UAB, MB, IĮ or VšĮ: which legal form to choose in Lithuania

If you want to run a business and limit your own liability, choose a private limited liability company (uždaroji akcinė bendrovė, UAB) or a small partnership (mažoji bendrija, MB). A UAB can be founded by both natural and legal persons, while only natural persons can be members of an MB, and there can be no more than 10 of them. An individual enterprise (individuali įmonė, IĮ) can still be set up, but it is founded by one natural person, and the enterprise itself has unlimited civil liability. A public institution (viešoji įstaiga, VšĮ) is meant for activity that benefits the public: it is not-for-profit, so it does not distribute profit to its members. If you are creating an organisation to unite members and represent their interests, consider an association (asociacija).

Who can be a founder and how many participants there can be

UAB. The founders of a company can be both natural and legal persons (Article 6(1) of the Law on Companies of the Republic of Lithuania, ABĮ). Because a legal person can be a founder, a company that wants a subsidiary in Lithuania can set up a UAB. Each founder must acquire shares and becomes a shareholder (Article 6(2) ABĮ). The ABĮ sets no upper limit on the number of shareholders.

MB. A small partnership is an enterprise all of whose members are natural persons (Article 2(1) of the Law on Small Partnerships of the Republic of Lithuania, MBĮ). It can have no more than 10 members (Article 2(2) MBĮ). The same limit applies to founders (Article 3(3) MBĮ). A legal person cannot become a member of an MB.

IĮ. An individual enterprise is founded by one natural person, and only a natural person with full legal capacity (Article 3(1) and (2) of the Law on Individual Enterprises of the Republic of Lithuania, IĮĮ). The law does not prohibit setting up new individual enterprises. However, the owner of an IĮ cannot own another individual enterprise (Article 6(3) IĮĮ).

VšĮ. The number of founders of a public institution is not limited (Article 6(1) of the Law on Public Institutions of the Republic of Lithuania, VšĮĮ). A member (dalininkas) can be a natural or a legal person that has transferred a contribution to the public institution (Article 4(2) VšĮĮ).

Are the owners liable for the legal person’s debts

A participant of a legal person is not liable for the legal person’s obligations, except in cases set out in law or in the founding documents (Article 2.50(2) of the Civil Code of the Republic of Lithuania, CK). This rule applies to legal persons with limited civil liability. These are a UAB (Article 2(2) ABĮ), an MB (Article 2(1) MBĮ) and a VšĮ (Article 2 VšĮĮ).

An IĮ is a legal person with unlimited civil liability (Article 2(1) IĮĮ). Where the assets of a legal person with unlimited civil liability are not enough to meet its obligations, the participant is liable for them (Article 2.50(4) CK). So the owner of an IĮ puts at risk their personal assets and their share of property held in joint ownership with a spouse, and where the IĮ is a family business, the spouse may also be liable for its obligations (Supreme Court of Lithuania, case e3K-3-126-313/2019, paras 15 and 18).

Limited liability has an exception. If a legal person cannot perform an obligation because of a participant’s bad-faith actions, the participant is liable with their own assets on a subsidiary basis (Article 2.50(3) CK). This applies to a UAB shareholder and an MB member alike.

Capital and contributions

The authorised capital of a UAB must be no less than the minimum set by law (Article 2(4) ABĮ). The capital is divided into shares (Article 2(1) ABĮ), and a shareholder’s rights depend on the shares they own (Article 3(2) ABĮ).

An MB has no authorised capital, and the MBĮ sets no minimum contribution. The founding agreement states each founder’s contribution, its amount, and how and when it is made (Article 4(1)(6) MBĮ). A contribution can be money or other property (Article 8(1) MBĮ), but not work or services (Article 8(2) MBĮ).

An IĮ has no capital either. Its assets are the owner’s personal property transferred to it and property acquired in the enterprise’s name (Article 8(2) IĮĮ).

The members’ capital of a VšĮ equals the value of the members’ contributions (Article 24(2) VšĮĮ). Contributions can be money or valued tangible and intangible assets (Article 24(3) VšĮĮ). The VšĮĮ sets no minimum members’ capital.

