Legal company forms
If you are intending to establish a company, first you have to decide what the legal form (type) is the most appropriate for your chosen goals realization. You also need to assess what business you going to do, how many employees you will have in you company, and how much initial capital you will need to start businesses and so on.
Legislations of Republic of Lithuanian anticipate the possibility to establish these legal form companies (types) in the state: the individual companies, true and commandite (trust) partnerships, private, public limited companies, investment, agriculture, cooperative associations, state and municipal enterprises. In these cases when the goal of activity is not profit making, it is possible to set up a non-profit organizations.
Companies are divided into limited and unlimited liability companies. Unlimited liability companies are the individual companies and partnerships, and all the other legal forms (types of) companies - limited liability.
The limited liability company is liable for obligations only with company assets. Unlimited liability company is liable for obligation with all its assets, in the case company haven’t got enough assets the owner of the company is liable with all his own assets too and in the partnership – its real member with all his assets.
Individual company
If you are planning to provide services or to undertake some other commercial economic activity in which it is sufficient to carry out the work by family members and a small initial capital, and you can set up an individual company (IC).
IC establishment, management, activities, restructuring, liquidation, these business owners’ rights and obligations are governed by Republic of Lithuania individual company law which inured in the 2004 y. 1st of January.
IC founder may be the only able natural person. Individual companies act restricted the IC owners’ right to be the owner of the other IC, because IC is an unlimited liability person and its owner is responsible for it with all his assets.
IC founder is considered to be its owner from the companies’ incorporation. In IC regulations you can anticipate that the owner of the company can appoint another person as a manager. An IC regulation is the document of companies’ establishment and according to it IC follows its activities.
IC has the following advantages: the company can manage a simplified bookkeeping, it is not necessary to draw up financial statements, it is sufficient to fill in the tax declaration. IC owner can work for his company alone.
The main disadvantage of IC is that, it is necessary to assess the economic commercial activities risks. IC is an unlimited liability legal person. IC assets are not separated from its owner’s property. That means that he is responsible for the IC obligations with all his assets. We should assess the risks associated with the work or the quality of service, dates, and suppliers and so on. Breach of the obligations of the customer, for the States social insurance institution or other creditors of the company’s assets, obligations are directed to the owner’s property. IC debts can not be written off. Before the registration of this legal form it is necessary to assess companies’ advantages and disadvantages.
IC title must contain its legal form representing words like "private company" or shortening as "IC".
Individual company law provides that the IC can be converted into a joint-stock company, limited stock company, as well as into the public institution. IC can not be reorganized, except when a person inherits the IC, which is the owner of the other IC, and when reorganizing and IC which was established until 2004 1st of January, which owners are spouses.
ICs, established before 2004 1st of January, which titles include words "personal company", or the shortening "PC", as well as IC, which has no indication in its title of legal form, since 2004 1st of January are considered as an individual companies.
IC owners, with two or more ICs, from 2005 31st of December in the name of Civil Code must reorganize these companies into a single individual company or leaving only one individual company, as for other companies must be reorganized, transferred or liquidated.
Partnership
If for the economy commerce one person effort and resources is not enough to launch an activity you need to find some business partners, and than you can establish a partnership.
Partnerships advantages are these: partnerships do not need to employ workers under the employment contract, under the joint operating agreement real members of the partnership may work, a partnership can manage simplified bookkeeping, and law does not regulate the business community minimum equity capital. However, the establishment of this legal form (type) company, economic risks must be assessed and taken into account the fact that a partnership with unlimited liability is a legal entity and its assets are not separated from the assets of its members.
Partnerships have only two legal forms (types): true partnership (TP) and commandite partnership (CP).
The establishment of partnerships, reorganization, liquidation, management and operation of the rights and obligations which are governed by the Republic of Lithuania law of partnerships and joint activity contracts, which establishes thus much TP thus much CP.
A partnership is made from several natural or legal persons, as well as natural and legal persons ally on the basis of established of the commercial enterprise – for pursuing of economic activity in the name of a brand, by merging their assets in to the common partial property. TP title must contain at least one of its members. CP title must contain at least one real members name and the full title of “commandite partnership” or shortening “CP”.
