• Applicable Legislation
• Regulatory Framework
• Local Representation of Foreign Companies
• Corporate Legal Entities
• Incorporation of Enterprises
• Group Enterprises

Enterprise law developed in Lithuania as a result of the transition from a centrally planned to a market economy. Due to the role of commercial units as extremely important actors in a market economy, basic legal acts establishing the types and procedures for incorporation of enterprises were adopted in the first years of independence.

The 8 May 1990 Law on Enterprises provides that only legal entities registered as enterprises under this law are entitled to transact business in Lithuania (with the exceptions for private individuals working in certain professions or occupations). Due to this fundamental provision and changing legal and economic environment during the country's transition, laws regulating the establishment and activity of enterprises have been repeatedly amended, supplemented and improved. Furthermore, the European Agreement Establishing an Association Between the European Communities and their Member States and the Republic of Lithuania (effective from 1 February 1998) requires the harmonisation of laws of the Republic of Lithuania with the acquis communautaire, including the area of enterprise law. Thus, development of the enterprise legislation in Lithuania has also been oriented towards the requirements of the EC law.


Applicable Legislation

1. The 18 July 2000 Civil Code of the Republic of Lithuania;
2. The 8 May 1990 Law No. I-196 of the Republic of Lithuania "On Enterprises";
3. The 31 July 1990 Law No. I-440 of the Republic of Lithuania "On the Register of Enterprises";
4. The 16 October 1990 Law No. I-676 of the Republic of Lithuania "On Partnerships";
5. The 16 April 1991 Law No. I-1222 of the Republic of Lithuania "On Agricultural Companies";
6. The 1 June 1993 Law No. I-164 of the Republic of Lithuania "On Cooperative Companies (Cooperatives)";
7. The 13 July 2000 Law No. VIII-1835 of the Republic of Lithuania "On Companies" ("the Company Law");
8. The 21 December 1994 Law No. I-722 of the Republic of Lithuania "On State and Municipal Enterprises";
9. The 7 July 1999 Law No. VIII-1312 of the Republic of Lithuania "On Investments";
10. The 5 July 1995 Law No. I-1018 of the Republic of Lithuania "On Investment Companies";
11. The 1 July 1999 Law No. VIII-1286 of the Republic of Lithuania "On Trade Names";
12. The 3 August 1993 Resolution No. 601 of the Government of the Republic of Lithuania "On Provisions of Establishment and Activity of Concerns, Consortia and Associations of Enterprises";
13. The 13 July 2000 Resolution No. 827 of the Government of the Republic of Lithuania "On the Procedure for Submission of Documents Required for the Registration of Branches and Representative Offices of Enterprises";
14. The Regulations of the Registration of Enterprises wherein Foreign Capital is Invested, adopted by the 23 November 1995 Order No. 46 of the Department of Statistics.

There are several administrative bodies that are entrusted with the registration of enterprises, although registration is but one of their functions.

All enterprises with foreign capital invested, as well as branches and representative offices of foreign enterprises, are registered with the Ministry of Economy of the Republic of Lithuania. Permission to commence commercial activities must be received from the local municipal authorities prior to registration. Firm names are registered with the State Patent Bureau. However, the newly enacted Civil Code (effective from 1 July 2001) provides that a separate registration of the trade names will not be required when the new Register of Legal Persons is established and certain provisions of the Civil Code regulating the names of the legal persons come into force. Other administrative bodies are responsible for specialised sectors. For example, the Bank of Lithuania is responsible for the registration of commercial banks, subsidiaries of foreign banks and representative offices of Lithuanian and foreign banks.

Point of Interest
The Civil Code which entered into force on 1 July 2001 and the 12 June 2001 Law on the Register of Legal Persons provide for the establishment of the new Register of Legal Persons which will function under supervision of the Ministry of Justice. It is anticipated that the new Register will start operating in 2004 and it is expected to take over the database and the functions currently carried out by the institutions mentioned above. Certain provisions of the Civil Code relating to the establishment and registration of legal persons will come into force upon establishment of the Register of Legal Persons. Under those new provisions, the notaries public will have an active role in the establishment of enterprises.


