Cross-border merger, division or conversion of a Lithuanian UAB
A Lithuanian private limited company (UAB) or public limited company (AB) can, without liquidation, move to another EU or EEA state, merge with a foreign company or be divided into several foreign companies. This is governed by the Law on Cross-Border Conversions, Mergers and Divisions of Limited Liability Companies of the Republic of Lithuania (VVRPĮ). The board or the manager prepares the terms and a report for members and employees, an independent expert assesses the terms, and the terms are published and notified to creditors. The general meeting of shareholders decides. The Centre of Registers (Registrų centras) then collects opinions from a notary, the labour relations supervisor and the tax administrator and issues a pre-operation certificate. The certificate confirms that every procedure required in Lithuania has been completed.
Which companies the law covers
The VVRPĮ applies only to public and private limited companies (AB and UAB). It covers three operations: converting the company into a limited liability company of another EU or EEA state, merging with such a company, and dividing into several such companies (Article 1(2) of the VVRPĮ). A small partnership (mažoji bendrija, MB) is not on the list. An MB that wants to take part would first have to convert into a UAB, as described in Converting an MB into a UAB.
The law does not apply, among other cases, to a company in liquidation that has already started distributing assets to shareholders (Article 1(5) of the VVRPĮ). Unless the VVRPĮ provides otherwise, the rules of the Law on Companies on conversion and reorganisation apply, together with the Labour Code (Article 1(4) of the VVRPĮ). The law, whose current wording has applied since 31 August 2023, implements Directive (EU) 2019/2121 amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions (Article 1(6) of the VVRPĮ).
Conversion, merger and division: the difference
Conversion moves the company’s registered office to another state and changes its legal form to that state’s limited liability company form. The company does not stop operating and is not liquidated (Article 2(8) of the VVRPĮ).
Merger is either absorption by an existing company or merger into a new company. The companies that cease to exist end without liquidation, and all their assets and liabilities pass to the other company (Article 2(9) of the VVRPĮ).
Division can be full, partial or by separation. In a full division the company transfers all its assets and liabilities to two or more companies. In a partial division or a division by separation it transfers only part of them and continues to operate (Article 2(10) of the VVRPĮ).
The terms and the independent expert
The board, or the manager if there is no board, must draw up the terms. Conversion terms set out, among other things, an indicative timetable, creditor protection measures, cash compensation for members and the likely effect on employment (Article 3(1) of the VVRPĮ). Merger terms are drawn up jointly with the other merging companies (Article 15(1) of the VVRPĮ), and division terms by the company being divided (Article 28(1) of the VVRPĮ).
An independent expert, an auditor or audit firm, must assess the terms (Article 4(1) of the VVRPĮ). No assessment is needed if one person owns all the shares or all members agree (Article 4(4), Article 16(7) and Article 29(5) of the VVRPĮ).
The report for members and employees
The board or the manager prepares a report explaining the legal and economic aspects of the operation and its effect on employees (Article 5(1) of the VVRPĮ). The section for members is not needed when there is a single shareholder or all members agree (Article 5(4) of the VVRPĮ). The section for employees is not needed when the company and its subsidiaries have no staff other than members of the management body (Article 5(8) of the VVRPĮ).
The terms and the report must be available electronically to members and to employee representatives, or to the employees themselves if there are none, at least 45 days before the general meeting (Article 5(6) of the VVRPĮ). Employees’ opinions received at least 5 working days before the meeting are attached to the report (Article 5(7) of the VVRPĮ). These rules do not displace the information and consultation duties under the Labour Code (Article 5(10) of the VVRPĮ).
The terms also describe the procedures for setting employee participation in decision-making after the operation. That subject is governed by a separate law on employee participation after cross-border conversions, mergers and divisions (Article 3(1) of the VVRPĮ).
Publication and notices
The company publishes the terms in the source named in its articles of association three times at intervals of at least 30 days. Alternatively, it publishes once at least 40 days before the meeting and notifies all creditors in writing (Article 6(1) of the VVRPĮ). No later than the first day of publication, it files with the Centre of Registers the terms, the expert’s report if there is one, and a notice to members, creditors and employees of their right to comment (Article 6(3) of the VVRPĮ). No filing is needed if the company publishes these documents openly on its own website, without charging readers, for the whole period up to the meeting (Article 6(4) of the VVRPĮ).
Protection of creditors and members
A creditor whose claim arose before the terms were published can demand additional security, unless the claim is already secured by a pledge, mortgage, surety or guarantee (Article 8(1) of the VVRPĮ). The creditor can apply to court within 3 months of publication if there are grounds to believe the conversion will make performance harder, and the safeguards proposed in the terms are inadequate and the company has not given the additional security demanded (Article 8(2) of the VVRPĮ). Until security is given or while such a dispute is pending, the conversion cannot be completed (Article 8(3) of the VVRPĮ). When the company leaves Lithuania, creditors whose claims arose before publication can still sue in a Lithuanian court for 2 years after the conversion (Article 8(5) of the VVRPĮ). The same security rules apply to mergers (Article 20(1) of the VVRPĮ). In a full division the receiving companies, and in a partial division or a division by separation the divided company and the receiving company, are jointly and severally liable for obligations allocated to another company. The liability is capped at the value of the net assets allocated to each company on the day the division takes effect (Article 33(4) of the VVRPĮ).