Partnership must contain at least 2 and not more than 20 members. Partnerships can not have government, management and control of public authorities, courts as members. TP can not have state and municipal enterprises as members, and CP can have these members as commandite members.
TP is formed by real members who act in the name of the company. Under the full obligations of TP its members are jointly and severally liable with all its assets. TP is not responsible for its member’s obligations which are unrelated to partnerships property.
CP is made of real members and commandite members which act on behalf of the company, CP must contain at least one real member and at least one commandite member. CP assets are separated from commandite members’ property, and real member assets are not separated from the companies’ assets. For CPs obligations its real members are solidary liable with all their assets, and the commandite members - only with that part of his assets, which was transferred to CP.
Solidary liability of the members means that a creditor of the association may direct his requirements to partnership assets, as well as to any member or several members’ assets.
United activity agreement is the basis of partnerships establishing and activities. It must include: partnerships name, its objectives and rights, its real members and the commandite members, their rights and obligations, parts of property of real and commandite members, order of withdrawing money from till, income and loss allocation rules, conditions and rules of real and commandite members withdrawal and removal and the acceptance of new members, rules of partnerships management and procedures, persons authorized to represent the community, and their empowerment, the adoption of ordinances, and other provisions which are in conformity with laws. Therefore people, who are establishing partnership, should prepare this contract well. United activity contract must be approved by a notary.
Partnership is managed only by the real community members. Every true member of the association has the right to represent the community and to deal with its asset management, use and disposal of his affairs. While making decisions, a real member has one vote, regardless of the amount of his possessions.
Commandite members are not participating in the governance of the partnership, i.e. they do not have the right to represent the community and participate in decisions concerning partnership activities, except in cases where such involvement is provided by the united operating agreement.
Public Limited Company, Private Limited Company
If you wish to engage in activities related to the bigger risks, you better choose limited liability legal person - a Public limited company (PLC) or Private limited company (PLC), i.e. the legal forms (types of) firms that are liable for their obligations only to their own (company) assets. Shareholder of the Company, which failed the planed business, risks losing only those assets that are contributed to the company.
Public and Private limited companies establishment, reorganization and liquidation, management and activity, shareholders’ rights and obligations governed by the Republic of Lithuania Law on Joint Stock Companies.
Discussing provisions of Public and Private limited company, term "company" is used.
Joint Stock Companies Law defines the Public and Private common and distinctive features - the creation and capital formation method, requirements of founders and shareholders, management and control bodies. The company founder may be from Republic of Lithuania or from other countries, natural and legal person.
The company is an enterprise whose share capital is divided into parts called shares. The company has a limited civil liability legal person. The company’s assets are separated from the shareholders’ assets. In accordance with its obligations it is responsible for its property. Shareholders under the terms of obligations are responsible only for the amount that must be paid for the shares.
Establishing Private limited company and Public limited company, shareholders put their money together to form capital for common activity.
Public limited companies capital can not be less than 150 thousand Lt. Its shares may be distributed and traded publicly, in accordance with the public regulated circulation acts.
Private limited companies capital can not be less than 10 thousand Lt. Private limited companies shares can not be distributed or traded publicly.
Since the Public limited company has the right to distribute shares to the public, it has the right to use the various tools and information to sell its shares for every natural or legal person. Private limited company shares are strictly limited by law and this way narrowing potential fund (capital) resources.
Company founders represent the company’s founding treaty (if there is only one founder - he signs the Act). This contract gives the right to open a savings account in the name of the company and to be registered in the Republic of Lithuania Bank, while establishing Public limited company you must register the share in the Funds Commission.
Established companies shares are signed by the company founders. When all the original contributions for the shares are paid, the founders of the company have to summon the Constituent Assembly. Constituent Assembly approves the Public limited company establishment report, elects firm audit managing members, and solves other Constituent Assemblies competence issues. After Constituent Assembly the company is registered in the Register of Legal Persons. From the date of the company registration it is established and acquires legal person rights.
