Andrzej Krawczyk
Akademia Rozwoju Systemów Sieciowych

OVERVIEW

1 What forms of business entities exist that would be relevant to the typical franchisor?
The most common forms of business entities used by the typical franchisor are limited liability company or joint-stock company. A limited liability company is the most common form of business activity in Poland. The Polish spółka z ograniczona odpowiedzialnoscia (Sp z o o for short) is a Polish equivalent of the American closely held corporation,the English private limited liability company, the French société a responsabilité limitée or the German Gesellschaft mit beschränkter Haftung. This type of company is effective with regard to large, capital-intensive and risky ventures. On the other hand, a limited liability company may be established by small businesses with equal success. A joint-stock company is a typical stock corporation. The Polish spółka akcyjna is similar to the American public corporation, the English public limited company, the French société anonyme or the German Aktiengesellschaft.
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2 What laws and agencies govern the formation of business entities?
The formation of business entities and conducting of business activities are governed by the Freedom of Business Activity Act and the Commercial Companies Code. The business entities are registered either with the municipal authorities or with the commercial courts (see question 3).
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3 Provide an overview of the requirements for forming and maintaining a business entity.
In order to conduct business in Poland, the franchisor should complete a number of formalities. First, it should register its firm with the municipality office or with the commercial court, depending on the legal form of business. If the business is to be conducted as a sole proprietorship or a civil partnership, the franchisor should go to the municipal office having jurisdiction over its place of residence and complete and file an application form called ‘application for entry in the business records’. However, registered, limited, limited joint-stock and professional partnerships, as well as limited liability and jointstock companies, are entered in the the register of entrepreneurs held by the National Court Register. Branches of that register are located in commercial courts, which are part of local district courts. A limited liability company may be founded by one or more natural or legal persons for business activities or for any other purpose allowed by Polish law. In order to establish a limited liability company, shareholders must have capital worth at least 50,000 zlotys (approximately e15,000). Such a company may be established by one person, but may not be incorporated by a different one-member limited liability company. The share capital of the company is made up of shares that are subscribed for in exchange for contributions made in the form of cash, objects (eg, machinery, buildings) or rights (eg, rights in trademarks). The articles of association must be drawn up in the form of a notarial deed. The company is liable for all obligations of a limited liability company with all of its assets, while companyshareholders are not liable for the same. A joint stock company may be founded by one or more persons making a contribution of at least 500,000 zlotys (approximately e150,000). However, this type of company may not be incorporated by a one-member limited liability company alone. The upsides of a joint stock company are that it may easily attract capital, for example, by means of a public offering and that its shareholders are not liable for its obligations. A joint-stock company is liable for its obligations with all of its assets. However, a joint-stock company is run in a highly formalised manner; moreover, both incorporation and liquidation are complex affairs. For these reasons, investors are urged to establish and run joint stock companies with the assistance of legal advisors.

In order to submit a company to the register of entrepreneurs, a franchisor should complete an appropriate application for registration, appending to it the articles of association, a statement on capital contribution, a document on appointment of members of the company’s corporate bodies, a shareholders’ list, as well as the notarised signature samples of persons authorised to represent the entity or signature samples of the same executed in the presence of a judge or an authorised officer of the court. Additionally, the franchisor should append several other supplemental application forms relating to, inter alia, the company’s branches and local organisational entities (if any), its corporate bodies and shareholders authorised to represent the company, shareholders of the company, the manner in which the company was established, its corporate objects, holders of a commercial proxy – if any – and a share issue (in the case of a jointstock company). The registration fee charged by the National Court. Register is 1,500 zlotys (approximately e451) and the registration takes approximately one month.

