Company Types in Lithuania
If you’ve decided to set up a company in Lithuania, it’s highly likely you’re already on the path to success as the country puts a strong emphasis on the improvement of the business ecosystem. The efforts are reflected in the 2020 Ease of Doing Business Ranking where Lithuania is 11th on the list. Not only will you find it relatively easy to launch a company, but also Lithuanian business environment will present plenty of advantages that will allow you to accelerate your activities. That said, it’s crucial not to get bewildered by the variety of company types available in Lithuania. This article aims to overview the most common types so that you can understand what suits your business needs.
The following criteria should be factored in when choosing a company type:
- Your selected business sector and goals
- Number and type of founding members (natural persons or legal entities)
- Company’s operational structure
- Applicable taxation system
- Level of the initial financial investment
- Personal liability
Small Partnership (MB)
Small Partnership is a limited liability legal entity, offering a lot of flexibility in setting up since it can be established either by an individual or by up to 10 people.
A special attention should be paid to the the following aspects:
- Company name must be unique, non-coincidental (you can reserve a name for 6 months via the State Enterprise Centre of Registers).
- Its members can work without an employment contract.
- Regardless of the size, a qualified accountant will still be needed to handle quite complex taxation.
- A transparent decision making process with clearly defined roles of each founding member should be put in place to guarantee effective decisions.
Financial flexibility is one of the biggest advantages of the Small Partnership. The launch of it doesn’t require a minimum share capital, so a company can be opened on the basis of a contribution from its founders. When the profit is earned, it will be divided proportionally according to the size of the contributions made by the individual members.
This type of a company has no limits for any business sector which means you have the freedom to choose any profitable activities as long as they’re not prohibited by the local legislation. When the time comes, it’s relatively easy to personally leave the business since shareholders of a Small Partnership are not held personally liable.
Individual Enterprise (IĮ)
Individual Enterprise is a private legal entity with unlimited liability which means that the owner is personally liable for the company’s obligations. If your chosen business activities are risk-free, this type of a company is right for you. It can be established online using templates founding documents through the self-service system of the State Enterprise Centre of Registers.
Key aspects to consider before establishing an Individual Enterprise:
- A founder and an owner must be one natural person who doesn’t own any other company.
- It doesn’t require a minimum initial capital which allows you to realise a business idea with limited start-up funding.
- A company name has to be reserved via the State Enterprise Centre of Registers prior to starting the company.
- In case of growth, it can be transformed into a more complex Private Limited Liability Company.
This type of a company offers a lot of flexibility for sole traders. While an owner is entitled to hire people, he/she can also work individually with no employment contract which determines lower tax contributions. If the number of employees doesn’t exceed 10 people and the income for the tax period doesn’t exceed 300,000 EUR, a reduced income tax rate of 5% is applied instead of the usual 15% rate. Moreover, withdrawing profits (money or assets) for personal use from this type of a company is rather easy and possible at any given time.
Hiring a professional accountant isn’t always necessary as you can simply fill out a tax return form for your activities. However, at times the accounting processes of an Individual Enterprise can still be quite complex. In case you need help with it, our qualified accountants here at Company in Lithuania UAB are ready to step in. Contact us today for a personalised consultation.
Private Limited Liability Company (UAB)
A Private Limited Liability Company is a legal entity that issues shares which aren’t traded on a stock exchange. As per its name, it doesn’t make its shareholders personally liable for unfulfilled company’s obligations. This means that in the event of a business failure, the shareholder risks only the assets he/she has given to the company, thus protecting his/her personal assets.
If you’re planning to engage in higher risk economic activities, this type of a company is right for you. It may be established electronically using templates founding documents through the self-service system of the State Enterprise Centre of Registers.
The main factors to take into consideration before opting for this type of a company:
- It can be established by one or more natural and/or legal persons, and the number of shareholders isn’t limited.
- The authorised capital must be at least 1,000 EUR.
- The most important decisions are made by shareholders by voting. Each share carries one vote, therefore the person who has acquired the biggest number of shares has the most significant impact on voting at the general meeting of shareholders.
- A company name should be reserved via the State Enterprise Centre of Registers prior to starting the company.
A disposition of shares enables access to additional funding and transfer of, or exit from the business. In order to gain more funds, a company may issue new shares, upon the acquisition of which the shareholders pay a certain amount of money. If such a company is profitable, its shareholders can receive the profit earned by the company through dividends or by receiving a salary, in which case high taxes will have to be paid.
The upside is that just like an Individual Enterprise, a Private Limited Liability Company has access to the same tax benefits. If the number of employees doesn’t exceed 10 people and the income for the tax period doesn’t exceed 300,000 EUR, an income tax rate of 5% is applied instead of the usual 15%.
Public Liability Company (AB)
Just like a Private Limited Liability Company, a Public Liability Company also has shareholders, its assets separated from the shareholders’ personal funds and a shareholders meeting for decision making. The key difference is that a Public Liability Company sells its shares of stock to the general public via a stock exchange. The buyers aren’t personally responsible for any business failures.
The main considerable aspects of a Public Liability Company:
- It can be founded by one or more natural persons and/or legal entities who are either permanent or non-permanent residents of Lithuania.
- 40 thousand shares are required to establish it.
- A number of shareholders is unlimited, it can also be founded by one individual.
- The authorised capital must be at least 25,000 EUR.
- Public authorities can also become shareholders of such companies.
Due to the publicly available shares of stock, the number of shareholders might grow significantly, which may reduce the possibility of unanimous decisions and thus impact company’s operations. On the other hand, it opens possibilities to continuously issue and sell new shares. This provides an opportunity to attract new investors and significantly increase the company’s capital which consequently leads to the growth of the business.
Accounting of such a company has its own complexities which requires a truly qualified and knowledgeable accountant. A team of highly experienced accountants here at Company in Lithuania UAB will be glad to provide comprehensive support to your company. We guarantee operational excellence and meticulous attention to every detail that impacts your company’s success.
Agricultural Company (ŽŪB)
An Agricultural Company is a limited liability legal entity for agricultural production and commercial activities whose 50% of income sourced during the financial year consists of sales of agricultural production and services. Shares can be traded at a closed auction organised by the members.
Main aspects of an Agricultural Company:
- The founders of the company can be natural persons of Lithuania and foreign citizens establishing a company with natural persons of Lithuania.
- A total number of founders is unlimited, however the minimum is 2 founders.
- It must have its own name by which it can be distinguished from other legal entities.
- Investing in such a company isn’t a prerequisite for becoming a member of it.
- The power of decision-making belongs to all members of the company who can equally participate in all managerial activities.
- Dividends can be an option to those who have contributed by giving assets to the company.
When it comes to getting a loan, banks favour such agricultural companies over individual farmers as they can usually prove their creditworthiness, or history of paying the money back. On the other hand, EU structural funds prioritise individual farmers.
If you’ve decided that Lithuania offers the right environment for the realisation of your business ideas, we’re here to support you every step of the way. Company in Lithuania UAB team offers legal advice as well as financial accounting services and will be pleased to assist you with your company’s formation. Contact us today to book a personalised consultation.
In case you’re on the hunt for an affordable and professionally looking office space, consider saving your money. We offer a virtual office service which removes the need for expensive office leases, equipment and staff. It’s an advantageous solution for small businesses who are willing to create a professional image by having access to such physical office functions as a business address, meeting facilities and reception, while reducing costs and maintaining the benefits of remote work. Enquire about our virtual office here.