pay for the extra hours, minimum vacation leave, sick and maternity leave, etc. On the other hand, it is also the certainty that the employee will not resign "overnight"; it is also a peace of mind in the case of a possible inspection by the State Labor Inspectorate. An employment contract is also often beneficial in terms of image for the employer.
It should be remembered that with the employment of more than a certain number of people, the legislator binds obligations to the employer. For example, when employing more than 50 people, the employer is obliged to introduce workplace regulations and pay regulations, and an employer employing more than 20 people is bound by regulations related to group redundancies.
Civil law contract
In practice, two basic types of contract are most often used: a contract for specific work and a contract of mandate (or more broadly: a contract for the provision of services).
The popularity of this form of cooperation is greater in relation to interns or specialists obtained part-time to perform specific tasks who do not run a business. These forms of cooperation give practically nothing to the personnel - they do not give seniority, and the contract for work has nothing to do with the future retirement pension. At the same time, so-called junk contracts deprive personnel of the rights provided for in the Labor Code.
Additionally, there is a risk for the entrepreneur that such contracts will be questioned if the personnel provide services or perform work permanently (as with a full-time job). The State Labor Inspectorate can initiate legal proceedings to establish the employment relationship. If it succeeds in proving that the concluded contract does correspond to an employment relationship, the employer can expect a fine as a result, as well as the obligation to pay all due Social Security contributions, advance income tax payments, etc.
The use of such contracts is also risky, as subsequent governments promise to "abolish" them. Certainly, cooperation with personnel employed on such a basis is also less stable and worse in terms of image.
B2b contract
In a b2b contract, the entrepreneur is dealing with a second independent entrepreneur, and if (s)he doesn't want to fear The Labour Inspectorate or the National Tax Administration, (s)he should make sure that the cooperation agreement properly reflects this. Such associate is not bound by work regulations or pay regulations, and there is no need to pay attention to restrictions under the Labor Code. This does not mean, however, that the agreement can have any shape - according to the saying "paper will accept anything".
Settlements with such an associate are extremely simple, as they issue VAT invoices, which the software house must pay. That's all. A b2b contract is also easier to terminate as a rule - an "ordinary" contract termination does not need to be justified in any way and the Civil Code also gives considerable scope of freedom as to when to terminate it.
Protection of the economic interests of the entrepreneur
The conclusion of contracts (no matter which ones) with personnel is associated with the necessity of protecting the basic economic interests of the entrepreneur, which is often realized by concluding additional non-competition or non-disclosure agreements.
GDPR - protecting personal data by design
GDPR should be thought about as soon as a business is started. Often this issue is left "for later", which is a huge mistake because the greater chaos in this area builds up, the more difficult and costly it will be to sort it out. The GDPR introduced the principle of "privacy by design," which means that you need to think about data protection from the design stage of procedures, IT systems, products, instructions, or other processes, and not only at some later stage. GDPR applies not only to employer-employee relationships, but also: employer-client, employer and an accounting firm, employer-recruiting agency, etc.
Industrial property and copyright
Every self-respecting company wants to stand out from the crowd, to create its own recognizable brand. An indispensable part of the image is having a logo and trademark. An important matter for a company with its own trademarks is to have them registered at the national level, as well as throughout the EU. In Poland, the right office will be the Patent Office of the Republic of Poland, while at the EU level it is the European Union Intellectual Property Office (EUIPO). When your business will also be conducted outside the EU, you can apply to WIPO - the World Intellectual Property Organization.
What does such a reservation give you? First and foremost, it ensures, that you are exclusively entitled to use a particular trademark or logo in a particular territory. If an entity unlawfully appropriates such a mark, or imitates it in such a way that consumers may confuse the marks, you can pursue claims against them.
We have written about copyright in the IT projects in our other article, while here we will only point out that copyright for a software house is the same as for a helicopter propeller - without them, you will not fly far.
It is important to remember that it is one thing to protect one's own works from unauthorized entities, and another thing to conduct business in such a way that you do not infringe the rights of other entities. In case of any doubt, legal analyses should be undertaken - the sooner, the better, according to the principle "prevention is better than cure". And most importantly, it should be remembered that the acquisition of copyrights under Polish law requires a written form, which a software house often forgets about in its relations with its self-employed personnel, in the case of whom the transfer of copyrights does not occur by force of law.
Summary
We have listed the basic elements that need to be considered preferably even before starting a business. However, the legal environment is more complex, and without regular legal support it is easy to get lost in it.
All this can be overwhelming, however, you do not have to deal with it alone. If you have any legal doubts, it is advisable to consult a legal advisor.
Related articles:
IT services outsourcing
Outsourcing of IT personnel
Confidentiality protection in IT
Managed service vs body leasing
Nearshoring vs offshoring in IT
Legal services in IT - tasks
Publication date: 10.11.2021.