Joint Stock Companies Law provides that, while establishing the company, the initial contributions of shares must be paid in cash only and transferred to company’s savings account. Company can use money that is in this account only after the company is incorporated.
Shareholders of the company may be the Republic of Lithuania or other countries, natural or legal persons who in the law of holders has at least one share. Each shareholder of the company has the following rights, which was given to them by the property of the company’s shares.
The company is guided by its own statutes, which is the main legal document.
Company’s management bodies are the general meeting of shareholders, the Supervisory Board, Administration manager. Public limited companies required governing bodies are the general meeting of shareholders, the Administration manager and at least one collegial management body - the supervisory board or the board. Private limited companies required governing bodies are the general meeting of shareholders and the Administration manager. The Supervisory Board and the Board of Private limited company can be unsatisfactory.
An essential feature of the management of Public and Private limited companies – Private or Public limited companies owners impact on the company depends on how much shares does he have. The most important decisions, including the formation of organs, are made by the shareholders voting, and each of their votes depends on the amount of shares that they have.
Private and public limited companies bookkeeping are managed in accordance with the double entry system, which requires detailed knowledge of bookkeeping and staff with appropriate qualifications. At the end of the financial year, until the ordinary general meeting of shareholders in all public limited companies general meeting that was elected for the firms audit must verify the financial statements.
In Private limited companies audit must be done, if it satisfies at least two of the following conditions:
• sales revenue exceeding 10 million Lt. during the financial year;
• the average listed number of employees during the financial year is not less than 50;
• the balance of the asset exceeds the sum of 5 million Lt.
Cooperative company
Cooperative company (CC) – in treatment of the law is (or) company established by legal person for economic, social and cultural needs. Its members bring funds to set up a capital, and distribute risks and benefits by circulation of goods and services with this company among themselves and they are actively involved in CC management.
CC is a limited civil liability legal person. CCs assets are separated from the assets of its members. CC under its obligations is responsible only for its property. CCs members in accordance of cooperative company obligations are responsible for paying shareholding contributions. CC has not less than 5 members, and its name. The title must contain words such as "cooperative company" or "cooperative".
CC has the right to:
• engage in activities in which law and company statutes makes no sign;
• to have accounts in the Republic of Lithuania and other banks;
• to manage its property belongings, use it and dispose it in accordance with the law;
• join into the company unions, cooperative societies, and according to other law treatments - to other organizations;
• make transactions, take property obligations;
• identify their products, works and service charges, rates and tariffs;
• in accordance with CC statutes and agreement of borrowing funds from its members;
• determine its organizational structure, establish branches and representative offices, be the founder of other companies and organizations.
CCs establishment documents are statutes and founding treaties. CC statutes are the document which guides the activities of the CC.
There must be at least 5 natural and (or) legal person founders. Each CC founder must become a member of it. CC founders presents CCs establishment contract, prepares CCs statutes project, summons the Constituent Assembly. The contract of establishment is a public document.
CCs legal basis is company’s statutes, drawn up by the founders and approved in constituent assembly. CC members can not be Republic of Lithuanian and foreign natural or legal persons.
CCs activity and establishment is regulated by Republic of Lithuania cooperative company (cooperatives) act.
Non-profit organizations
If a person or group wants to work in the social, educational, scientific, cultural, sports or other similar areas, and if their goal is not profit making, it is possible to set up a non-profit organizations - a public institution, association, charity and support fund, a public organization.
The most popular non-profit organization is a public institution (PI), because it is the only non-profit organizations can carry out the business. PI is a public legal person, who does not seek to benefit themselves and can not distribute profits that he received for founders, members, shareholders.
PI can be established by Republic of Lithuania and foreign natural or legal persons. Number of founders is unlimited. States and local public authorities (municipal) property, PI can only use in utilization basis.
Some of the distinctive features of PI:
institutions should operate in social, educational, scientific, cultural, sports, business support, or other similar areas;
institution may receive income for the activities, which is provided by public institution’s statutes, but it can not distribute profits for its partners (owner), so the majority of the revenue is used for the development of basic activities;
institution may receive charity in a form of material and financial support.