Subsequently, the franchisor should obtain a registration with the National Economy Register (REGON). To this end, the franchisor should go to the Regional Statistical Office and file the relevant application form there (RG-1 form). There is no fee for the application and the applicant waits no more than seven days for the number to be assigned. After receiving the REGON number, the franchisor should have company seals made for it as these will be needed to complete further formalities. Then the franchisor should open a corporate bank account – it should be noted that, under Polish law, all money transactions made during the course of a company’s business must be settled through a special corporate bank account. Subsequently, the franchisor should file an application for the NIP number with the Tax Office, choose the manner in which he wants to settle tax liabilities with the taxman (ie, tax card, the fiscal register of receipts and expenditures, full accountancy or lump-sum tax on recorded receipts) and inform the Tax Office whether or not the entity will be a VAT payer. There is no fee for the NIP number. There is, however, a fee of 152 zlotys (approximately e 45,70) for VAT submission. Finally, within seven days of the firm launching business activities, it must be registered with the Social Security Office (ZUS) as a ZUS payer (that, an entity authorised to pay regular social security contributions).
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4 What restrictions apply to foreign business entities and foreign investment?
Foreigners from the European Union (EU) and the European Free Trade Agreement (EFTA) zones belonging to the European Economic Area (EEA) may establish and conduct business under the same rules as those that apply to Polish entrepreneurs.
The same rules also apply to foreigners living outside the EU and the EEA who have received a permit to settle in Poland, hold a residence permit or the status of a refugee granted in Poland or enjoy temporary protection in this territory.
Unless international agreements state otherwise, foreigners other than those indicated above have the right to establish and conduct business activities only in the form of (i) limited partnerships, (ii) limited joint stock partnerships, (iii) limited liability companies or (iv) joint stock companies.
Such foreigners also have the right to enter into these types of partnerships or companies and acquire their shares. Furthermore, foreign entrepreneurs may conduct business activities in the form of a branch office or may establish representative offices in Poland.
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5 Briefly describe the aspects of the tax system relevant to franchisors. How are foreign businesses and individuals taxed?
The taxation system is uniform across Poland, and only small differences may appear in local taxes. Polish tax legislation does not distinguish between franchising and other forms of business. In general, foreign companies and individuals pay the same taxes as Polish legal entities or private individuals. The exceptions to this rule are businesses where taxation is regulated by international treaties signed by Poland (agreements on the avoidance of double taxation).
The main taxes in Poland are:

• corporate income tax (CIT);
• personal income tax (PIT);
• tax on goods and services (VAT);
• excise tax; and
• stamp duty or tax on civil law transactions.

The franchise fee is subject to 22 per cent VAT and 19 per cent CIT (on the difference between franchising income and tax-deductible expenses).
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6 Are there any relevant labour and employment considerations for typical franchisors? What is the risk that a franchisee or employees of a franchisee could be deemed employees of the franchisor? What can be done to reduce this risk?
There are no such considerations for typical franchisors. With a properly formed franchise there is no risk that a franchisee or employees of a franchisee could be deemed employees of the franchisor.
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7 How are trademarks and know-how protected?
Protection of a trademark is obtained by registration with the Patent Office of the Republic of Poland. The right in a trademark remains in effect for 10 years from the date of correct submission of a trademark, and not from the date of registration. Priority in obtaining the rights from the registration of a trademark depends on the date of correct submission thereof to the Patent Office. The Patent Office takes a very long time to process the application (approximately three to four years). However, the trademark is protected as of the date of submission. It is subject to temporary protection, which is granted on condition that the trademark is registered thereafter.
In order to register a given trademark, an entity or person does not need to be using it at the time of filing an application for registration. However, in order to ensure that the protective right to a trademark does not expire, the applicant should, within five years from the issuance of a decision on granting a protective right to a trademark, begin to actually use the trademark in business dealings, marking with it the goods and services covered by the registration.
As soon as Poland joined the EU, community trademarks (CTM) became subject to protection in Poland. Trademarks submitted for registration in the countries belonging to the Madrid Agreement or the Protocol to the Madrid Agreement, or both, may also obtain protection in Poland. The owners of the abovementioned trademarks are entitled to the same protection in Poland in the same way as the owners of domestic trademarks are protected. If the use of a foreign trademark in Poland runs contrary to the public order or morality, it may be banned. However, the registration itself may not be challenged. Similarly, the owners of Polish trademarks may apply for international registration and in the entire EU.
