Civil partnership – how does it work and how to establish it?

How does it work?

The civil partnership is regulated to a limited extent (art. 860 and following of the Civil Code), which may cause problems in its operation if the partnership agreement is not sufficiently detailed. A civil partnership does not have legal capacity – it is not de facto a company, but an agreement in which at least two entities, e.g., a person running a sole proprietorship and a limited liability company, commit to act together. A civil partnership cannot perform any legal actions in its own name. This means that it cannot, for example, acquire property in its own right. Partners can do this. In such situations, they are the parties to the legal relationship. Partners in a civil partnership can be not only natural persons but also other entities (for example, limited liability companies).

How to create it?

The partnership agreement is concluded in a regular written form, subject to cases where the contribution to the partnership is real estate. In such cases, it is necessary to conclude the partnership agreement in the form of a notarial deed. The civil partnership should be registered with the Central Statistical Office and the tax office. Partners should disclose in the appropriate registers (KRS or CEiDG) that they are partners in the civil partnership.

The civil partnership agreement should include, in particular:

• the date and place of the agreement,
• the name and registered office of the partnership, as well as the area of its operation,
• the duration for which the partnership is established and information about its partners,
• the business purpose and the method of achieving it,
• information about the contributions made by individual partners,
• the method of representation,
• the method of sharing profits and covering losses,
• the method of amending the agreement and terminating participation.

Distribution of profits

As a rule, partners can demand the division and payment of profits only after the dissolution of the partnership. However, if the partnership was established for a longer period, partners may demand the division and payment of profits at the end of each financial year. There is also the possibility of an earlier profit distribution, e.g., as an advance on the profit earned by the partnership in a given financial year. It is recommended that the method of distributing advances to partners be regulated in the partnership agreement.

Income tax

Income tax is levied only at the level of the partners – each partner settles within the framework of their business activity. The profit at the level of the civil partnership is not taxed.

Liability

Partners in a civil partnership are jointly liable for its obligations. A partner is liable with their entire assets (personal liability of the partner).

Accounting

An advantage of a civil partnership is the possibility of maintaining simplified accounting. However, this applies only if the partners are exclusively natural persons, and the net income for the previous financial year does not exceed 2 million euros.

Cost of establishment

In connection with the conclusion of the civil partnership agreement, a civil law transaction tax (0.5% of the value of the contributions made by the partners) must be paid. In the case of concluding the partnership agreement in the form of a notarial deed, it is also necessary to take into account the need to pay notarial fees.