Local Representation of Foreign Companies

Representative Offices

A foreign company may operate in the Republic of Lithuania through a representative office or a branch. The representative office of a foreign enterprise (company) may be established for representational and promotional purposes only and may not engage in commercial - economic activities. The representative office does not have the capacity of a legal person and therefore may not conduct independent commercial activity. It may not have a settlement account, but may open an account solely to cover the necessary expenses of the office. The representative office is not required to keep a separate balance sheet. The foreign parent enterprise is liable to the extent of all of its assets for the obligations of its representative office. The representative office may perform various actions that are within the competence of the managing body of a representative office and are set forth in its regulations. The regulations of a representative office are approved by the authorised body of the enterprise which has established the representative office. The representative office may enter into transactions on behalf of the foreign parent only for the purpose of meeting the needs of the representative office and within the scope of the powers granted to it. Export and import operations may be performed between the representative office and its foreign parent or the entities that are related to such foreign parent. At least one of the persons authorised to act on behalf of a representative office must reside in Lithuania.

Representative offices of foreign enterprises are registered with the Ministry of Economy. After the submission of an application and related documents, the Ministry of Economy must decide on registration within 15 days. The representative office is considered established as of the date of its registration. A foreign entity, that has established a representative office in Lithuania, is required to provide the Ministry of Economy with its annual financial statements (including the consolidated statements, if any), if such statements are mandatory according to the legal requirements applicable to such foreign entity. The foreign entity also has to inform the Ministry of Economy about changes in the documents, information, and legal status of such entity.

Branches

Branches, as a form of representation of foreign enterprises, have been introduced in Lithuania since 22 December 1999 when respective amendments to the Law on Enterprises took effect. The provisions of the Civil Code also regulate the status of the branches of foreign enterprises.

A branch of a foreign enterprise is a division of a foreign enterprise which has its seat in Lithuania. The branch of a foreign enterprise may engage in commercial - economic activities, enter into transactions and assume obligations only within the scope of the powers granted by the foreign parent enterprise. The foreign parent is liable to the extent of all of its assets for the obligations of its branch, and the branch is liable with all of its assets for the obligations of the foreign parent. The branch does not have the capacity of a legal person. The activities of the branch are organised and carried out by the manager of the branch who has the right to represent the branch in relations with third parties only upon registration of the branch. At least one of the persons authorised to act on behalf of the branch must reside in Lithuania.

The registration and information filing requirements described above in relation to representative offices are similar to those applicable to the foreign companies' branches registered in Lithuania.


Corporate Legal Entities

Introduction

According to the Lithuanian law, the following eight types of enterprises may be established: (1) a personal enterprise; (2) a general partnership; (3) a limited partnership; (4) a public or private stock company or an investment company; (5) a State enterprise; (6) a municipal enterprise; (7) an agricultural company; or (8) a cooperative company. Enterprises of all types are considered to be legal persons.

Types of Enterprises

A personal enterprise may be owned by a single individual or, jointly and equally, by spouses. Non-profit organisations, which have the capacity of a legal person and do not engage in production activity, may also own personal enterprises. The owner's liability for the obligations of its personal enterprise is unlimited and applies to all "personal property" (e.g. a personal house or other property not utilised by the personal enterprise). The owner remains liable for the obligations of its personal enterprise even after its liquidation.

General partnerships are enterprises with unlimited liability established on the basis of a partnership or joint venture agreement between several individuals and/or legal persons. The general partnership is created through transfer of property from individual ownership to co-ownership within the partnership, with the purpose of conducting business activities under a common name of the firm. All partners of a general partnership are jointly and severally liable for the obligations of the general partnership, including with their personal property. The partners remain liable even after the liquidation of the general partnership. The general partnership, however, is not liable for the obligations of its partners if such obligations arise in their activity unrelated to the activities of the general partnership.

A limited partnership consists of general and limited partners. The difference between limited and general partnerships lies mainly in the degree of liability of their respective partners. General partners of the limited partnership have unlimited joint and several liability, identical to the unlimited liability of the partners of a general partnership as explained above. In contrast, limited partners are liable only to the extent of their contributions to the partnership under the agreement. The limited partnership must have at least one general and one limited partner.

Under the Company Law, public and private stock companies are enterprises with authorised capital divided into shares. Public and private companies may be formed for any type of business not prohibited by the laws of Lithuania. Shareholders of stock companies enjoy limited liability. The company is liable for its obligations only to the extent of its assets. The shareholders are liable only to the extent of the amounts due to be paid for the shares subscribed. However, the Civil Code introduces a provision that in the case when a company is unable to perform its obligations due to unfair actions of a shareholder, the shareholder may incur subsidiary liability for the obligations of the company with its personal property.