Provisions of law envisage only two situations in which non-registered trademarks are granted specific rights. In the first, the right of gratuitous use of a marking, which was subsequently registered as a trademark by another entity, is granted to a person who, while conducting small-size business activities, used it prior to registration in good faith. Following registration of that trademark in favour of someone else, the person involved may continue to use the marking, provided that he or she does not exceed the scope of use. However, it does not amount to a protective right for the exclusive use of a marking for specified goods or services. The other situation applies to a commonly known trademark. Even if a trademark is not registered, the person entitled to it may demand cessation of use of an identical or similar mark with respect to identical or similar goods, where such use may mislead recipients as to the origin of the goods.
The Law on Combating Unfair Competition defines the term ‘business secret’ as unpublicised technical, technological and organisational information of an enterprise or other information of economic value, with respect to which the entrepreneur has taken the requisite actions to keep it secret. An act of unfair competition is construed to mean an act of transmitting, disclosing or using another’s information constituting a business secret or an act of obtaining it from an unauthorised person, if the same jeopardises or infringes the entrepreneur’s interest.
In order to effectively assert claims under the provisions of the Law on Combating Unfair Competition, a franchisor that discloses its know-how and confidential information to a franchisee should oblige the latter, preferably in writing, to keep it secret. Moreover, the franchisor should precisely describe the essence of the knowhow that it protects in order to be able to prove any possible breach of confidentiality in the future. If a franchise agreement entitles the franchisee to use the franchisor’s trademark and know-how solely for the effective term of the agreement, upon termination or expiration of the agreement the franchisee may not use the said rights. However, if during the effective term of a franchise agreement, the franchisee itself invents and introduces a new form of a product being accepted within the entire network, the franchisee is the author thereof in accordance with the law and is therefore entitled to any royalties and the author’s moral rights. To be on the safe side, the franchisor may insert a clause in an agreement stipulating that any royalties to any works invented by the franchisee belong to the franchisor. In that case, the franchisee will be entitled solely to the author’s moral rights to the work concerned.
There is no law limiting the right of a franchisor to prohibit use of its know-how and proprietary information by the franchisee after the termination or expiration of the franchise.
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8 What are the relevant aspects of the real estate market and real estate law?
Foreigners who are citizens or entrepreneurs of the EEC countries do not need permission (with a few exceptions) to purchase real estate and to acquire or receive shares or holdings in a company, if this company owns or is in possession of the right to the long-term lease of real estate. Other foreigners may purchase real estate only after receiving permission from the Ministry of Internal Affairs and Administration (after approval by the Ministry of Defence and, in the case of farmland, also after receipt of approval by the Minister of Agriculture). Under the Law on Spatial Development all local land use plans that were adopted before 1 January 1995 were terminated as of the end of 2003. The new plans should have been prepared by the managements of municipalities, but the reality is that so far, many of them have not done that. As a result, sites that are situated within the areas covered by new detailed local land use plans are very rare and therefore very expensive. If there is no local land-use plan, a decision on site development conditions must be obtained before land development methods can be determined. Such a decision may be issued on the basis of the ‘good neighbour’ principle and only if a number of conditions are met.
It is quite common for retail developers and managers to use leasing agents, although some of them have their own in-house leasing teams. It might be advisable for the tenants (especially new entrants) to use agents as well. Many of the big international property consultants have been present on the Polish market since the mid-1990s. The regulation of commercial leases in Poland is quite limited, with very few mandatory rules that apply. This leaves a relatively broad scope for contractual regulation. However, it must be noted that there have not been too many court cases to test whether certain provisions of lease contracts are not too far-reaching.
Up until now, no common model of a standard commercial lease has been adopted in Poland. However, core provisions of standard retail leases seem to be generally accepted. As a rule, for example, each shopping centre has its own standards and only certain terms and conditions are negotiable (and not the structure itself). Needless to say, the final outcome of such negotiations depends on the market position of the given scheme and the attractiveness of the potential tenant.
