Converting a loan into UAB shares: set-off, valuation, pre-emption

A loan becomes share capital only when the company issues new shares and the lender subscribes for them. The subscriber can be an existing shareholder or a creditor who is not yet a shareholder. The Law on Companies allows shares to be paid for in money and with non-cash contributions, and does not separately regulate payment by set-off. We found no Supreme Court ruling on this under the current wording of the ABĮ, and Court of Appeal rulings have looked at set-off from different angles, so two routes are safer: contribute the loan claim as a valued non-cash contribution, or repay the loan and use that money to pay for the shares. The other shareholders’ pre-emption right is either withdrawn or they are offered the shares.

Who can subscribe for new shares

A company’s share capital is increased by additional contributions of shareholders and other persons only by issuing new shares (Article 50(1) of the Law on Companies of the Republic of Lithuania, ABĮ). Shares are subscribed for by the company and a natural or legal person entering into a share subscription agreement (Article 44(1) ABĮ). The law does not require the subscriber to be a shareholder already. A third party who lent money to the company therefore becomes a shareholder the same way as an existing shareholder.

For an insolvent public limited company (AB), the law allows a capital increase by additional contributions only where the new shares are acquired by its shareholders, employees and creditors (Article 50(2) ABĮ). This paragraph names the public limited company; the law uses the word “company” where a rule applies to both an AB and a UAB (Article 1(1) ABĮ). Article 50(2) ABĮ does not set this limit for a UAB.

The share capital is treated as increased only once the amended articles of association are registered in the Register of Legal Entities (Article 49(9) ABĮ). From 1 November 2026 that moment will be the entry of the amended articles into the information system of the Register of Legal Entities (Article 49(9) ABĮ, version from 2026-11-01).

Can shares be paid for by set-off

Shares may be paid for in money and/or with non-cash contributions owned by the person paying for them (Article 45(1) ABĮ). This paragraph does not mention set-off, either in the current version or in the version in force from 1 November 2026. The general rule is in the Civil Code: an obligation ends when a counter-claim of the same kind is set off, provided its term has come, was not specified or is defined by the moment of demand (Article 6.130(1) of the Civil Code, CK). Set-off is made by notifying the other party to the obligation (Article 6.131(2) CK).

We found three court rulings that look at this question differently or from different angles:

• In case No. 3K-3-407/2010 the Supreme Court of Lithuania held that the amount due for new shares and the company’s debt under a loan were counter-claims and that all the conditions needed for set-off had arisen. The case concerned facts of 2000–2001, the Civil Code set-off rules were applied, and Article 45 ABĮ was not examined.
• In case No. 2-557-407/2015 the Court of Appeal of Lithuania (a single judge, ruling on a refusal to open restructuring proceedings for the company) assessed whether the amounts receivable under a share subscription agreement were real assets of the company. It shared the doubts that the company would actually receive money or other assets, because the shareholder had paid for the shares “by making set-offs, and not in money or non-cash contributions as provided for in Article 45(1) of the Law on Companies” (our translation). It did not separately decide whether the set-off was valid.
• In case No. e2A-786-1120/2022 the Court of Appeal of Lithuania found that the amount due for the shares had not been set off against the shareholder’s loan, because the company had only bookkeeping entries and had not notified the shareholder of the set-off (paragraph 29). The loan had to be repaid.

We did not find a Supreme Court ruling deciding this question under the current wording of Article 45 ABĮ, so paying for shares by set-off remains risky. The company cannot release a subscriber from the obligation to pay for the subscribed shares, except under Article 73(12) ABĮ (Article 45(11) ABĮ). If you still choose set-off, document it clearly in writing. The Court of Appeal, relying on Supreme Court guidance, stated that a set-off notice should identify the obligation being set off, the basis of the set-off and the amount set off (case No. e2A-786-1120/2022, paragraph 25).

Route one: the loan claim as a non-cash contribution

A claim for repayment of a loan is a property right (Article 1.97(1) CK), and a non-cash contribution may be any asset, including property rights (Article 45(3) ABĮ). Such a contribution must be valued by an independent property valuer, and the valuation report is given to the company before the shares are subscribed (Article 45(5) ABĮ). The valuation can be skipped where an independent property valuer has already set the value of the contribution, under the rules on property valuation, no earlier than 6 months before the payment date (Article 45¹(1)(2) ABĮ). That decision is taken by the board, or by the manager if there is no board (Article 45¹(2) ABĮ). If new significant circumstances have arisen that would materially change the contribution’s previously set value by the payment date, and the contribution has not been revalued, shareholders who hold at least 5 percent of the shares on the day of the decision, and still hold them on the day of the demand, may, before the payment date, demand a valuation by an independent property valuer (Article 45¹(3)(2) and (4) ABĮ). Where no valuation is made, a certificate is drawn up within 10 days of payment (Article 45¹(5) ABĮ) and filed with the register within one month of payment (Article 45¹(7) ABĮ).

