Merger by acquisition in Lithuania: steps, decisions and time limits

When one company is merged into another, the company being absorbed ends without liquidation, and the company it is merged into takes over all its rights and obligations. The decision is taken by the general meetings of shareholders of both companies by a qualified majority, and no earlier than 30 days after the registrar announces that it has received the terms of reorganisation. The shareholders of the absorbed company receive shares in the continuing company in exchange for their own. Where the continuing company holds all, or at least 90 percent, of the shares of the company being absorbed, the law allows a shorter route. The law sets no overall duration, but it does set minimum time limits, which we list below.

Merger by acquisition and merger by formation of a new company: the difference

Both are forms of merger (Article 2.97(2) of the Civil Code of the Republic of Lithuania, CK). A merger by acquisition (prijungimas) is the joining of one or more legal entities to another legal entity, to which all the rights and obligations of the entity being reorganised pass (Article 2.97(3) CK). A merger by formation of a new company (sujungimas) is the union of two or more legal entities into a new legal entity (Article 2.97(4) CK).

In a merger by acquisition, the company being merged into continues to operate, and only the absorbed company ends. In a merger by formation of a new company, all participating companies end, and the new company is registered only after its general meeting has elected its bodies and the documents required by law have been filed with the registrar (Article 69(3) of the Law on Companies of the Republic of Lithuania, ABĮ).

Only legal entities of the same legal form can be merged, except where the law provides otherwise (Article 2.98(1) CK). The Law on Companies repeats this for companies (Article 61(3) ABĮ). In addition, a company can take part in a reorganisation only once its authorised capital has been paid up in full (Article 61(2) ABĮ).

Who decides and by what majority

The decision on reorganisation is taken by the general meeting of shareholders of each company being reorganised and each company taking part in the reorganisation, except where the ABĮ provides otherwise (Article 62(1) ABĮ). This is an exclusive power of the general meeting (Article 20(1)(24) ABĮ). The decision needs a qualified majority of not less than 2/3 of the votes carried by the shares of all shareholders present at the meeting (Article 28(1)(15) ABĮ). The Civil Code sets the same minimum majority and lets the articles set a higher one (Article 2.96(3) CK). Where a company has shares of different classes, the holders of each class must vote for the decision separately (Article 62(1) ABĮ).

The same decision approves the terms of reorganisation and amends the articles of association of the continuing company (Article 62(3) ABĮ). The terms themselves are drawn up by the boards of the companies, or by their managers where there is no board, but only once the general meeting has given its approval (Article 63(1) ABĮ). So the shareholders decide twice: at the start they approve the drafting of the terms, and at the end they approve the terms. What the terms must contain is covered separately.

What happens to the shares

The shares of the absorbed company are exchanged for shares in the continuing company (Article 67(1) ABĮ). The new shares may be allocated to shareholders proportionately or disproportionately (Article 67(2) ABĮ). A difference in share values may be paid in cash, but cash payments may not exceed 10 percent of the nominal value of the new shares received (Article 67(6) ABĮ). Shares of the absorbed company already held by the continuing company are not exchanged for new shares (Article 67(5) ABĮ). When the new shareholders appear in the register and when a notary is needed is explained in our article Company reorganisation: key dates, shareholders and the notary.

When the rights pass and when the absorbed company ends

All assets, rights and obligations pass to the continuing company from the registration of its amended articles of association, unless the terms of reorganisation provide otherwise (Article 68(1) ABĮ). On that day the reorganisation is considered complete (Article 69(1) ABĮ). The absorbed company ends later, from its deregistration from the register (Article 69(5) ABĮ; Article 2.95(3) CK).

Contracts pass together with all the rights and obligations. The Supreme Court of Lithuania (Lietuvos Aukščiausiasis Teismas, LAT) has held that a reorganisation in itself is not a ground to terminate or amend contracts with the entity being reorganised (LAT ruling of 19 October 2022 in civil case No. e3K-3-236-823/2022, para. 45). In the same case, however, the court accepted that when a landlord is absorbed, the owner of the leased property changes. A tenant can therefore demand that the lease end under Article 6.494(3) CK (Article 6.494(3) CK; LAT e3K-3-236-823/2022, para. 44). This right comes from a non-mandatory rule, so the parties can agree in the lease that it will not apply (LAT e3K-3-236-823/2022, para. 48). If the company being absorbed is a landlord, review its leases in advance.

The law does not require creditors’ consent, but a creditor whose rights arose before the terms of reorganisation were publicly announced can demand additional security for the performance of obligations where there is reason to believe that the reorganisation will make performance harder (Article 66(1) ABĮ). No security is owed where performance is already sufficiently secured by a pledge, mortgage, surety or guarantee (Article 66(3) ABĮ). Until security is given to a creditor who demanded it, documents may not be filed with the registrar (Article 66(4) ABĮ). Creditors, the bank and employees are covered in more detail in our article Company reorganisation: do you need creditor and employee consent?.

