Reorganising a public institution (VšĮ) or association in Lithuania

A public institution (viešoji įstaiga, VšĮ) and an association (asociacija) can be reorganised only in the ways set by the Civil Code: by merger (absorption or merger into a new entity) or by division (distribution to existing entities or division into new ones). Only legal entities of the same legal form may take part in a reorganisation, so a VšĮ merges with a VšĮ and an association with an association. The general meeting decides by a majority of at least 2/3 of the votes present. An association cannot be reorganised and converted at the same time. A VšĮ reorganisation is complete when the articles or data of the entities continuing after it are registered in the Register of Legal Entities.

The ways to reorganise

Article 25(1) of the Law on Public Institutions of the Republic of Lithuania (VšĮĮ) allows a VšĮ to be reorganised by the merger and division methods set by the Civil Code. Associations are likewise reorganised under the Civil Code (Article 17(1) of the Law on Associations of the Republic of Lithuania (AĮ)).

Article 2.97 of the Civil Code of the Republic of Lithuania (CK) provides four methods:

• absorption: one or more legal entities are joined to another, which takes over all their rights and obligations;
• merger into a new entity: two or more legal entities combine into a new one;
• distribution: the rights and obligations of the entity being reorganised are distributed among other existing entities;
• division: two or more new legal entities are set up on the basis of one entity.

In each case the reorganised entity ends without liquidation (Article 2.95(2) of the CK). An entity being liquidated other than by its members’ decision, or one where any member has already received part of the assets, cannot be reorganised (Article 2.97(8) of the CK).

Can part of a VšĮ’s activity be separated off?

Separation, where a company continues to operate and a new company of the same form is set up from part of it, is provided for in Article 71(1) of the Law on Companies of the Republic of Lithuania (ABĮ). That is a rule for companies. Article 25(1) of the VšĮĮ allows a VšĮ to be reorganised only by the Civil Code’s merger and division methods, and separation is not among them in Article 2.97 of the CK. So if part of a VšĮ’s activity is to move into a separate new VšĮ, the closest route the law provides is division. The VšĮ being divided then ends, and its rights and obligations pass in defined shares to the new institutions (Article 2.97(7) of the CK).

Who a VšĮ or association can merge with

Only legal entities of the same legal form may take part in a reorganisation, unless laws on particular legal forms provide an exception (Article 2.98(1) of the CK). Neither the VšĮĮ nor the AĮ provides one. A VšĮ therefore cannot be merged directly into a UAB or an association.

If the goal is an entity of another form, a VšĮ can first be converted. A VšĮ can be converted into, among others, an association, a public or private limited company, a small partnership or a charity and sponsorship fund (Article 26(1) of the VšĮĮ). A VšĮ in which the state or a municipality is the owner or a participant cannot be converted into an association, a charity and sponsorship fund or a small partnership, and a VšĮ with renewable energy or citizen energy community status whose main purpose is reducing energy poverty or benefiting vulnerable consumers cannot be converted into a company (Article 26(1) of the VšĮĮ). An association is a public legal entity (Article 2(1) of the AĮ), and a public legal entity, except state and municipal enterprises and public institutions, cannot be converted into a private legal entity (Article 2.104(3) of the CK). An association therefore cannot be converted into, for example, a UAB. In addition, an association cannot be reorganised and converted at the same time (Article 17(2) of the AĮ). Conversion and reorganisation have to be done one after the other.

Who decides and by what majority

VšĮ. The general meeting of participants decides on the reorganisation and approves the description of the reorganisation terms (Article 12(1)(8) of the VšĮĮ). A qualified majority is needed. The articles set it, but it cannot be less than 2/3 of the votes of the participants present (Article 12(5) of the VšĮĮ). The meeting of each VšĮ taking part makes the decision and approves the articles of the institutions that will exist afterwards. In an absorption, the continuing VšĮ’s articles may stay unchanged (Article 25(7) of the VšĮĮ).

Association. The general meeting of members decides on the reorganisation (Article 8(1)(6) of the AĮ). This needs at least 2/3 of the votes of the members present (Article 8(7) of the AĮ). Unless the articles set up a representative body (a conference, congress or similar), each member has one vote at the meeting (Article 8(4) of the AĮ).