The decision to increase the capital names each person paying for shares with a non-cash contribution, and the nominal value of those shares and the amount for which they are issued (Article 45(6) ABĮ). The total nominal value of those shares cannot exceed the value of the contribution stated in the valuation report (Article 45(7) ABĮ). When the claim is transferred to the company itself, debtor and creditor become the same person, so the obligation ends (Article 6.126(1) CK).

In a UAB, each subscriber’s initial contribution in money must be at least 1/4 of the nominal value of the shares they subscribed for (Article 45(4) ABĮ). At the same time the law provides for the case where the whole amount for which the subscribed shares are issued is paid with non-cash contributions: the whole contribution is then transferred to the company within the period for initial contributions (Article 45(9) ABĮ). The law does not say directly how these two paragraphs fit together, and we found no case law on the point, so it is worth agreeing the payment structure before the decision is adopted. We describe the valuation in more detail in our article on non-cash contributions.

Route two: repay the loan and pay in money

The company repays the loan or part of it, and the lender uses that money to pay for the shares (Article 45(1) ABĮ). No valuation of a non-cash contribution is needed. Shares are treated as paid when the subscriber pays the last money contribution (Article 45(10) ABĮ).

This is the only route available when, at the same meeting, the capital is reduced solely to cancel losses and is immediately increased by issuing new shares. Such new shares must be paid for in money (Article 45(1) ABĮ; Article 52(5) ABĮ).

Issue amount, share premium and partial capitalisation

The amount for which a share is issued cannot be lower than its nominal value, and shares of one issue may be issued for different amounts (Article 45(2) ABĮ). The difference between that amount and the nominal value is the share premium, which is part of the company’s equity (Article 39(8) ABĮ). The share capital therefore grows only by the total nominal value of the shares, and the rest of the capitalised loan becomes share premium.

Part of a loan can also be capitalised. How much of the debt turns into shares depends on the number of shares subscribed and the amount for which they are issued; both are stated in the share subscription agreement (Article 44(3) ABĮ). If the set-off does not cover the whole claim, the creditor may keep the debt document with a note of the set-off but must notify the debtor of the set-off in writing (Article 6.131(4) CK).

Decision, pre-emption right and deadlines

The capital is increased by a decision of the general meeting of shareholders (Article 49(1) ABĮ), which needs a majority of at least 2/3 of the votes of the shareholders attending (Article 28(1)(10) ABĮ).

If only the lender is to acquire the new shares, the pre-emption right of all shareholders is withdrawn by a majority of at least 3/4 of the votes (Article 28(2) ABĮ); it can be withdrawn only for all shareholders (Article 57(7) ABĮ), and the lender is named as the person given the right to acquire the shares. This is possible only where the person who is given the right to acquire the shares is known (Article 57(5) ABĮ). The board, or the manager if there is no board, gives the meeting a written notice with the reasons for the withdrawal and the justification of the amount for which the shares are issued (Article 57(6) ABĮ). If the pre-emption right is not withdrawn, the period to exercise it cannot be shorter than 14 days from the day the Register of Legal Entities publishes the notice, or from delivery of the notice or dispatch of the registered letter to the shareholder (Article 57(3) ABĮ).

Deadlines worth knowing in advance:

• the decision to increase the capital is filed with the register within 10 days of its adoption (Article 49(5) ABĮ); from 1 November 2026 the addressee is called the data controller of the Register of Legal Entities, and the deadline does not change (Article 49(5) ABĮ, version from 2026-11-01);
• the decision to withdraw the pre-emption right is filed with the register within 10 days (Article 57(8) ABĮ);
• the amended articles are filed with the register within 6 months of the decision; if this deadline is missed, the decision is treated as invalid and the contributions for the subscribed shares must be returned at once on the subscriber’s written demand (Article 49(9) ABĮ); from 1 November 2026 the addressee is called the data controller of the Register of Legal Entities, and the deadline does not change (Article 49(9) ABĮ, version from 2026-11-01);
• the shares must be fully paid within the term set in the agreement, which cannot exceed 12 months from the date of the agreement (Article 45(8) ABĮ); if they are not paid in time, the company itself is treated as having acquired them and contributions are not returned (Article 45(12) ABĮ).

We describe the document flow and signatures in our article Issuing new UAB shares. Turning a loan into shares may have tax consequences for the company and the lender, which are worth assessing separately.

More on share capital

• Non-cash contributions to a UAB’s capital: assets, valuation and loans
• Issuing new UAB shares: documents, signatures and doing it remotely
• Reducing a UAB’s share capital in Lithuania: purposes, creditors, deadlines

How to start

Send us the company’s articles of association, the loan agreement, a document confirming the outstanding loan balance and the list of shareholders. Tell us what part of the loan you want to turn into shares and for whom, and we will tell you which payment route fits and prepare the decision and the share subscription agreement.

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

More about this service: Authorised capital increases and decreases.