Does a reorganisation need an audit? Auditor’s assessment and accounts

When a private or public limited company is reorganised, the law requires the terms of reorganisation to be assessed by an auditor or audit firm. What is assessed is the terms, in particular the share exchange ratio; this is not an audit of the company’s financial statements. No assessment is needed, among other statutory exceptions, if all the shareholders of each participating company agree, or where the company being merged is wholly owned by the continuing company. If the terms are drawn up 6 or more months after the end of the financial year, interim financial statements are prepared, unless all shareholders agree not to. When the reorganisation ends, the reorganised company prepares a final financial statement on reorganisation (except companies applying International Financial Reporting Standards).

What must be assessed and who does it

Article 63(2) of the Law on Companies of the Republic of Lithuania (ABĮ) requires the terms of reorganisation to be assessed by an auditor or audit firm. Each company being reorganised or taking part in the reorganisation signs the contract with the auditor. If the companies want a common auditor, the registrar of legal entities must approve that auditor (Article 63(2) ABĮ).

The assessment report must contain, among other things (Article 63(3) ABĮ):

• conclusions on whether the share exchange ratio is fair and reasonable;
• the methods used to set the ratio and conclusions on whether they are suitable;
• a description of any difficulties in the valuation.

The report must be prepared and given to the company no later than 30 days before the general meeting of shareholders that will decide on the reorganisation (Article 63(4) ABĮ). It is filed with the register together with the terms of reorganisation (Article 63(8) ABĮ). Since the terms are filed no later than the first day of public notice, the assessment report must be ready by that day (Article 63(8) ABĮ). Experts who assessed the terms under the company’s contract with the auditor or audit firm must compensate shareholders for damage caused by their fault (Article 69(6) ABĮ).

The Supreme Court of Lithuania (Lietuvos Aukščiausiasis Teismas) has said that the duty to have the terms assessed by an independent audit firm plays an important role in protecting the interests of minority shareholders (LAT ruling of 2020-12-02 in civil case No. e3K-3-325-823/2020, para. 36).

So, is an audit needed? The law requires an assessment of the terms. The requirements for auditing annual financial statements are set not by the reorganisation rules but by the Law on the Audit of Financial Statements and Other Assurance Services (Article 58(1) ABĮ). A company being reorganised does not prepare annual financial statements for its last financial year; it prepares a final financial statement on reorganisation instead (Article 13(2) and Article 15(2) of the Law on Reporting by Undertakings and Groups of Undertakings of the Republic of Lithuania (IIGAĮ)).

For legal entities of other legal forms, the terms are assessed by independent experts only where the law governing that legal form requires it (Article 2.100(1) of the Civil Code of the Republic of Lithuania (CK)).

When no assessment is needed

1. All shareholders agree. No assessment is carried out if all the shareholders of each company being reorganised or taking part agree (Article 63(5) ABĮ). Consent may be given in any form in which shareholders can vote at a general meeting (Article 63(5) ABĮ). Where each participating company has a single shareholder, their consents are enough.
2. A wholly owned subsidiary is merged. Where the continuing company holds all the shares of the company being merged, the assessment, the board’s report on the proposed reorganisation and the share exchange rules do not apply (Article 70(1) ABĮ). The general Civil Code rule likewise disapplies the expert assessment where a legal entity merges into its sole member (Article 2.103 CK).
3. The continuing company holds at least 90 percent of the shares of the company being merged. No assessment is needed if, at the request of the other shareholders, the company buys out their shares before the end of the reorganisation (Article 70¹(2) ABĮ).
4. Proportional division. If, when a company is divided, the new shares are allocated to shareholders in proportion to their stakes in the authorised capital, no assessment is needed (Article 67(3) ABĮ). In that case the board’s report on the proposed reorganisation and the interim accounts requirements do not apply either (Article 67(3) ABĮ).

The board’s or manager’s report on the proposed reorganisation

The board or, where there is no board, the manager prepares a detailed written report. It sets out the aims of the reorganisation, explains the terms, the continuity of the business, the time limits, and the legal and economic grounds of the terms, in particular the share exchange ratio (Article 64(1) ABĮ). The report is filed with the register no later than 30 days before the meeting (Article 64(1) ABĮ).