Republic of Lithuania Law on public bodies determines the PI establishment, management, activity, reorganization and liquidation procedures.
Legislations of Republic of Lithuanian anticipate the possibility to establish these legal form companies (types) in the state: the individual companies, true and commandite (trust) partnerships, private, public limited companies, investment, agriculture, cooperative associations, state and municipal enterprises. In these cases when the goal of activity is not profit making, it is possible to set up a non-profit organizations.
Companies are divided into limited and unlimited liability companies. Unlimited liability companies are the individual companies and partnerships, and all the other legal forms (types of) companies - limited liability.
The limited liability company is liable for obligations only with company assets. Unlimited liability company is liable for obligation with all its assets, in the case company haven’t got enough assets the owner of the company is liable with all his own assets too and in the partnership – its real member with all his assets.
Individual company
If you are planning to provide services or to undertake some other commercial economic activity in which it is sufficient to carry out the work by family members and a small initial capital, and you can set up an individual company (IC).
IC establishment, management, activities, restructuring, liquidation, these business owners’ rights and obligations are governed by Republic of Lithuania individual company law which inured in the 2004 y. 1st of January.
IC founder may be the only able natural person. Individual companies act restricted the IC owners’ right to be the owner of the other IC, because IC is an unlimited liability person and its owner is responsible for it with all his assets.
IC founder is considered to be its owner from the companies’ incorporation. In IC regulations you can anticipate that the owner of the company can appoint another person as a manager. An IC regulation is the document of companies’ establishment and according to it IC follows its activities.
IC has the following advantages: the company can manage a simplified bookkeeping, it is not necessary to draw up financial statements, it is sufficient to fill in the tax declaration. IC owner can work for his company alone.
The main disadvantage of IC is that, it is necessary to assess the economic commercial activities risks. IC is an unlimited liability legal person. IC assets are not separated from its owner’s property. That means that he is responsible for the IC obligations with all his assets. We should assess the risks associated with the work or the quality of service, dates, and suppliers and so on. Breach of the obligations of the customer, for the States social insurance institution or other creditors of the company’s assets, obligations are directed to the owner’s property. IC debts can not be written off. Before the registration of this legal form it is necessary to assess companies’ advantages and disadvantages.
IC title must contain its legal form representing words like "private company" or shortening as "IC".
Individual company law provides that the IC can be converted into a joint-stock company, limited stock company, as well as into the public institution. IC can not be reorganized, except when a person inherits the IC, which is the owner of the other IC, and when reorganizing and IC which was established until 2004 1st of January, which owners are spouses.
ICs, established before 2004 1st of January, which titles include words "personal company", or the shortening "PC", as well as IC, which has no indication in its title of legal form, since 2004 1st of January are considered as an individual companies.
IC owners, with two or more ICs, from 2005 31st of December in the name of Civil Code must reorganize these companies into a single individual company or leaving only one individual company, as for other companies must be reorganized, transferred or liquidated.
Partnership
If for the economy commerce one person effort and resources is not enough to launch an activity you need to find some business partners, and than you can establish a partnership.
Partnerships advantages are these: partnerships do not need to employ workers under the employment contract, under the joint operating agreement real members of the partnership may work, a partnership can manage simplified bookkeeping, and law does not regulate the business community minimum equity capital. However, the establishment of this legal form (type) company, economic risks must be assessed and taken into account the fact that a partnership with unlimited liability is a legal entity and its assets are not separated from the assets of its members.
Partnerships have only two legal forms (types): true partnership (TP) and commandite partnership (CP).
The establishment of partnerships, reorganization, liquidation, management and operation of the rights and obligations which are governed by the Republic of Lithuania law of partnerships and joint activity contracts, which establishes thus much TP thus much CP.
A partnership is made from several natural or legal persons, as well as natural and legal persons ally on the basis of established of the commercial enterprise – for pursuing of economic activity in the name of a brand, by merging their assets in to the common partial property. TP title must contain at least one of its members. CP title must contain at least one real members name and the full title of “commandite partnership” or shortening “CP”.
