Startup Legal Structuring in Lithuania

What Startup Legal Structuring Involves

Legal structuring is not the same as company registration. Registration is the administrative act of filing documents with the Register of Legal Entities. Structuring is the set of decisions that precede and inform that filing — and the documents that implement those decisions correctly.

Most founders think of structure as a question they can answer later. In practice, the founding structure — how shares are divided, whether vesting applies, what governance rules are built into the articles, whether a holding layer exists — is far harder and more expensive to change after the company has value, employees, or investors than it is to design correctly before registration. Every subsequent stakeholder — co-founders, employees with options, angels, seed investors, Series A funds — interacts with the structure that was built at incorporation. If that structure was informal or misaligned, each new stakeholder interaction creates friction and cost.

The good news is that for a standard early-stage startup, the structural decisions are not complicated. A single Lithuanian UAB with a well-drafted shareholder agreement, a standard vesting schedule, and articles of association that reflect the founders’ governance intentions covers the vast majority of cases. The complexity arises only when specific circumstances require it — international co-founders, regulated activities, IP management across jurisdictions, or institutional investment with specific structural preferences.

Entity Selection: What Type of Company to Register

UAB — the default for startups

For the overwhelming majority of Lithuanian startups, the correct entity is a UAB (Uždaroji akcinė bendrovė — private limited liability company). It provides limited liability, a professional corporate structure, eligibility for VAT registration, access to Lithuanian IBAN, and the legal framework that investors and commercial counterparties expect. The minimum share capital is €2,500, the registration fee is €51, and the process takes 1–3 business days.

The articles of association of a UAB can be tailored to the founders’ needs — defining decision-making thresholds, management authority, reserved matters, and the rules governing share transfers. This flexibility means most startup governance requirements can be implemented within a standard UAB structure without the complexity of more elaborate entity types.

When a holding company makes sense

A holding company above the operating UAB makes sense in specific, identifiable circumstances — not as a general best practice. The scenarios where a holding layer adds genuine value are: (1) a founder who wants to hold their startup shares through a personal holding company for tax efficiency reasons in their home country; (2) a startup building multiple products or business lines that will eventually be operated through separate subsidiaries under a common parent; (3) a startup preparing for institutional investment where the investor expects or requires a holding structure for legal or tax reasons; or (4) an IP holding arrangement where the intellectual property is held in one entity and licensed to the operating company.

Outside these scenarios, a holding company adds structural complexity, additional accounting obligations, transfer pricing requirements, and ongoing costs without creating proportionate benefit. We advise against adding a holding layer unless there is a specific, current reason for it — not because it might be useful someday.

AB — public limited company

An AB (Akcinė bendrovė — public limited company) requires a minimum share capital of €40,000 and is subject to more extensive governance requirements than a UAB. It is suitable for large enterprises and companies planning a stock exchange listing. For an early-stage startup, there is no reason to register an AB. If the company later needs to convert to an AB — for example, in preparation for a public offering — conversion is possible at that stage.

Founder Share Structure

How shares are divided between founders, and under what conditions they are earned, is the most consequential legal structuring decision a startup makes. The share structure determines each founder’s economic interest, voting power, and position when the company raises investment or a founder exits.

Ownership split

There is no legally prescribed split — founders can divide shares in any proportion. Equal splits (50/50 for two founders, 33/33/33 for three) are common and create the perception of fairness, but they also create the conditions for deadlock in a 50/50 company and diffuse accountability in a three-way equal split. Unequal splits that reflect the founders’ relative contributions — capital invested, IP brought in, role and seniority — often serve the company better. We discuss ownership split as part of the structuring consultation, but the decision belongs to the founders.

Vesting schedules

Vesting is the mechanism by which a co-founder earns their shares over time. Under a standard vesting schedule, a founder’s shares vest monthly over four years with a one-year cliff — meaning a founder who leaves before 12 months receives nothing, and a founder who stays earns their shares progressively over the remaining period. Without vesting, a founder who leaves after six months retains their full shareholding, which is dilutive to the remaining founders and unattractive to investors.

Lithuanian company law does not include vesting as a default mechanism. It must be implemented through the shareholder agreement using one of two mechanisms: share buy-back rights (the company or remaining shareholders have the right to buy back unvested shares at par value if a founder leaves early) or conditional share issuance (shares are issued in tranches as vesting conditions are met). We advise on which mechanism is more appropriate for your specific situation and draft the relevant provisions.

Good leaver and bad leaver provisions

Vesting provisions are typically linked to a distinction between good leavers and bad leavers. A good leaver — someone who leaves due to ill health, death, or termination without cause — may be entitled to retain a greater proportion of their unvested shares or receive a higher buy-back price. A bad leaver — someone who resigns without notice, is dismissed for cause, or breaches the shareholder agreement — typically forfeits unvested shares entirely or has them bought back at par. Defining these categories clearly in the shareholder agreement prevents disputes about what a departing founder is entitled to.

Dual-class share structures

A dual-class structure creates two categories of shares with different voting rights — typically ordinary shares held by founders with enhanced voting power, and preference shares held by investors with economic preference but limited voting. Dual-class structures are used when founders want to retain control of governance decisions after bringing in external investors. Lithuanian company law permits different classes of shares with different rights, provided the rights are defined in the articles of association. We design dual-class structures for startups that specifically need them — they are not a default recommendation.