Shopping centre leases tend to be for five to 10 years. It is also common for retailers to be offered five-year leases with a right to renew for a further five years. Most rents are quoted in and indexed annually to European or US annual inflation, although rents linked to turnover are becoming increasingly common.
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LAWS AND AGENCIES THAT REGULATE THE OFFER AND SALE OF FRANCHISES
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9 What is the legal definition of a franchise?
There is no legal definition of a franchise in the Polish legal system.
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10 Which laws and government agencies regulate the offer and sale of franchises?
In Poland there are no laws or government agencies regulating the offer and sale of franchises. Franchisors are not required to make any specified disclosures to prospective franchises prior to the grant of a franchise.
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11 Describe the relevant requirements of these laws and agencies.
Not applicable.
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12 What are the exemptions and exclusions from any franchise laws and regulations?
Not applicable.
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13 In the case of a sub-franchising structure, who must make pre-sale disclosures to sub-franchisees? If the sub-franchisor must provide disclosure, what must be disclosed concerning the franchisor and the contractual or other relationship between the franchisor and the sub-franchisor?
Not applicable.
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14 What is the compliance procedure for making pre-contractual disclosure in your country? How often must the disclosures be updated?
Not applicable.
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15 What information must the disclosure document contain?
Not applicable.
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16 How do the relevant government agencies enforce the disclosure requirements?
Not applicable.
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17 What actions can franchisees take to obtain relief for violations of disclosure requirements? What are the legal remedies for such violations? How are damages calculated? If the franchisee can cancel or rescind the franchise contract, is the franchisee also entitled to reimbursement or damages?
Not applicable.
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18 In the case of sub-franchising, how is liability for disclosure violations shared between franchisor and sub-franchisor? Are individual officers, directors and employees of the franchisor or the sub-franchisor exposed to liability? If so, what liability?
Not applicable.
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19 In addition to any laws or government agencies that specifically regulate offering and selling franchises, what are the general principles of law that affect the offer and sale of franchises? What other regulations or government agencies or industry codes of conduct may affect the offer and sale of franchises?
The offer and sale of franchises is affected by the principles of contract law. It may also may be subject to general mergers and acquisitions control procedures such as notification of or receipt of consent from the European Commission, the Polish Office for Competition and Consumer Protection or the Polish Securities and Exchange Commission.
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20 What other actions may franchisees take if a franchisor engages in fraudulent or deceptive practices in connection with the offer and sale of franchises? How does this protection differ from the protection provided under the franchise sales disclosure laws?
According to the general provisions of Polish Civil Code, the franchisee is entitled to rescind the franchise agreement or to demand its termination and to claim damages if the franchisor’s actions are in breach of the law. In rare cases also criminal proceedings against the franchisor may be possible.
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LEGAL RESTRICTIONS ON THE TERMS OF FRANCHISE CONTRACTS AND THE RELATIONSHIP BETWEEN PARTIES INVOLVED IN A FRANCHISE RELATIONSHIP
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21 Are there specific laws regulating the ongoing relationship between franchisor and franchisee after the franchise contract comes into effect?
The ongoing relationship between franchisor and franchisee after the franchise contract comes into effect is regulated by the general provisions of the Polish Civil Code.
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22 Do other laws affect the franchise relationship?
Apart from the Polish Civil Code the franchise relationship is affected by, among other things, competition law, intellectual property regulations, consumer protection and tax law.
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23 Do other government or trade association policies affect the franchise relationship?
The Polish Franchisors’ Organisation (PFO) adopted the European Code of Ethics in Franchising as its own mandatory code of ethics and this may affect the franchise relationship. Membership of the PFO is voluntary and it lacks any statutory authority or power. It is relatively easy to join the PFO upon payment of a membership fee. However, the PFO does not have many members and as a result this code of ethics has not been widely adopted by the Polish franchise community.
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24 In what circumstances may a franchisor terminate a franchise relationship? What are the specific legal restrictions on a franchisor’s ability to terminate a franchise relationship?