A shareholder of the converting company has the right to sell its shares for adequate cash compensation (Article 7(1) of the VVRPĮ). The shareholder can say so at the meeting or within 20 days after it (Article 7(2) of the VVRPĮ). Compensation is paid within 2 months of completion (Article 7(3) of the VVRPĮ). If the compensation seems too low, the shareholder can apply to court for additional compensation within 2 months of the meeting (Article 7(4) of the VVRPĮ). In a merger, the right to sell belongs to the shareholders of the company that ceases to exist (Article 19(1) of the VVRPĮ). A shareholder who keeps its shares but disagrees with the share exchange ratio can apply to court for a cash payment within one month of the general meeting that approved the merger (Article 19(8) of the VVRPĮ).
Who decides and by what majority
The general meeting decides on a conversion by a qualified majority of at least 2/3 of the votes of the shareholders present (Article 9(2) of the VVRPĮ). The meeting may decide that the operation can be completed only once it approves the employee participation arrangements (Article 9(3) of the VVRPĮ).
A merger decision approves the terms and the articles of the company that will exist after the merger (Article 21(1) of the VVRPĮ). The VVRPĮ does not set the majority for mergers and divisions, so the Law on Companies applies (Article 1(4) of the VVRPĮ). Under Article 28(1)(15) of the Law on Companies of the Republic of Lithuania (ABĮ), a reorganisation decision needs a majority of at least 2/3 of the votes of the shareholders present. How votes and time limits work in a domestic reorganisation is covered in Company reorganisation: do creditors and employees have to consent?
The Centre of Registers check and the certificate
The Centre of Registers checks legality and issues the pre-operation certificate. The certificate confirms that every procedure required in Lithuania has been completed (Article 10(1) of the VVRPĮ). Opinions are provided by a notary, the institution supervising labour law and the tax administrator (Article 10(4) of the VVRPĮ). Each must deliver its opinion within 10 weeks of receiving the documents (Article 10(7) of the VVRPĮ).
The certificate is refused if it is established that the operation is carried out for abusive or fraudulent purposes, to evade EU or national law, or for criminal purposes (Article 10(9) of the VVRPĮ). The check must be completed within 12 weeks of filing (Article 10(11) of the VVRPĮ). If further investigation of possible abuse is needed, the period can be extended by no more than 12 weeks (Article 10(12) of the VVRPĮ). Equivalent rules and the same periods apply to mergers and divisions (Article 22(1), Article 22(11), Article 35(1) and Article 35(11) of the VVRPĮ).
Simplified merger and division by separation
Where the acquiring company holds all shares of the company being acquired, or one person wholly owns both, and no shares are exchanged, there is no need for an exchange ratio or an expert assessment, and the company being acquired needs neither a report nor a decision by its meeting (Article 27(1) of the VVRPĮ). Where the acquiring company holds at least 90 percent of the shares, no expert assessment is needed (Article 27(2) of the VVRPĮ). In a division by separation, the expert assessment, the report and the members’ right to sell their shares do not apply (Article 40 of the VVRPĮ).
When the operation takes effect
Where the company is registered in Lithuania after the operation, the conversion is complete on its registration in the Register of Legal Entities (Article 13(1) of the VVRPĮ). From that registration the conversion can no longer be declared invalid (Article 13(3) of the VVRPĮ). Where a Lithuanian company moves abroad, the Centre of Registers deregisters it once the other state’s register reports that the conversion has taken effect (Article 13(5) of the VVRPĮ). In a merger, assets, rights and obligations, including employment relationships, pass on registration in Lithuania or at the completion moment set by the law of the state where the company will operate (Article 26(1) of the VVRPĮ). A division where the receiving companies are registered in Lithuania is complete on their registration (Article 38(1) of the VVRPĮ).
How long it takes
The law sets no overall duration. It depends on several statutory periods: the documents must be available at least 45 days before the meeting (Article 5(6) of the VVRPĮ), creditors have 3 months to apply to court (Article 8(2) of the VVRPĮ), and the certificate is issued within 12 weeks of filing, with a possible extension (Article 10(11) and Article 10(12) of the VVRPĮ). If the Centre of Registers finds defects and allows time to cure them, the periods stop running until it is told the defects are cured (Article 10(8) of the VVRPĮ). The conversion cannot be completed while creditors’ security claims are unresolved (Article 8(3) of the VVRPĮ). The other state’s procedures, set by that state’s law, come on top.
More on reorganisation
- Reorganisations and separations of companies: service page
- Merger by acquisition in Lithuania: steps, decisions and time limits
- Division or separation: how a Lithuanian company can be split
- Creditors’ rights in a Lithuanian company reorganisation: what to demand
How to start
Send us the articles of association and a recent Centre of Registers extract, and tell us to which state and with which company you plan the operation and how many shareholders, employees and creditors you have. We will tell you which documents you will need and which exemptions may apply.
Phone +370 5 212 1506, email info@linden.lt
More about this service: Reorganisations and separations of companies.