Employee Equity: ESOP and VSOP

Equity incentives for employees and advisors are one of the most effective tools a startup has for attracting and retaining talent — particularly in early stages when cash compensation is constrained. Two structures are used in Lithuanian startups: the Employee Stock Option Plan (ESOP) and the Virtual Share Option Plan (VSOP).

ESOP — Employee Stock Option Plan

An ESOP gives employees the right to purchase shares in the company at a predetermined exercise price, subject to a vesting schedule. When the employee exercises their options, they become actual shareholders. ESOPs are appropriate for startups where giving employees genuine ownership is a strategic objective and where the cap table can accommodate additional shareholders without creating governance complexity.

Under Lithuanian company law, options are implemented through a conditional capital increase mechanism — the shareholders’ meeting authorises a future capital increase to create the shares that will be issued when options are exercised. The option agreement specifies the exercise price, the vesting schedule, the conditions for exercise, and what happens to unvested options if the employee leaves. The tax treatment at exercise involves personal income tax on the difference between the exercise price and the market value at the time of exercise.

VSOP — Virtual Share Option Plan

A VSOP gives employees the right to receive a cash payment equal to the value of a specified number of shares at a future exit event — without ever becoming actual shareholders. The employee does not appear on the cap table, does not have voting rights, and does not need to go through a share purchase process. The economic value is equivalent to holding actual shares at exit, but the administrative and governance simplicity is significantly greater. VSOPs are particularly well-suited to early-stage startups that want to incentivise team members without the complexity of managing a growing shareholder register.

A VSOP is implemented through a contractual agreement — a phantom share agreement — rather than through a capital increase. The key parameters are the number of phantom shares granted, the vesting schedule, the exercise conditions, the valuation mechanism at exit, and what constitutes a qualifying exit event. Because phantom shares are contractual obligations rather than equity, they are treated as employment income at exit — the payment is subject to personal income tax and social contributions in the same way as a salary bonus.

Holding Structures and Multi-Entity Design

A holding structure places a parent company above the operating Lithuanian UAB. The operating company runs the business; the holding company owns the operating company and may hold IP, receive dividends, or manage group financing. Here is when a holding structure is genuinely useful — and when it is not.

IP holding structure

For SaaS and technology startups, holding intellectual property in a separate entity from the one that employs staff and runs commercial operations can create a meaningful tax planning opportunity. The operating company licences the IP from the holding company, paying a royalty that reduces the operating company’s taxable profit. Lithuania’s IP box regime taxes qualifying IP income at a reduced effective rate. This structure requires careful design — the IP must be genuinely owned by the holding entity, the royalty must be at arm’s length, and transfer pricing documentation is required. We advise on IP holding structures as a bespoke engagement.

Personal holding companies for founders

A founder who holds their startup shares through a personal holding company — rather than directly — may be able to defer personal income tax on dividends received from the startup, depending on their country of residence and the applicable double taxation treaty. For founders based in jurisdictions with favourable participation exemption rules, this structure can be tax-efficient. It adds administrative complexity — the holding company needs its own accounting and annual filings — and must be assessed against the founder’s specific tax position. We advise on this as part of our tax law service; the decision depends on the founder’s personal circumstances.

Multi-entity structures for growth companies

As a startup scales, specific business activities may warrant separate legal entities — a dedicated subsidiary for a new geography, a separate regulated entity for a licensed activity, or a ring-fenced entity for a new product line. These structures are appropriate responses to genuine business needs, not something to design speculatively at incorporation. We advise on group structure design when the specific need arises — typically at Series A or later — and handle the registration of any additional entities as part of our corporate services.

Articles of Association: What They Should Cover

The articles of association (steigimo dokumentai) are the constitutional document of a Lithuanian UAB. They are filed with the Register of Legal Entities and are publicly accessible. The standard template articles that most registration services provide are functional but minimal — they satisfy the legal requirements without building in the governance structure a startup actually needs.

We draft articles of association that reflect the founders’ specific governance intentions rather than generic defaults. The key provisions worth tailoring are:

• Pre-emption rights — Share transfer restrictions
• requiring existing shareholders to be offered shares before they can be sold to a third party
• Tag-along and drag-along — Consent rights
• protecting minority shareholders from being left behind in a majority sale, and protecting majority shareholders’ ability to execute a clean exit
• Director powers — Management authority
• defining what the director can do unilaterally and what requires shareholder approval
• Supermajority requirements — Reserved matters threshold
• specifying which decisions require 75% or higher approval rather than the standard 50% majority
• Profit distribution rules — Dividend policy
• whether dividends can be paid only with shareholder approval, and at what frequency
• Calendar year vs. non-standard — Financial year
• for companies that have operational reasons to use a financial year other than January–December

Our Structuring Process

A legal structuring engagement begins with a consultation, not with document drafting. The consultation is where we establish what structure is actually needed — before any documents are prepared. This prevents the common outcome of drafting a shareholder agreement for a structure the founders then decide to change.

Legal Structuring Prices

Simpler, well-defined structuring engagements are quoted at fixed fees. Complex multi-entity or cross-border structures that require bespoke analysis are quoted on request after an initial consultation. All prices below are for the legal work only and do not include the company registration state fee (€51) or share capital deposit (€2,500).