An investment company is a public company providing a specific financial holding service. A special law, the law on Investment Companies, regulates the formation and activities of investment companies.

Point of Interest
The most convenient and popular way to invest foreign capital in Lithuania is through incorporation of a private or public stock company or acquisition of shares of existing Lithuanian stock companies. For this reason, stock companies are more thoroughly described in this section.

The following tables present the principal characteristics of private and public stock companies:

Company Formation Capital Requirements Number of shareholders In a private company, the minimum share (authorised) capital required is LTL 10,000 (app. EUR 2,900). In a public company, the minimum authorised capital required is LTL 150,000 (app. EUR 43,450). The issue of shares of a public company must be registered with the Securities Commission. Capital may be contributed in cash or in kind. When establishing a company or increasing its capital, (1) at least 25% of the capital or the increase in capital should be paid prior to registration - if in cash; or (2) the increase in capital should be paid in full - if the contribution is in kind, provided that when establishing the company at least the minimum authorised capital amount indicated above and not less than 25% of the subscription price must always be paid in cash prior to registration. In a private company, the minimum number of shareholders is 1 and maximum number is 100. In a public company, the minimum number of shareholders is 1 and there are no limitations on the maximum number.

Status of Shareholders Liability Rights and Obligations Shareholders are liable up to the issue price due to be paid for all the shares they have subscribed for. In case a company becomes unable to perform its obligations due to unfair actions of a shareholder, the shareholder is liable for the obligations with its personal property. Property rights: to receive dividends if the company generates profit; to receive a portion of the assets or proceeds of the sale of the assets of the company in liquidation; to receive shares without additional payment if the authorised capital is increased from the funds of the company; to have priority in acquiring newly issued shares, unless the general meeting of shareholders decides not to grant the pre-emptive right to all shareholders; to bequeath all or part of the shares to one or several persons; to sell or transfer all or part of the shares to other persons (the law establishes the right of first refusal for the other shareholders of the private companies in case of a sale of shares to a third party); and to have other rights. Non-property rights: to attend meetings of shareholders; to receive information on business activities of the company; to challenge in court the resolutions of the general meeting or resolutions and actions of the Supervisory Council, the Board or the Head of Administration; to conclude an agreement with an audit firm for auditing of the company's activities and documents (under certain conditions); to authorise another person to vote for the shareholder as his/her proxy at the general meeting or perform other legal actions; and to conclude voting/shareholder agreements and to have other rights. Obligations: Shareholders are obligated to pay the necessary amount for the subscribed shares and to act fairly in respect of the company.

Shares Types Transfer Registered (in private and public companies) or bearer (only in public companies); Ordinary and preference; Material (only in private companies) and non-material (in private and public companies). Public companies may issue bonds convertible into shares. In private companies, consent of the Head of Administration for the transfer of shares is required; the consent for the transfer may be refused only if it would increase the number of shareholders in excess of the maximum number permitted (i.e., 100). In addition, the law establishes the right of first refusal (under the terms offered by a third party) for the other shareholders of private companies in case shares are offered to a third party that is not a shareholder of that company. A shareholder has no right to transfer his/her shares prior to registration of the company or prior to registration of the increase of its authorised capital and until he/she has fully paid for the subscribed shares. Insider trading in public companies is prohibited.

Points of Interest
When deciding on the amount of the authorised capital to be invested into a newly established company, the provisions regulating the authorised capital/shareholders' equity ratio should be taken into consideration. Shareholders' equity may not be less than 75% of the authorised capital of the company. If it becomes less, the situation must be rectified. If the situation cannot be rectified otherwise, the company must reduce its authorised capital (the company may also increase its capital to achieve the mandatory capital/equity ratio).

In the newly enacted version of the Company Law and the Civil Code certain provisions regulating the activities of the companies have been modified. Therefore, the provisions of the Articles of Association of such companies, where they are inconsistent with the Company Law or the Civil Code, may not be applied and the respective provisions of the laws should be applied instead.

