Posted on Categories artificial intelligence

A limited liability company as a means of attributing legal personality to algorithms?

In a recent article I discussed possible solutions to the question of liability of algorithms for copyright infringement. The solution put forward some time ago by the European Parliament Committee on Legal Affairs is creating the status of electronic persons. This would mean that an algorithm, and not people responsible for the algorithm, would be directly liable for breaking the law.

An alternative, originally proposed in the US and subsequently analysed under Swiss, English, and German law, is use of equivalents of a Polish spółka z ograniczoną odpowiedzialnością (in the US a limited liability company and GmbH in Germany) as a legal vehicle for attributing legal personality to an algorithm. This would be a ‘memberless entity’.

This article looks at whether regulations in Poland concerning a spółka z ograniczoną odpowiedzialnością allow it to be used to establish a memberless entity.

How this is done in the US (and Germany)

In the case of a limited liability company (LLC) incorporated in the US, the process would be as follows:

  • A natural person establishes an LLC under its management,
  • This natural person enters into an agreement with the LLC on the LLC’s operations,
  • Under this concluded agreement the LLC acts according to decisions made by an algorithm,
  • The natural person transfers ownership title to a chattel to the LLC, and the chattel is a means of controlling the algorithm,
  • The natural person resigns from any function in the LLC.

In Germany, the starting point would be a wholly-owned GmbH, as a company of this kind can be incorporated under German law. Unlike under US law however, this single proprietor must be a real person, and not a person in virtual reality only. It is not possible to establish a GmbH without the participation of at least one real person (even if it is another company, for example). This does not rule out a scenario in which the existing GmbH ‘loses’ that single person and becomes a GmbH in which no natural person who could be a vehicle for autonomous algorithms participates. This could occur for instance if a GmbH acquires its own shares from the sole shareholder. It has been pointed out however that a GmbH cannot exist without shareholders, as a company must have some kind of shareholder by definition. Also, that company would not have decision-making bodies. This last fact would be irrelevant however if there were algorithms capable of making decisions.

Possible in Poland?

The Polish Commercial Companies Code also provides for the possibility of existence of a wholly-owned  spółka z ograniczoną odpowiedzialnością. According to the legal definition, this is a company in which the shares are held by a single shareholder.

A single-shareholder spółka z ograniczoną odpowiedzialnością can be established as a company originally incorporated and registered by a single person, or can be a company in which a single person came to hold all of the shares in the company at a certain time.

A spółka z ograniczoną odpowiedzialnością can be incorporated by one or more persons. Under Polish there are only two types of person – natural persons and legal persons. As under current laws an algorithm does not fall into either of these categories, neither of these types of companies can originally be incorporated by an algorithm.

Imagine a situation in which a spółka z ograniczoną odpowiedzialnością has a single shareholder, and that person wants to exit the company. In general this is possible in two ways. The person’s shares can be sold or redeemed. The first case is not irrelevant in this analysis because a company cannot subscribe for or acquire its own shares, or accept them as a pledge. Acquisition of shares in the company by another person is not relevant either, because we are concerned with obtaining a spółka z ograniczoną odpowiedzialnością in which there are no shareholders.

The rule described above does not apply where a company acquires shares for the purpose of redemption. Voluntary redemption requires a resolution adopted by the meeting of shareholders. The company then acquires the shares and redeems them, by lowering the share capital or by using pure profit. If the first scenario is used and there is a single shareholder, a company which does not have a shareholder is created. When shares are redeemed using pure profit, the share register has to be amended and the updated list of shareholders has to be filed with the registry court. Either way, a person has to be identified as a shareholder in the spółka z ograniczoną odpowiedzialnością, therefore at best it is difficult for a spółka z ograniczoną odpowiedzialnością to exist in Poland with no shareholders.

It also needs to be examined whether the management board of a spółka z ograniczoną odpowiedzialnością can be an algorithm, because the management board is responsible for the company’s operations. Under the Commercial Companies Code, only a natural person can be a member of a management board.

Under Polish law therefore it would be difficult to use a spółka z ograniczoną odpowiedzialnością in the way proposed in the US as a vehicle for independent actions of autonomous algorithms. It cannot be ruled out however that in the future a spółka z ograniczoną odpowiedzialnością or for example a foundation might be classed as entities which enable independent actions of algorithms.

Katarzyna Szczudlik