These forms of companies are most often used in Lithuania:
— Limited liability company (UAB) – the most popular company form of a company, suitable for any size of businesses.
— Small partnership (MB) – is a popular company form for a small business.
— Personal enterprise (IĮ) – is a company form intended for a small business, but the founder can be only one person, and the founder is responsible for the company’s obligations with his own assets.
— Public limited company (AB) – appropriate for a large business.
— Public Institution (VšĮ) – adapted for non-profit activities.
The most important criteria for choosing the legal form of a company are:
1. Liability of the founders (whether the company’s obligations are covered by personal assets).
2. Management, decision-making and voting methods.
— UAB is a limited liability legal entity. This means that the shareholders are not liable with their own assets for obligations of UAB.
— The founders can be natural and legal persons of any state. The number of shareholders is not limited.
— The minimum amount of authorized capital is EUR 2,500.
— The director (manager) of UAB may be only a natural person, but of any nationality. It is mandatory to hire a manager. An employment contract must be concluded with the manager.
— Shareholders have the right to receive a share of profit (dividend) in proportion to the number of shares held. UAB profits can be distributed more than once a year. Advance payment of dividends is prohibited.
— UAB can be liquidated if it has no debts. The liquidation procedure lasts 5-8 months
— The most important management decisions of the company are made by shareholders by voting. Each share carries one vote, so the person with the most shares has the greatest influence on voting.
— Decisions may be adopted if more than 1/2 of the votes of the shareholders who participated in the voting are collected for it.
— Some decisions require a majority of at least 2/3 or 3/4 of the votes cast, e.g. a decision on the payment of dividends may be adopted if at least 2/3 of the votes are cast for such a decision.
— UAB must have one-person management body – the director (manager), a collegial management body – the board is optional.
— The small partnership (MB) is a limited liability legal entity. The members are not liable for the obligations of MB with their own assets.
— MB may be set up by a maximum of 10 natural persons (legal entities cannot be founders).
— When setting up the partnership there is no need to contribute a required amount of share capital, but members must make contributions (the amount is determined by the members themselves).
— MB profits are distributed in proportion to the size of the member’s contribution. MB profits can be distributed more than once a year. Advance payment of dividends is prohibited.
— A member may work for MB without entering into an employment contract (no need to pay high taxes on wages). MB can only enter into employment contracts with employees who are not members of the partnership.
— MB can operate with or without a manager. If there is a manager, a civil contract is concluded with him. Income under such contract is taxed at a rate of 15%, what is significantly less than under employment contract ̴ 40%.
— Decisions are made by members by voting. One member shall have one vote, regardless of the size of its contribution (note this if the partnership is set up by several people and you invest significant amounts).
— MB can be transferred in to UAB.
The following MB management bodies are available:
1. Meeting of members only. In this case, the meeting of members is also the management body, one of the members being appointed as the representative of the small partnership, who in principle performs the functions of the director (manager).
2. The meeting of members plus the one-person management body – a manager.
— The most important management decisions of the company are made by members by voting.
— One member shall have one vote, regardless of the size of its contribution.
— If the small partnership has a director (manager), the regulations may provide for a different voting procedure (eg the number of votes depends on the size of the contribution).
— Decision is may be adopted if more than 1/2 of the votes of all members of the small community are in favor.
— Some decisions have a majority of at least 2/3 of the votes (eg on the distribution of annual profits), there are decisions that are taken unanimously (eg on the distribution of profits for a period shorter than the financial year).
MB is well appropriate in the following circumstances:
— If the business is small (income does not exceed 100.000 Eur).
— If the business will be not hindered by the image of a small company.
— If some tax savings are significant to your business.
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