Types of companies
If you decided to set up a company, first assess and choose the legal type of an undertaking which is the most appropriate to implement the identified goals.
According to the degree of liability of legal persons (LP), they are divided into those of limited and unlimited civil liability. The participant of a legal person undertakes unlimited civil liability obligations to the extent of his owned assets or assets held by the trust. If a legal person is established as a limited liability company, its participant is not responsible for any obligations.
In relation to the pursued objective, legal persons may be grouped into public and private. Public and private legal persons usually differ according to their founders’ objectives (meeting public (not seeking benefit for themselves) or private (seeking material gain) interests, type of activity and use of profit (participants of private legal persons have the right to participate in the profit, whereas the profit of public legal persons may only be used for operational objectives).
Most widespread types of companies in Lithuania:
- Individual enterprise;
- Private limited liability company;
- Small partnership.
The main features of and differences between the most popular legal forms of legal entities
|Assessment criteria||MB, Small partnership||UAB, Private limited liability company||IĮ, Individual enterprise|
|Minimum number of participants||1 (member)||1 (shareholder)||1 (owner)|
|10 members. Only natural persons.||
249 (shareholders). Natural persons or legal entities.
|1 owner. Only a natural person can be the owner.|
of the capital.
|Not specified.||Not less than 2 500 EUR||This requirement is not applicable.|
|Founders (participants)||Natural persons||Natural and/or legal persons||Natural person|
|Participant’s liability for
the commitments of
the legal entity
|A small partnership member has limited civil liability (a member of a legal entity bears no responsibility for liabilities of a legal entity).||A shareholder has limited civil liability (a member of a legal entity bears no responsibility for liabilities of a legal entity).||Owner of an individual enterprise has unlimited civil liability (if the assets of an individual enterprise are not enough to meet all the commitments of the enterprise, the owner of the individual enterprise must cover these liabilities with his own assets).|
|The principle of voting
during the process
of decision making
|Usually it is 1 member per one vote, however, when the small partnership is led by the head, the provisions of the small partnership may specify otherwise.||1 share per 1 vote||The decisions are made by the owner of the individual enterprise.|
|Accounting (legal regulation)||
Simplified accounting procedure Republic of Lithuania Law on Accounting, Republic of Lithuania Law on Financial Statements of Entities, business accounting standard
|Republic of Lithuania Law on Accounting, Republic of Lithuania Law on Financial Statements of Entities, Republic of Lithuania Law on Consolidated Financial Statements of Entities, international accounting standards, business accounting standards.||
Simplified accounting procedure, the requirement to produce a set of annual financial statement is not applicable. If the provisions of an individual partnership provide for drafting of financial statements.
Republic of Lithuania Law on Accounting, Republic of Lithuania Law on Financial Statements of Entities, business accounting standards
|Capital and contributions||
Contributions by members of small partnerships can be of monetary or non-monetary form. The value of non-monetary contributions is agreed upon by all members of the small partnership.Works or services cannot be considered as contributions
|Shares are the parts to which the capital is divided. Shares are paid with money and/or a non-monetary contribution owned by a shareholder by the right of ownership, the value of which must be established in line with the procedure specified in legal acts.Shares are the parts to which the capital is divided. Shares are paid with money and/or a non-monetary contribution owned by a shareholder by the right of ownership, the value of which must be established in line with the procedure specified in legal acts.||Contributions are the personal property of the owner of an individual enterprise.|
|Distribution of profit||
Profit is distributed proportionally according to the amount of the contributions made, unless the provisions of the small partnership provide otherwise.
Profit can be distributed in advance. In the event it becomes clear following the end of the financial year that the advanced distribution of profit exceeds the established amount, the surplus has to be recovered.
|The amount of dividends paid to shareholders is proportionate to the nominal value of shareholders’ shares. Dividends can be paid for a shorter period than the financial year.||The whole profit goes to the owner of the individual enterprise.|
Founders (members) of the small partnership can choose one of the two structures of the small partnership:
– when the small partnership is a meeting of members of the small partnership, which is its management authority. In this case, the small partnership does not have other bodies, only a representative elected by its members, however, all the operational decisions are made during meetings of members of the small partnership;
– when the small partnership is the meeting of members of a small partnership and the single-person management body, i.e. the head of the small partnership, with whom a civil agreement is concluded.
Private limited liability company must have a general shareholders’ meeting and a single-person management body, i.e. the head of the company.
A collegiate supervisory body, i.e. a supervisory council and a collegiate management body, i.e. the board, can be established.
A job agreement is concluded with the head of the company.
Usually, the owner of an individual enterprise is a single-person management body, i.e. the head of the company.
When another person is appointed the head of an individual enterprise, this person acts on behalf of the individual enterprise, and the owner of the individual enterprise acts only within his competence as a meeting of members.
|A person acting on
behalf of the legal person
Depending on the structure of a small partnership, the following persons may act on its behalf:
the meeting of members of a small partnership, the latter represented by its representative or
the head of the small partnership, i.e. the single-person management body.
|A private limited liability company is represented by its head when dealing with other persons.||When there is no head of an individual enterprise appointed by its owner, the owner acts on behalf of the enterprise. When there is a head of an individual enterprise, he acts on behalf of the enterprise.|
Source: Innovation agency