One of the key elements in a limited liability company is to determine the form of cooperation with a board member in the company. It depends on a number of factors, including: the scope of responsibility, the cost of employment, or the effect of being subject to social insurance. Before making a decision, it is worth determining all the risks and benefits of the chosen form of employment. Choosing the right form of employment and correctly structuring an employment contract or management contract can protect the company from future possible conflicts with board members.
Appointment
Appointment is the basic form of cooperation between a board member and a limited liability company. A board member d is appointed by a resolution of the shareholders’ meeting or in the company’s articles of association. In a situation where a member of the management board does not enter into any agreement with the company, the basis for his or her action is the relationship of appointment. Most often, the appointment is made through the adoption of an appropriate resolution, in which all relevant issues concerning the board member’s work are specified.
The employment of a board member in a limited liability company on the basis of an appointment is characterized primarily by the lack of social insurance of such employment. Only income tax is paid on the salary paid to the appointed board member.
Management contract
Another form of cooperation is the management contract, it is a type of unnamed contract for the provision of services, to which the provisions on commission are applied accordingly. The idea behind this type of contract is for the board member to manage the company, without being subordinate to the company and without its management, as in the case of an employment contract.
The management contract allows the exact terms of the board member’s employment with the company to be determined. Starting from the issue of remuneration, to the responsibility for performance and the detailed scope of duties performed for the company.
In the case of management contracts, the same rules apply as for mandate contracts. So, these are social security insurance contracts on which we make contributions and pay income tax. It is worth noting that under certain conditions, a self-employed board member will be able to settle with the company on the basis of a simple invoice, without advance payments and without contributions.
Employment contract
The conclusion of an employment contract with a board member involves the same obligations as for the employment of any other employee. So, there are entitlements provided for in the Labor Code, time-keeping obligations, or a high tax and contribution burden.
The employment contract is particularly advantageous for companies in which the shareholders want to have a significant influence on the actions taken by the management. In addition to the fact that it results in a greater “binding” of the management board, its important element is the subordination of the employee (management board member) to the employer (the Company) and the limitation of liability for the actions of such a management board member.