There are no limitations on what grounds may be specified in a franchise agreement for termination of a franchise. It is advisable that the termination notice be done in writing in order to preserve ad probationem form. There are no restrictions on the rights of a franchisor to terminate a franchise agreement or to grant a new franchise to another person for the same location or territory after the franchise has expired. The death or permanent disability of a franchisee, or the principal or managing owner of the franchisee, are proper grounds for termination of the franchise.
The franchisor is not required by the operations of law to purchase inventory from or pay any other compensation to a franchisee upon termination or non-extension of its franchise or the franchisor’s refusal to grant another franchise to the franchisee. If a franchisor owns the real estate at which the franchisee’s business is located, the franchisor may take over and operate the business formerly operated by the franchisee after the franchise agreement has been terminated or has expired.
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25 In what circumstances may a franchisee terminate a franchise relationship?
See question 24.
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26 May a franchisor refuse to renew the franchise agreement with a franchisee? If yes, in what circumstances may a franchisor refuse to renew?
There are no limitations on what grounds may be specified in a franchise agreement for non-extension of an expired franchise or for the franchisor’s right to refuse to grant another franchise to the original franchisee.
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27 May a franchisor restrict a franchisee’s ability to transfer its franchise or restrict transfers of ownership interests in a franchisee entity?
A franchisor may restrict a franchisee’s ability to transfer its franchise in the franchise agreement. The franchisor may also restrict transfers of ownership interests in a franchisee entity. The franchise agreement may, however, provide for a right of first refusal for a franchisor in that case, or for a right to terminate the agreement in that case or in other cases of change of control.
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28 Are there laws or regulations affecting the nature, amount or payment of fees?
There are no limitations imposed by law relating to the nature, amount or payments of fees, royalties or other sums payable by a franchisee to a franchisor.
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29 Are there restrictions on the amount of interest that can be charged on overdue payments?
There are no limitations on interest rates that may be lawfully charged in the event of default; however, market practice shows that usually these are statutory interest rates. The Polish courts tend to interpret excessive interest rates as contractual penalties, which allows them to limit the amount to an appropriate level in accordance with respective provisions of Polish Civil Code.
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30 Are there laws or regulations restricting a franchisee’s ability to make payments to a foreign franchisor in the franchisor’s domestic currency?
There are no restrictions on the payments to a foreign franchisor in the franchisor’s domestic currency.
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31 Are confidentiality covenants in franchise agreements enforceable?
Confidentiality covenants in franchise agreements are enforceable, but it is advisable to have them drafted in precise wording and stipulate contractual penalties as it might be difficult to prove specific damages.
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32 Is there a general legal obligation on parties to deal with each other in good faith? If so, how does it affect franchise relationships?
Good faith is a general legal principle in Polish law, but there is presently no case law concerning franchising.
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33 Must disclosure documents and franchise agreements be in the language of your country?
Polish law does not require franchise agreements to be drawn up in Polish. If an agreement is drawn up in the language of the franchisor’s country and in the Polish language, it may stipulate that the foreignlanguage version is binding in the event of a dispute. However, in such a case a Polish court will require the foreign language version to be translated into Polish by a sworn translator (a translator certified by the president of the competent Polish court). It should be borne in mind that, despite fluently speaking the language of an agreement, a sworn translator does not have to be conversant in legal terminology. This is why translations of agreements should be approached with a great degree of caution.
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UPDATE AND TRENDS

Currently, in Polish law a franchise agreement belongs to a class of ‘innominate’ contracts, that is, contracts that are not regulated in the Civil Code or in any other provisions of civil laws. Under Polish law, franchise agreements may be concluded (just like leasing agreements in the past) on the basis of the freedom of contract principle, as set forth in the Civil Code. The above-cited provision is a general clause and indicates that franchise agreements may operate in Polish law as innominate contracts within the limits circumscribed by the freedom of contract principle. However, as nowadays the franchise market is booming in Poland and the number of franchise agreements is still increasing, there have been opinions that the franchise agreement should be defined in the Civil Code. Currently, the governmental codification commission is working on the amendments to the Civil Codes and one such amendment is the inclusion of the franchise agreement into it. But the work of the codification commission is still in its early stages and it is not possible to determine the potential scope and content of the proposed regulation of franchise agreements.