The steps

1. Description of the reorganisation terms. The managers or collegial management bodies of all participating VšĮs prepare the description. It contains the information required by Article 2.99(1) of the CK, including the method of reorganisation and the moment from which rights and obligations pass. It also names the persons who will act for the new institutions and sign their articles (Article 25(2) of the VšĮĮ).
2. Publication. The description is announced in the manner set by Article 2.101(1) of the CK (Article 25(3) of the VšĮĮ): published three times at intervals of at least 30 days, or once together with written notice to all creditors (Article 2.101(1) of the CK).
3. Filing with the register. The description is filed with the Register of Legal Entities no later than the first day of publication (Article 25(4) of the VšĮĮ).
4. Access to documents. At least 30 days before the meeting, participants and creditors are entitled to see the description, the draft articles and the financial statements for the last three financial years (Article 25(5) of the VšĮĮ).
5. Decision. It can be taken only after 30 days have passed since publication (Article 2.96(3) of the CK). Where public legal entities take part, no management report or independent expert assessment is needed (Article 2.103 of the CK).
6. Decision to the register. The document confirming the decision is filed with the Register of Legal Entities (Article 25(8) of the VšĮĮ).
7. Financial statement. The VšĮ being reorganised prepares a final reorganisation financial statement as at its last day of activity (Article 25(9) of the VšĮĮ). An association has the same duty (Article 17(2) of the AĮ).
8. Completion. A VšĮ reorganisation is complete on registration of the articles or data of the entities continuing afterwards. If the articles are not changed, the register is notified that all obligations in the description have been met (Article 25(10) of the VšĮĮ).

The AĮ sets no separate reorganisation procedure for associations, so the Civil Code rules in Articles 2.96 to 2.101 apply: reorganisation terms, publication and a 30-day wait before the decision (Article 2.99(1), Article 2.101(1) and Article 2.96(3) of the CK).

Creditors’ rights

Creditors do not have to consent, but they must be informed. A creditor may demand early termination or performance of the obligation and compensation for losses if the contract provides for it, or if there is reason to believe that the reorganisation will make performance harder and the entity did not provide additional security on request (Article 2.101(2) of the CK). A creditor of a VšĮ may submit its claims within 2 months of publication (Article 25(6) of the VšĮĮ). How this works for companies is covered in Company reorganisation: do creditors and employees have to consent?

The law sets no overall duration for a reorganisation. The statutory periods show only the minimum: the decision cannot be taken earlier than 30 days after publication (Article 2.96(3) of the CK). The rest depends on preparing the documents and on creditors’ claims.

Can a VšĮ move its funds to another entity without reorganising?

The law sets no separate procedure for moving funds, but a VšĮ may transfer assets if it keeps within these limits:

• A VšĮ is a non-profit public legal entity whose purpose is to serve the public interest (Article 2 of the VšĮĮ). Its rights and obligations cannot contradict its founding documents and objectives (Article 3(1) of the VšĮĮ).
• Any surplus (profit) may be used only for the objectives set in its articles (Article 3(2)(2) of the VšĮĮ).
• It may not transfer assets to a participant or a related person for less than market value, or on trust or for free use, except in cases the law names, such as liquidation (Article 3(2)(3) of the VšĮĮ).
• Support and other non-repayable funds received must be used for the purposes named by the donor (Article 24(9) of the VšĮĮ).
• The general meeting of participants decides on disposing of long-term assets (Article 12(1)(7) of the VšĮĮ). It also decides whether the VšĮ becomes a founder or member of another legal entity (Article 12(1)(13) of the VšĮĮ).

A VšĮ can therefore transfer assets to another legal entity only so far as this serves the objectives in its articles and respects these prohibitions. Even on liquidation, accumulated funds are not paid out to participants: they get back no more than the participants’ capital, and the rest goes to other public legal entities (Article 27(8) of the VšĮĮ). More in Liquidating a public institution (VšĮ).

If a VšĮ is converted into a company, creditors’ claims are satisfied first. The remaining assets of the VšĮ, except support received, then pass to the company as a contribution to its share capital (Article 26(2) of the VšĮĮ).

Similar limits apply to an association. It may dispose of assets only to pursue the objectives in its articles (Article 16(1) of the AĮ). Even for those objectives it may not transfer assets without consideration to a member, a member of a management body, an employee, a related person or a third person, except for charity or support purposes set in its articles under the Law on Charity and Sponsorship (Article 16(2)(1) of the AĮ). It may not pay founders or members out of its surplus (Article 16(2)(2) of the AĮ). On liquidation, once creditors and members’ claims (up to their entry contribution or fee) are paid, the remaining assets go to other public legal entities before deregistration (Article 17(4) of the AĮ), as described in Liquidating an association or charity fund.

More on reorganisation

• Reorganisations and separations of companies: service page
• Merger by acquisition in Lithuania: steps, decisions and time limits
• Terms of reorganisation in Lithuania: who drafts them, contents, notice
• Creditors’ rights in a Lithuanian company reorganisation: what to demand

How to start

Send us the articles of the public institutions or associations involved and recent Centre of Registers (Registrų centras) extracts, and tell us the result you want: merging the institutions, splitting the activity or transferring assets. We will tell you which statutory route fits and which documents you will need.

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

More about this service: Reorganisations and separations of companies.