Where the continuing company holds all or at least 90 percent of the shares

All shares. Where the continuing company owns all the shares of the company being absorbed, no shares are exchanged, the auditor does not assess the terms of reorganisation, and no board report is prepared (Article 70(1) ABĮ). No decision of the general meeting is needed if the reorganisation has been announced, the shareholders have been able to inspect the documents, and shareholders of the continuing company holding at least 1/20 of all votes have not demanded a general meeting within 30 days of the registrar’s announcement (Article 70(2) ABĮ). In that case, once this period has expired, the decision is taken by the board of the continuing company, or by its manager where there is no board (Article 70(3) ABĮ). Where an entity is merged into its sole participant, the Civil Code also does not apply the requirements for management reports and for assessment of the terms (Article 2.103 CK).

At least 90 percent of the shares. No decision of the general meeting of the continuing company is required if the same three conditions on announcement, inspection of documents and no demand by shareholders are met (Article 70¹(1) ABĮ). The auditor’s assessment and the board report are not needed if the continuing company, before the end of the reorganisation, buys out the shares of the other shareholders of the absorbed company when they demand it (Article 70¹(2) ABĮ). The buyout follows the rules of Article 67(4) ABĮ: a shareholder may demand it no later than 45 days after the general meeting’s decision (Article 67(4) ABĮ). Article 70¹(1) ABĮ exempts only the continuing company. It does not remove the decision of the general meeting of the company being absorbed, so the general rule of Article 62(1) ABĮ remains for that company.

Minimum time limits, in order

The law sets no overall duration for a merger. It depends on these time limits:

1. The auditor’s report on the terms is given to the company no later than 30 days before the general meeting (Article 63(4) ABĮ). No assessment is carried out if all shareholders of each company agree (Article 63(5) ABĮ). Where a board report is prepared, it is filed with the registrar no later than 30 days before the meeting (Article 64(1) ABĮ), and it is not prepared if all shareholders agree (Article 64(2) ABĮ). In a private limited liability company (UAB), it is prepared only if shareholders holding at least 1/10 of all votes demand it (Article 64(3) ABĮ).
2. The terms of reorganisation are filed with the registrar no later than the first day of public announcement, together with the auditor’s report where one is prepared (Article 63(8) ABĮ). So the auditor’s report must be ready before the terms are filed. From the day of announcement the companies acquire the status of a company being reorganised and a company taking part in the reorganisation (Article 63(13) ABĮ).
3. The announcement is made three times at intervals of at least 30 days, or once no later than 30 days before the meeting together with written notice to all creditors (Article 65(1) ABĮ).
4. The decision is taken no earlier than 30 days after the registrar announces that it has received the terms (Article 62(2) ABĮ). Creditors can submit their demands up to that meeting (Article 66(2) ABĮ).
5. The document confirming the decision is filed with the registrar within 5 days (Article 62(4) ABĮ).
6. Once the amended articles are registered the reorganisation ends, and the absorbed company is deregistered after that (Article 69(1) and (5) ABĮ).

The shortest route is a single announcement with written notices to creditors. Then at least 30 days must pass between the registrar’s announcement and the decision. How the articles are registered and what the notary does is covered in the article on the start and end of a reorganisation mentioned above.

How a merger differs from the sale of an enterprise

An enterprise can also be sold as a property complex. Under such a contract the seller transfers to the buyer the whole enterprise or a substantial part of it, except rights and obligations the seller has no right to transfer to others (Article 6.402(1) CK). The contract must be a single document signed by both parties and certified by a notary (Article 6.403(1) CK). Its required annexes are an inventory of the assets, a balance sheet, an independent auditor’s opinion and a list of debts (Article 6.404(2) CK). At least twenty days before the contract is signed, the buyer must notify in writing all creditors named in the list, subject to the exceptions in the law (Article 6.405(1) CK). Permits and licences pass only where the law or the permit itself allows it (Article 6.402(3) CK).

The key difference: after a sale of an enterprise, the seller continues to exist as a legal entity, because legal entities end only by liquidation or reorganisation (Article 2.95(1) CK). A merger needs no sale contract: all rights and obligations pass to the continuing company by law (Article 2.97(3) CK), and the shareholders of the absorbed company receive shares in the continuing company (Article 67(1) ABĮ). If you want to close a company rather than merge it, we compared liquidation, bankruptcy and a share sale in the article Closing a company in Lithuania: liquidation, bankruptcy, merger or share sale.

More on reorganisation

• Reorganisations and separations of companies: service page
• Terms of reorganisation in Lithuania: who drafts them, contents, notice
• Reorganisation filings with the Centre of Registers: steps and time limits
• Invoices after a merger: when the continuing company takes over

How to start

Send us the articles of association of both companies and recent extracts from the Centre of Registers (Registrų centras), and tell us who the shareholders of each company are and how many shares they hold. We will tell you whether a simplified route is available and draw up a schedule of steps and time limits.

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

More about this service: Reorganisations and separations of companies.