The following tables present the principal characteristics of the management structure of private or public stock companies and the financial control:

General Meeting of Shareholders Status: the supreme decision-making body. Convening: the annual General Meeting is convened by the decision of the Board within 4 months after the beginning of each fiscal year. Extraordinary meetings may be convened by the Board, the Supervisory Council or the shareholders having the right to request the meeting to address certain specified situations or when otherwise necessary. Authority: to amend or supplement the company's Articles of Association; to elect the audit firm, members of the Supervisory Council or, in the event that the Supervisory Council is not formed, members of the Board or, if neither the Supervisory Council nor the Board is formed (only in private companies), to elect the Head of Administration; to recall the audit firm, to remove from office members of the Supervisory Council, the Board and/or the Head of Administration who had been elected by the General Meeting; to fix the conditions of payment for audit services, the annual payment (bonuses) from net profit to members of the Board and the Supervisory Council; to approve annual financial statements and the report of the Board (if the Board is not formed, then a report by the Head of Administration) on the company's activities; to increase the authorised capital; to identify the class, number and minimum issue price of newly issued shares, to approve the value of non-pecuniary (in - kind) contributions into the capital; to adopt a resolution to revoke the pre-emptive right of all shareholders in acquiring newly issued shares or convertible bonds of a specific issue of shares or convertible bonds; to issue convertible bonds; to exchange the shares of one class for shares of another; to adopt a resolution on redemption of the company's own shares; to liquidate the company, to revoke the liquidation; to appoint and revoke company's liquidator; to reorganise the company, approve the reorganisation project; within 2 years after establishment of the company, to approve acquisition of assets from the founders of the company when the value of one or a group of such transaction amounts to 1/10 of the company's authorised capital in value; to adopt a resolution concerning distribution of profit; to adopt a resolution to form reserves, with the exception of a revaluation reserve; and to adopt a resolution on the sale, transfer, lease or mortgage of fixed assets the value whereof exceeds 1/20 of the company's authorised capital, as well as on offering a guarantee, surety for the discharge of obligations of other entities when the amount of the obligations exceeds 1/20 of the company's authorised capital.

Supervisory Council Formation: consists of 3-15 members, elected by the General Meeting for a term of up to 4 years. Alternatives: in a public company, either a Supervisory Council or the Board must be formed; in a private company, the formation of the Supervisory Council or the Board is not mandatory (i.e. neither mandatory); if the Supervisory Council is not formed in the company, its functions may not be assigned to other management bodies. Where the Board is not formed in the company, its functions, rights, duties and responsibility are taken over by the Head of Administration, save for the rights and duties taken over by the Supervisory Council or the General Meeting. Authority: to form and dismiss the Board (if the Board is not formed - to elect the Head of Administration and remove him/her from office); to supervise the performance of responsibilities of the Board, the Head of Administration and the management and report to the General Meeting; and to represent the company in court proceedings against the members of the Board or the Head of Administration or his/her deputies.

Board Status: a management (executive) body; Formation: consists of a minimum of 3 members and is formed by the Supervisory Council (the General Meeting if the Supervisory Council is not formed) for a term of up to 4 years. Authority: to form the company's management team; to conclude certain agreements (on purchase and disposition of fixed assets and other matters, as provided in the company's Articles of Association); to decide on investments into other companies; to formulate the company's strategy and the organisation of its work; and to prepare materials for consideration at the General Meetings.

Management Status: a management (executive) body. The Head of Administration (usually titled General Director or General Manager) must be an employee of the company. Appointment: the Head of Administration must be employed in each company; he/she is appointed by the Board (when the Board is not formed, by the General Meeting or the Supervisory Council). Authority: the Head of Administration concludes agreements on behalf of the company and is responsible for general management issues. Duties may be delegated to other employees of the company in certain areas. Limitations: without authorisation of the management body which elected him/her, the Head of Administration may not be the Head of Administration of another company.

Financial Control Election: the General Meeting must elect an audit firm for a term established in the Articles of Association in all public companies and in private companies which meet 2 of the following requirements set forth in the Company Law: annual revenue amounts to LTL 5 million (approximately EUR 1.4 million); more than 50 employees; and value of assets amounts to LTL 2.5 million (approximately EUR 0.72 million). Responsibilities: the audit firm is responsible for the inspection of the annual financial statements of the company and the annual business report. Procedure: the audit is carried out in accordance with the legal acts regulating audit and the work of auditors.

State enterprises are enterprises owned by the State (the Republic of Lithuania) while municipal units may own municipal enterprises. These two types of enterprises enjoy limited liability. A respective State or municipal unit is not liable for the obligations of the enterprise and the enterprise is not liable for the obligations of the State or municipal unit.

