How to choose legal form
Would you like to start your business in Lithuania or maybe you want to change the legal form of your company? It might look tricky to choose the right legal form for your company without knowing the main differences. You will find some of our advice / notices on this subject below.
Number of shareholders (owners) and responsibility
Almost any kind of entity can be owned by one person but if you are planning to make a business with a partner or investor, you cannot choose, for example, individual enterprise (IĮ) or association. Also, if you are planning to have a company where the owner would be another company, then you cannot choose such legal form for your company as small partnership (MB) as it can be established only by a natural person (up to 10).
The other important question is the difference in responsibility. Only one person can establish an individual enterprise (IĮ) and his responsibility is unlimited (he is liable by all his assets). Responsibility of the owners of the companies of all other legal forms is limited and divided (if there is more than one owner): person’s responsibility is limited by the size of his personal contribution (for example, by acquiring company’s shares in case of a limited liability company (UAB).
Purpose of business activity and charity
If a person is interested in business activity related with the receiving of charity and meeting of public interests, then such legal forms as non-profit organization / public entity (VšĮ), association, etc. should be considered.
The contribution at the beginning of business activity or in the process of establishment is required for such legal forms as limited liability company (UAB), non-profit organization / public entity (VšĮ) and small partnership (MB). The minimal share capital of LLC (UAB) is 2.500 eur and it must be paid in the process of establishment (before confirmation of the establishment documents at the notary office). If the founder of LLC wishes to contribute more than 2.500 eur, then he is allowed to contribute 2.500 eur first, and rest amount can be contributed within 12 months.
The contribution of the founder of other forms of entities mentioned above (MB or VšĮ) can be chosen freely (from 1 eur). So, if the founder (founders) cannot make a contribution of 2.500 eur, he (they) may establish a small partnershio (MB) and, later it is possible to change its legal form to LLC (UAB) and form share capital from the company’s assets or personal contribution of the owner.
Attraction of investment
When additional investment is required in the company (for expansion of business or its activity, etc.), one of the possible ways to attract new investments / funds to the company is to add new shareholders / joint owners. This is possible in LLC (UAB), small partnership (MB), etc., but it is not allowed in individual enterprises (IĮ) as such company can be owned by one person only.
In most cases, taxes are similar for different legal forms. The exceptions can be found for non-profit organizations (slightly better profit and property tax) and for new established companies (only from the year of 2018 some social security tax relief started to be allowed).
Updated on 01.01.2019