Scope of business – what is it, and what should you keep in mind when purchasing a ready-made company?

Choosing the right business activity for a company is not just a formality, but one of the key factors influencing the company’s smooth operation —both from a legal and tax perspective. Selecting the wrong PKD code can make it difficult to obtain grants, affect record-keeping obligations, and even prevent the company from conducting a specific business activity.

In this article, we explain how to correctly define the scope of business, why this is important when starting a new business or purchasing an existing company, and how to avoid the most common mistakes.

Defining the company's business scope from a legal perspective. Who is required to have this?

From a legal standpoint, the company’s business purpose must be specified. Without this, there is effectively no company, as this information is necessary for signing the articles of incorporation.

Defining the scope of business under the PKD

PKD codes, or the Polish Classification of Economic Activities, are used to precisely define a company’s line of business. Accurately defining the company’s business activity using PKD codes can be very important. As a reminder, during the COVID-19 pandemic, support was provided to companies with specific codes from the Polish Classification of Activities. The codes are constantly being updated by the Central Statistical Office to reflect market realities.

Description of the scope of business in the National Court Register

The company’s scope of business must be specified in the articles of incorporation, which are filed with the National Court Register (KRS). The document should provide a detailed description of the company’s primary business activities. The geographical scope of the business may also be specified.

Why is the description of the company’s business and scope of operations so important?

The company’s scope of business must be accurately described in the articles of incorporation, as this serves as the legal basis for its operations. This is important in the context of commercial law, tax law, and other regulations.

The scope of business must comply with applicable law. It must not violate any statutory restrictions. It is also important to note that certain sectors of economic activity are subject to specific regulations and may require a license or other permits.

The nature of the business activity determines the applicable tax rates.

A clearly defined business scope helps potential business partners find the company.

Business activities – what are the different types?

The scope of business activity specified in the articles of association is generally defined by the Polish Classification of Economic Activities. However, in addition to PKD codes, the general classification contained in the now-defunct Act on Freedom of Economic Activity is still sometimes used. That Act distinguished between: manufacturing, construction, trade, services, and the exploration, prospecting, and extraction of minerals from deposits. Currently, however, PKD codes must be used to define the scope of business activity.

Business plan: defining the scope of the planned business activities

A company is established and operated with the aim of making a profit. Therefore, its business activities must be carefully planned. It is therefore necessary to assess the market conditions relevant to the business in question and determine whether there is a need for the planned business in the area and to what extent.

In short, you need a business plan. For a new company, it should be prepared at the latest at the same time as the articles of incorporation.

At a minimum, a business plan should include a market analysis for the relevant segment, a competitive analysis, the target customer group, and market trends. Of course, you also need to take into account the resources of the company being established and try to estimate expected revenue, so that you don’t end up without enough money even to get started.

The consequences of choosing the wrong business activity

One consequence of choosing the wrong business activity will be, among other things, the need to complete numerous formal procedures. Amendments to the articles of incorporation will also be necessary. This is a serious matter, because the articles of incorporation are the company’s constitution.

Expansion or change in the company's business activities

To minimize losses resulting from an initial misstep, a proactive approach should be taken. This may involve expanding the company’s scope of operations or changing its business activities. It will most likely be necessary to update the PKD codes.

Amendment of the Articles of Association in the event of modifications

The articles of incorporation must be amended if any of the mandatory provisions contained therein are changed. These include: a change of name, a change in the company’s registered office, its business purpose, the amount of share capital, whether a shareholder may hold more than one share, the number and par value of shares held by individual shareholders, and the duration of the company.

Therefore, if an amendment to the articles of association is required, the partners must adopt an appropriate resolution to that effect. The amendments must be registered with the National Court Register (KRS).

The company's business scope and a ready-made company

A company offering ready-made companies has no way of knowing the buyer’s specific line of business. That is why such companies have all possible codes from the Polish Classification of Activities listed in their articles of incorporation. Once a buyer is found, the articles of incorporation are amended to reflect the new line of business. The owner(s) and other necessary company details are also updated, and these changes are recorded in the National Court Register.

Reputable firms that offer companies for sale handle all necessary legal formalities themselves in consultation with the buyer. The buyer is then free to run the business as they see fit.

Why is it a good idea to check the entry in the national court registry when purchasing a ready-made company?

The ultimate form of trust is verification. It may sound like a joke, but when buying a ready-made company, it’s best to check everything yourself. That’s why it’s advisable to check the company in the National Court Register.

There, you can verify whether the company actually exists, who owns it, and, consequently, whether the person selling the company has the right to do so. You can also check whether the company has any debt—and if so, how much—and whether it is involved in or a party to any legal disputes.

You can also check the National Court Register to see whether the changes made during the acquisition of the company were properly registered.