The report is not prepared if all the shareholders of each company agree (Article 64(2) ABĮ). In a private limited company it is prepared only if shareholders holding at least 1/10 of all votes demand it (Article 64(3) ABĮ). The general Civil Code rule requires such a report only where a public limited company takes part or where members holding at least 1/20 of the votes demand it (Article 2.99(3) and (4) CK). These parts of the Civil Code do not apply to small partnerships (Article 28(1) of the Law on Small Partnerships of the Republic of Lithuania (MBĮ)).

Interim financial statements: can a reorganisation start at any time of year?

The law names no particular day of the year for starting a reorganisation. But the date on which the terms are drawn up decides which financial statements will be needed.

Shareholders and creditors must have access to the annual financial statements and management reports for the last three years (Article 65(2)(3) ABĮ). If the terms are drawn up 6 or more months after the end of the financial year of at least one participating company, interim financial statements are also prepared (Article 65(2)(3) ABĮ). They must be drawn up no earlier than 3 months before the terms and under the same rules as the last annual statements (Article 65(2)(3) ABĮ).

Interim statements are not prepared if all the shareholders of each participating company agree (Article 65(2)(3) ABĮ). When a wholly owned subsidiary is merged, this duty remains: Article 70(1) ABĮ disapplies only points 4 and 5 of Article 65(2). If in that case the decision is taken by the board or manager, the shareholders of the continuing company must also have access to the financial statements (Article 70(2)(2) ABĮ).

What this means: if the terms are drawn up before 6 months have passed since the end of the financial year of each participating company, the annual statements are enough. If the terms are drawn up later, you will need interim statements or the consent of all shareholders not to prepare them. For other legal entities a similar rule is set out in Article 2.96(4) CK, but it does not allow the members to waive interim accounts by consent.

The final financial statement on reorganisation: which dates

A company being reorganised must prepare a final financial statement on reorganisation using the data of its last day of activity before the day the reorganisation ends (Article 15(2) IIGAĮ). The reporting period does not start at the beginning of the reorganisation. The last financial year runs from the start of the financial year to the day the reorganisation ends (Article 14(4) IIGAĮ).

A reorganisation is complete when all the new companies, or the amended articles of all the continuing companies, are registered (Article 69(1) ABĮ). So if the financial year is the calendar year, the statement covers the period from the start of the year to the last day of activity before the day the reorganisation ends. Other dates worth knowing are covered in Company reorganisation: dates, shareholders and the notary.

The content of the statement is set out in the Lithuanian Financial Reporting Standards (Article 15(4) IIGAĮ). This duty does not apply to companies that keep their accounts under International Financial Reporting Standards (Article 15(5) IIGAĮ). They file financial statements prepared under those standards with the register instead (Article 36(2) IIGAĮ). The statement must be filed with the register before the day the company is removed from it (Article 36(2) IIGAĮ).

If the reorganisation decision was adopted before 30 June 2025, the rules in force before this law took effect apply to the statement (Article 41(8) IIGAĮ).

Separately from this statement, the terms state the moment from which transactions are included in the continuing company’s financial accounts (Article 63(1)(9) ABĮ). Since the content of the final statement is set out in the Lithuanian Financial Reporting Standards (Article 15(4) IIGAĮ), it is worth discussing this moment with whoever keeps the accounts.

More on reorganisation

• Reorganisations and separations of companies: service page
• Terms of reorganisation in Lithuania: who drafts them, contents, notice
• When a reorganisation ends, who becomes a shareholder, is a notary needed
• Reorganisation filings with the Centre of Registers: steps and time limits

How to start

Send us the articles of association of the participating companies, the lists of shareholders and the latest annual financial statements, and tell us when your financial year ends. We will tell you whether an auditor’s assessment, the board’s report on the proposed reorganisation and interim statements will be needed, and which shareholder consents would make them unnecessary.

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

More about this service: Reorganisations and separations of companies.