Partnership must contain at least 2 and not more than 20 members. Partnerships can not have government, management and control of public authorities, courts as members. TP can not have state and municipal enterprises as members, and CP can have these members as commandite members.
TP is formed by real members who act in the name of the company. Under the full obligations of TP its members are jointly and severally liable with all its assets. TP is not responsible for its member’s obligations which are unrelated to partnerships property.
CP is made of real members and commandite members which act on behalf of the company, CP must contain at least one real member and at least one commandite member. CP assets are separated from commandite members’ property, and real member assets are not separated from the companies’ assets. For CPs obligations its real members are solidary liable with all their assets, and the commandite members - only with that part of his assets, which was transferred to CP.
Solidary liability of the members means that a creditor of the association may direct his requirements to partnership assets, as well as to any member or several members’ assets.
United activity agreement is the basis of partnerships establishing and activities. It must include: partnerships name, its objectives and rights, its real members and the commandite members, their rights and obligations, parts of property of real and commandite members, order of withdrawing money from till, income and loss allocation rules, conditions and rules of real and commandite members withdrawal and removal and the acceptance of new members, rules of partnerships management and procedures, persons authorized to represent the community, and their empowerment, the adoption of ordinances, and other provisions which are in conformity with laws. Therefore people, who are establishing partnership, should prepare this contract well. United activity contract must be approved by a notary.
Partnership is managed only by the real community members. Every true member of the association has the right to represent the community and to deal with its asset management, use and disposal of his affairs. While making decisions, a real member has one vote, regardless of the amount of his possessions.
Commandite members are not participating in the governance of the partnership, i.e. they do not have the right to represent the community and participate in decisions concerning partnership activities, except in cases where such involvement is provided by the united operating agreement.
Public Limited Company, Private Limited Company
If you wish to engage in activities related to the bigger risks, you better choose limited liability legal person - a Public limited company (PLC) or Private limited company (PLC), i.e. the legal forms (types of) firms that are liable for their obligations only to their own (company) assets. Shareholder of the Company, which failed the planed business, risks losing only those assets that are contributed to the company.
Public and Private limited companies establishment, reorganization and liquidation, management and activity, shareholders’ rights and obligations governed by the Republic of Lithuania Law on Joint Stock Companies.
Discussing provisions of Public and Private limited company, term "company" is used.
Joint Stock Companies Law defines the Public and Private common and distinctive features - the creation and capital formation method, requirements of founders and shareholders, management and control bodies. The company founder may be from Republic of Lithuania or from other countries, natural and legal person.
The company is an enterprise whose share capital is divided into parts called shares. The company has a limited civil liability legal person. The company’s assets are separated from the shareholders’ assets. In accordance with its obligations it is responsible for its property. Shareholders under the terms of obligations are responsible only for the amount that must be paid for the shares.
Establishing Private limited company and Public limited company, shareholders put their money together to form capital for common activity.
Public limited companies capital can not be less than 150 thousand Lt. Its shares may be distributed and traded publicly, in accordance with the public regulated circulation acts.
Private limited companies capital can not be less than 10 thousand Lt. Private limited companies shares can not be distributed or traded publicly.
Since the Public limited company has the right to distribute shares to the public, it has the right to use the various tools and information to sell its shares for every natural or legal person. Private limited company shares are strictly limited by law and this way narrowing potential fund (capital) resources.
Company founders represent the company’s founding treaty (if there is only one founder - he signs the Act). This contract gives the right to open a savings account in the name of the company and to be registered in the Republic of Lithuania Bank, while establishing Public limited company you must register the share in the Funds Commission.
Established companies shares are signed by the company founders. When all the original contributions for the shares are paid, the founders of the company have to summon the Constituent Assembly. Constituent Assembly approves the Public limited company establishment report, elects firm audit managing members, and solves other Constituent Assemblies competence issues. After Constituent Assembly the company is registered in the Register of Legal Persons. From the date of the company registration it is established and acquires legal person rights.
Joint Stock Companies Law provides that, while establishing the company, the initial contributions of shares must be paid in cash only and transferred to company’s savings account. Company can use money that is in this account only after the company is incorporated.