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34 What restrictions are there on provisions in franchise contracts?
There are no limitations imposed by law relating to:

• the term of a franchise;
• the amount of fees, royalties or other sums payable by a franchisee to a franchisor;
• the obligation of the franchisee to operate only the franchised business or to devote his or her working time exclusively to that business;
• restrictions on the products or services sold by the franchisee;
• territorial rights granted to the franchisee; or
• quality and other standards of controls imposed by a franchisor on the franchisee.

Some restrictions on provisions in franchise agreements are imposed inter alia by the provisions of competition law, which prohibits agreements that determine, whether directly or indirectly, prices and other terms of purchase or sale of goods, or divide sales or purchase markets. Such agreements are null and void in whole or in their relevant part.
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35 Describe the aspects of competition law in your country that are relevant to the typical franchisor. How are they enforced?
Competition law in Poland follows EU regulations on competition and is contained in the Competition and Consumer Protection Law (the Law). Under a discretionary power accorded to it in the Law, the Council of Ministers issued a regulation on excluding specified vertical agreements from the prohibition on competition-restricting agreements. Excluded from the prohibition are, among others, vertical agreements creating franchising distribution systems if the share of the distributor and the capital group to which it belongs in the relevant market for the sale of goods covered by the agreement concerned
does not exceed 30 per cent.
It should be noted that the regulation does not refer to franchising systems; instead, it makes use of the term ‘franchising distribution’, which is defined as a distribution system in which the distributor (franchisee) undertakes, whether directly or indirectly, to resell the goods covered by the agreement from the distributor (franchisor), using the latter’s set of intellectual or industrial property rights or know-how in exchange for direct or indirect remuneration.
The above provision seems to indicate that only product distribution franchising systems are excluded under the regulation and that the regulation does not apply to business-format franchising systems, which undoubtedly complicates their situation under competition protection provisions. In this author’s opinion this is probably an oversight, rather than an intended act on the part of the drafters of the regulation, which stems from their incomplete knowledge of franchising. This obvious inconsistency should be remedied as soon as possible, although on the other hand it should be noted that, during the effective term of the previous exclusion, which lapsed as of the end of 2007, it produced no negative consequences for any of the business format franchising systems operating in Poland.
The chairman of the Office for Competition and Consumer Protection initiates antitrust proceedings on competition-restricting breach of the prohibition set forth in the Law, he or she issues a decision on finding such practice to be restrictive for competition and on ordering the breaching party to abstain from it. He or she may also levy a fine on the breaching party. Appeals against decisions issued by the Chairman of the Office are reviewed by the Court of Competition and Consumer Protection. practices either upon request or ex officio. If the chairman declares a breach of the prohibition set forth in the Law, he or she issues a decision on finding such practice to be restrictive for competition and on ordering the breaching party to abstain from it. He or she may also levy a fine on the breaching party. Appeals against decisions issued by the Chairman of the Office are reviewed by the Court of Competition and Consumer Protection.
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36 Very briefly describe the court system. What types of dispute resolution procedures are available relevant to franchising?
The court system includes common courts, administrative courts and military courts. The highest court authority is the Supreme Court in Warsaw. Common courts include circular courts, district courts, regional courts and courts of appeal. The business courts are parts of selected regional and district courts.
Arbitration is still of little use in business practice in Poland and the court litigation remains the most popular tool for solving trade disputes. However, the domestic courts of arbitration have become more popular in the recent years. Their judgments, as well as the judgments of foreign arbitration courts, can be enforced by public authorities.
In practice, most of the disputes resulting from franchise agreements are resolved in arbitration. Thus, there is not much case law concerning franchising in the public domain.