Important resolution of the Supreme Court for all majority shareholders in limited liability companies regarding their social insurance coverage

On February 21, 2024, the Supreme Court passed a resolution in a case of significant importance for persons who are majority shareholders in limited liability companies (the case was heard under case number III UZP 8/23).

The Supreme Court, addressing a legal issue referred by the Court of Appeals in Lublin, stated in the resolution that “a shareholder of a two-person limited liability company holding 99 percent of the shares is not subject to social insurance under Article 6(1)(5) in connection with Article 8(6)(4) of the Social Insurance System Act of October 13, 1998.”

The Court of Appeals in Lublin referred the following legal issue to the Supreme Court for consideration: “is a shareholder of a two-person limited liability company holding 99 percent of the shares that ensure his ability to freely shape the content of resolutions at the shareholders’ meeting and make decisions regarding the company’s operations subject to social insurance under Article 6(1)(5) in conjunction with Article 8(6)(4) of the Social Insurance System Act of October 13, 1998?”

Pursuant to Article 8(6)(4) of the Social Insurance System Act, shareholders of sole proprietorships of limited liability companies are considered to be persons conducting non-agricultural business activity, and on this account, pursuant to Article 6(1)(5) of such Act, are required to pay social insurance contributions.

Previous practice of the Social Insurance Institution (ZUS) indicated that the majority shareholder of a limited liability company should be treated as a shareholder of a sole proprietorship and on this account should be subject to social insurance, since a small percentage share in the shares of other shareholders is only an illusory value and too small to speak of a multi-member company. The consequence of this position was that a person with a majority shareholding had to pay social security contributions as if he/she was the sole shareholder of a limited liability company.

However, court case law in this regard was inconsistent. On the one hand, it was accepted that a shareholder holding 99 out of 100 shares in a limited liability company was not subject to social insurance by virtue of an employment contract concluded with the company, but by virtue of carrying out non-agricultural activity, as its sole shareholder – and this was in view of the assumption that the several percent share of other shareholders in the company’s share capital remained too small to treat such a company as a multi-member company (such as the Supreme Court’s judgment of September 6, 2023, Case No. I USK 251/22). In other rulings, in turn, the Supreme Court indicated that only sole partners in single-member limited liability companies, and not majority partners in multi-member companies, are subject to compulsory social insurance on this account (so, among other things, the Supreme Court ruling of September 15, 2021, ref. I USKP 44/21).

The resolution adopted by the Supreme Court is certainly favorable to entrepreneurs operating in the form of a limited liability company. The position expressed therein is based on a literal interpretation of the provisions of the Insurance Law, an interpretation that should never have raised any interpretive doubts.