An agricultural company is an enterprise which derives at least 50% of its income from the sale of agricultural products or services in the field of agriculture. It is formed when individuals or legal persons contribute their property to a pool of jointly owned assets to undertake commercial activities in agriculture. The agricultural company must have at least 2 members. There is no limitation on the maximum number of members. The agricultural company enjoys limited liability. The company's liability for its obligations is limited to the amount of the company's capital. The agricultural company is not liable for the obligations of its owners where such obligations are incurred in activities of the owners that are not related to the activities of the company.

A cooperative company is an economic entity with a changeable composition and capital. It is established on a voluntary basis by a group of at least 5 individuals, or individuals and legal persons, for the purpose of satisfying their collective business, economic and social needs. The founders of the co-operative company may only be Lithuanian citizens or legal persons registered in Lithuania. The cooperative company may engage in any activities that are not prohibited by the laws of Lithuania. The cooperative company is an economic entity of limited liability, i.e. liable for its obligations to the extent of the value of its property. The cooperative company is not liable for the obligations of its member-owners when these obligations are not related to the activities of the cooperative company.


Incorporation of Enterprises

All enterprises, with limited exceptions, must record their trade names with the State Patent Bureau prior to their registration. Temporary protection of a registered trade name is given for a period of one year before the registration of the enterprise itself. The registered name of a registered enterprise is given protection during the active life of the enterprise and for an additional one year after termination of its activities. When the new Register of Legal Persons is established and certain provisions of the Civil Code regulating the names of legal persons come into force, trade names will not require separate registration and shall be protected from the date of submission of the application to register a legal person with the register. Incorporators of the legal person will then be able to apply for the temporary protection (6-month) of the name of the legal person under formation.

All enterprises with foreign capital are registered with the Ministry of Economy. Prior to registration with the Ministry, the incorporators must obtain consent from the local municipal authorities for the stated activity of the enterprise. The municipal permission is valid for up to 1 year.

Depending on the type of an enterprise, other actions must also be taken prior to the registration: in public companies, a public offering of shares should be registered with the Securities Commission; the initial contributions to the authorised capital should be paid to the company's accumulative account (a temporary account opened only for the purposes of collecting the initial capital); a permission of the owner of rented premises, at which the enterprise will be registered, should be obtained; in public companies, the incorporation reports should be prepared and audited; the statutory general meeting of shareholders of a founded company should be convened, the Articles of Association should be adopted and managing bodies elected; etc.

In order to register an enterprise, a foreign company should submit to the Ministry of Economy the following documents: an application for registration; its own registration certificate (an excerpt from the commercial register); a document proving the decision of the foreign company to invest the capital; a certificate issued by the bank registered in Lithuania on initial contributions to the accumulation account of the enterprise; a trade name registration certificate; a municipal permission for the stated activities; a permission of the owner of premises at which the enterprise will be registered; a document confirming payment of the stamp duty; and certain other documents.

An enterprise should be registered when it presents to the Ministry of Economy the incorporation documents consistent with the applicable requirements. A decision on registration should be adopted within 15 days from the date the documents were submitted. After respective provisions of the Civil Code become effective, the term of adoption of a decision on registration will be 30 days.

Once the company is registered, before it may commence its activity it should perform all of the following steps:

1. registration with the local tax inspection office within 5 working days from the date of registration;
2. registration at the local office of the State Social Insurance Board within 10 days from the date of registration;
3. opening of a settlement bank account (handling of normal commercial transactions);
4. if needed, registration as a value-added tax (VAT) payer when the newly established company expects its annual income to amount to LTL 100,000 (approximately EUR 29,000);
5. production of a corporate seal of the company; and
6. obtaining of any other permissions or licenses, if required by applicable laws in order to begin specific commercial activities.

Lithuanian law provides for the establishment of three types of group enterprises: concerns, consortia and associations.

A concern is an economic structure that unites independent companies related by common interests, agreements on patents and licenses, joint scientific research and production technology programs or other close co-operation. The concern is established through acquisition of shares in other companies. The largest member company or a special holding company is responsible for the management of the concern.

Consortia are temporary, voluntary groups of enterprises brought together to implement large projects and programs or resolve specific issues. The consortium may be established as a partnership or by a joint-venture agreement.

An association of enterprises is a voluntary group of enterprises that represents the economic interests of its members, co-ordinates and executes matters brought to its attention by the membership. The following forms of associations are recognized:

1. an association of enterprises; and
2. a chamber of industry and commerce.

Point of Interest
Enterprises may form groups only in compliance with the market concentration regulations established by the Law on Competition.