A separation follows the same rules as a reorganisation by division. So the terms of separation must contain everything the law requires in the terms of a reorganisation. Their most important part is the exact description of the assets, rights and obligations and how they are allocated. Whatever you do not allocate in the terms, the law will allocate \u2013 and not always the way you would want. Prepared together with the terms are the new company's articles of association, the auditor's valuation report (unless all the shareholders agree to dispense with it) and, where needed, interim financial statements. After registration come the asset transfer and acceptance certificates and the notices to contract counterparties.<\/p>\r\n
How long a separation takes and why the bank account cannot be transferred is covered in Company separation: about three months<\/a>. Whether creditors and employees must consent is covered here<\/a>. The key dates, the exchange of shares and the notary are covered here<\/a>. This article is about the terms themselves and the documents.<\/p>\r\n Article 71(1) of the Law on Companies of the Republic of Lithuania (AB\u012e) allows part of a company that continues its activities to be separated, and one or more new companies of the same legal form to be created on the basis of the assets, rights and obligations assigned to that part. The provisions governing reorganisation by division apply to such a separation mutatis mutandis (Article 71(2) AB\u012e). The key difference from a division: the company from which a part is separated does not come to an end, but continues its activities.<\/p>\r\n The terms are not drawn up by the shareholders. They must be drawn up by the company's board \u2013 or, where there is no board, by the manager \u2013 once the general meeting of shareholders has approved this (Article 63(1) AB\u012e). So the first document is not the terms but the shareholders' approval to prepare them.<\/p>\r\n Article 63(1) AB\u012e lists what, among other terms, must be provided for. Grouped:<\/p>\r\n Who takes part.<\/strong> The information set out in Article 2.44 of the Civil Code of the Republic of Lithuania (CK) about each company, and the name, legal form and registered office of the new company (Article 63(1)(1) AB\u012e). The form of reorganisation (Article 63(1)(2) AB\u012e). Which companies will cease to exist and which will operate after the reorganisation (Article 63(1)(3) AB\u012e).<\/p>\r\n Shares and shareholders.<\/strong> The share exchange ratio and the rules for allocating shares (Article 63(1)(4) AB\u012e), the procedure and time limits for issuing the shares (Article 63(1)(5) AB\u012e), any difference in value between the shares held and the shares received, paid in cash (Article 63(1)(6) AB\u012e) and the right to the new company's profit (Article 63(1)(7) AB\u012e). We covered these terms in more detail in the article on shareholders and the notary<\/a>.<\/p>\r\n From when.<\/strong> The moment from which rights and obligations pass (Article 63(1)(8) AB\u012e), and the moment from which transactions are included in the new company's financial accounts (Article 63(1)(9) AB\u012e). In our practice we agree this moment with the accountants and tax advisers before the terms are drafted, because it decides in which company's accounts each transaction will sit.<\/p>\r\n What is transferred.<\/strong> In the case of a division \u2013 an exact description of the assets, rights and obligations of the company being divided and their allocation to the companies that will operate after the reorganisation (Article 63(1)(11) AB\u012e). This is the core of the terms of separation.<\/p>\r\n Other rights.<\/strong> The rights the new company grants to holders of separate classes of shares, bonds and other securities (Article 63(1)(10) AB\u012e), and any special rights granted to members of the companies' bodies and to the experts assessing the terms (Article 63(1)(12) AB\u012e). In our practice, if there are no such rights, we say so expressly.<\/p>\r\n Assets, rights and obligations are assigned to the companies under the terms of reorganisation (Article 68(1) AB\u012e). If something is left out of the terms, the law has an answer, but it rarely matches the business plan:<\/p>\r\n So in our practice an \"exact description\" means lists, not general wording. We attach to the terms a list of the assets and stock being transferred, a list of the contracts being transferred, a list of the employment contracts being transferred, and a list of the debts and liabilities being transferred. The accounts department supplies the data for each list. Whatever is not on a list stays with the company that continues its activities \u2013 and we say that expressly too.<\/p>\r\n No later than on the first day of the public announcement, the register receives an application to register the legal status \"participating in a separation\", the terms, and the valuation and management body reports where the law requires them to be filed, and a supervisory authority's permission where one is required (point 149 of the Regulations of the Register of Legal Entities (JAR nuostatai)).<\/p>\r\n The terms that have been drawn up are announced publicly three times at intervals of no less than 30 days, or once no later than 30 days before the meeting together with written notice to all creditors (Article 65(1) AB\u012e). The announcement or notice states the particulars of the participating companies, the form of reorganisation, which companies will cease to exist and which will operate, the moments at which rights and obligations pass, and where and when the documents can be inspected (Article 65(1) AB\u012e).<\/p>\r\n From no later than 30 days before the meeting until the end of the reorganisation, every shareholder and creditor must be able to inspect, at the company's registered office or on its website, the terms, the articles of association, the annual financial statements and management reports for the last 3 years, any interim statements, and the valuation and board reports where these are prepared (Article 65(2) AB\u012e). On their request the company must provide copies of these documents (Article 65(3) AB\u012e). This duty does not apply if shareholders can download and print the documents at no charge for that whole period; the documents must then also be available for inspection at the registered office (Article 65(4) AB\u012e).<\/p>\r\n One more duty that is often forgotten: if the assets, rights or obligations change materially between the date of the terms and the meeting, the manager informs the shareholders in writing and orally at the meeting (Article 65(5) AB\u012e). This notice is not required if all the shareholders agree (Article 65(6) AB\u012e). In a separation this matters, because stock and debts change during that time while the lists attached to the terms stay as they were.<\/p>\r\n The rules on transfer of a business apply to employees. The employment relationships of the employees of the business or its part pass automatically to the transferee (Article 51(2) of the Labour Code of the Republic of Lithuania (DK)). The employee is notified in writing in advance, no later than ten working days before the transfer; if within five working days the employee objects in writing to the continuation of the employment relationship, the contract is terminated on the employer's initiative without fault on the employee's part (Article 51(5) DK). We covered this in the article on creditor and employee consent<\/a>.<\/p>\r\n Tell us which part of the business you want to separate and exactly what must pass to the new company: assets, contracts, employees, debts. We will prepare a draft of the terms and list templates for your accountants.<\/p>\r\n Phone +370 5 212 1506, email info@linden.lt<\/p>\r\nWhy the rules on division apply to a separation<\/h2>\r\n
What the terms must contain<\/h2>\r\n
Whatever you do not allocate, the law will<\/h2>\r\n
Which documents are prepared together with the terms<\/h2>\r\n
What shareholders and creditors must be able to see<\/h2>\r\n
In what order a separation takes place<\/h2>\r\n
How to start<\/h2>\r\n