Shareholders of the company may be the Republic of Lithuania or other countries, natural or legal persons who in the law of holders has at least one share. Each shareholder of the company has the following rights, which was given to them by the property of the company’s shares.
The company is guided by its own statutes, which is the main legal document.
Company’s management bodies are the general meeting of shareholders, the Supervisory Board, Administration manager. Public limited companies required governing bodies are the general meeting of shareholders, the Administration manager and at least one collegial management body - the supervisory board or the board. Private limited companies required governing bodies are the general meeting of shareholders and the Administration manager. The Supervisory Board and the Board of Private limited company can be unsatisfactory.
An essential feature of the management of Public and Private limited companies – Private or Public limited companies owners impact on the company depends on how much shares does he have. The most important decisions, including the formation of organs, are made by the shareholders voting, and each of their votes depends on the amount of shares that they have.
Private and public limited companies bookkeeping are managed in accordance with the double entry system, which requires detailed knowledge of bookkeeping and staff with appropriate qualifications. At the end of the financial year, until the ordinary general meeting of shareholders in all public limited companies general meeting that was elected for the firms audit must verify the financial statements.
In Private limited companies audit must be done, if it satisfies at least two of the following conditions:
• sales revenue exceeding 10 million Lt. during the financial year;
• the average listed number of employees during the financial year is not less than 50;
• the balance of the asset exceeds the sum of 5 million Lt.
Cooperative company
Cooperative company (CC) – in treatment of the law is (or) company established by legal person for economic, social and cultural needs. Its members bring funds to set up a capital, and distribute risks and benefits by circulation of goods and services with this company among themselves and they are actively involved in CC management.
CC is a limited civil liability legal person. CCs assets are separated from the assets of its members. CC under its obligations is responsible only for its property. CCs members in accordance of cooperative company obligations are responsible for paying shareholding contributions. CC has not less than 5 members, and its name. The title must contain words such as "cooperative company" or "cooperative".
CC has the right to:
• engage in activities in which law and company statutes makes no sign;
• to have accounts in the Republic of Lithuania and other banks;
• to manage its property belongings, use it and dispose it in accordance with the law;
• join into the company unions, cooperative societies, and according to other law treatments - to other organizations;
• make transactions, take property obligations;
• identify their products, works and service charges, rates and tariffs;
• in accordance with CC statutes and agreement of borrowing funds from its members;
• determine its organizational structure, establish branches and representative offices, be the founder of other companies and organizations.
CCs establishment documents are statutes and founding treaties. CC statutes are the document which guides the activities of the CC.
There must be at least 5 natural and (or) legal person founders. Each CC founder must become a member of it. CC founders presents CCs establishment contract, prepares CCs statutes project, summons the Constituent Assembly. The contract of establishment is a public document.
CCs legal basis is company’s statutes, drawn up by the founders and approved in constituent assembly. CC members can not be Republic of Lithuanian and foreign natural or legal persons.
CCs activity and establishment is regulated by Republic of Lithuania cooperative company (cooperatives) act.
Non-profit organizations
If a person or group wants to work in the social, educational, scientific, cultural, sports or other similar areas, and if their goal is not profit making, it is possible to set up a non-profit organizations - a public institution, association, charity and support fund, a public organization.
The most popular non-profit organization is a public institution (PI), because it is the only non-profit organizations can carry out the business. PI is a public legal person, who does not seek to benefit themselves and can not distribute profits that he received for founders, members, shareholders.
PI can be established by Republic of Lithuania and foreign natural or legal persons. Number of founders is unlimited. States and local public authorities (municipal) property, PI can only use in utilization basis.
Some of the distinctive features of PI:
institutions should operate in social, educational, scientific, cultural, sports, business support, or other similar areas;
institution may receive income for the activities, which is provided by public institution’s statutes, but it can not distribute profits for its partners (owner), so the majority of the revenue is used for the development of basic activities;
institution may receive charity in a form of material and financial support.
Republic of Lithuania Law on public bodies determines the PI establishment, management, activity, reorganization and liquidation procedures.