Who manages the entity

A UAB must have a general meeting of shareholders and a manager. A supervisory board and a management board can be formed, but a UAB is not required to have them (Article 19(1) and (2) ABĮ). Which contract to sign with the manager, and whether board members need one, we covered in Does the head of a UAB need an employment contract, and who can be one?.

An MB can have only a members’ meeting, which is then also the management body, or a members’ meeting and a manager (Article 12(2) MBĮ). The manager of an MB must be a natural person (Article 22(1) MBĮ). A civil (services) contract is signed with them (Article 22(2) MBĮ). Each MB member has one vote at the meeting. Where the MB has a manager, its articles (nuostatai) can set a different allocation of votes (Article 16(3) MBĮ).

The owner of an IĮ is also its manager, unless the IĮ’s articles provide otherwise (Article 7(1) IĮĮ).

A VšĮ must have a general meeting of members and a single-person management body, or a single-person and a collegial management body (Article 11(1) and (2) VšĮĮ).

How profit is distributed

A UAB shareholder has the right to receive a share of the company’s profit, that is, a dividend (Article 15(1)(1) ABĮ).

The part of an MB’s profit allocated to members is split in proportion to each member’s contribution, unless the MB’s articles provide otherwise (Article 26(4) MBĮ).

Property belongs to an individual enterprise by right of ownership (Article 8(1) IĮĮ). The owner of an IĮ has the right to receive the enterprise’s profit and to take cash from the enterprise’s till as advance profit (Article 6(6)(1) and (2) IĮĮ). When the owner takes money or other property out of the IĮ, they draw up and sign withdrawal documents (Article 8(3) IĮĮ).

A VšĮ is a not-for-profit legal person (Article 2 VšĮĮ). It is prohibited from using its surplus (profit) for activity objectives other than those set in its articles (Article 3(2)(2) VšĮĮ). When a VšĮ is liquidated, the value of the assets returned to the members cannot exceed the members’ capital (Article 27(8) VšĮĮ). The forms also differ for tax purposes, so assess the tax consequences before setting up.

Public institution or association

The purpose of a VšĮ is to meet public interests by providing public services and/or carrying out other activity that benefits the public (Article 2 VšĮĮ). The purpose of an association is to coordinate its members’ activities, represent and defend their interests, or meet other public interests (Article 2(1) of the Law on Associations of the Republic of Lithuania, AĮ). An association needs at least three founders (Article 4(1) AĮ). An association cannot pay a founder or member out of its surplus (profit) (Article 16(2)(2) AĮ). On how an association is managed, see Does an association need a board, and can it have members without a vote?.

Can the form be changed later

Yes. An IĮ can be converted into a public limited company, a UAB, an MB or a public institution (Article 11(1) IĮĮ). An MB can be converted into, among others, an individual enterprise, a UAB or a public institution (Article 29(2) MBĮ). Only an MB with a single member can be converted into an individual enterprise (Article 29(7) MBĮ). All rights and obligations of the converted MB pass to the legal person operating after the conversion (Article 29(1) MBĮ). Even so, conversion is a separate procedure with its own decisions and notices (Article 29(3) and (4) MBĮ; Article 11(2) and (4) IĮĮ). How an IĮ is converted and what stays with the owner’s liability we described in Converting an IĮ into a UAB or MB: liability, assets, contracts, staff.

More on setting up a company

• Establishment of legal entities: service page
• Setting up an MB in Lithuania: members, contributions, documents
• Setting up a public institution (VšĮ): members, articles, registration
• Setting up an association or charity and support fund in Lithuania
• Branch, representative office or subsidiary: starting out in Lithuania
• Converting an MB into a UAB: decision, capital, creditors, timing

How to start

Tell us who the founders will be (natural or legal persons, and how many), what activity you plan, and whether you intend to distribute profit. We will tell you which form fits and which documents the incorporation will need.

Phone +370 5 212 1506, email info@linden.lt

More about this service: Establishment of legal entities.