Amendment to the Law on Companies in Lithuania – a step towards flexibility

Company law
Corporate law

Law on Companies has been criticized as being outdated and not serving current needs of investors and shareholders. Recently a number of articles of the Law were amended to introduce clearer and more flexible rules regarding holding general meetings, issuance of shares and other topics. The changes are mostly relevant to companies having more than one shareholder. What is the main news for private limited liability company – UAB (the most popular type of company in Lithuania)?

Holding general meetings by electronic means clarified

Shareholders, holding not less than 10% of votes (or less if articles of association of the company set so), have the right to demand to ensure possibility to participate and vote in the general meeting remotely (by electronic means). If all the shareholders decide unanimously, the articles of association may leave digital general meetings as the only option unless particular decisions must be taken otherwise (e. g. live meeting required in exceptionally important cases such as reorganization of the company, etc.).  

The minutes of the meeting must be signed within 7 days. Minutes may be signed digitally using qualified electronic signature. Digital signatures from the third countries must comply with the requirements set in the article 14 of the EU Regulation No. 910/2014. 

The board or the head of the company (in case there is no board) must lay down the rules for holding digital meetings specifying how to identify the shareholders and ensure information security. 

Issuance of shares made more flexible

Companies have discretion to issue a broader variety of shares granting different rights to shareholders, except for the shares convertible into bonds. So far, only classes of shares described in the Law have been permitted.

Classes of preference shares and relevant rights granted must be defined in the articles of association. Non-voting preference shares may amount up to 50% of total share capital.

Shares issued in the same emission may be at different issuance price. Initial contribution in cash must make no less than ¼ of nominal value of shares subscribed by the shareholder, remaining amount may be paid in cash or in kind.

Changes related to issuance of shares come into effect on 1 May 2023 and the Government must adopt amendments to other legal acts enabling implementation of the new regulation (e. g. in relation to registration of legal entities and members).

Squeeze out and sell out introduced for UAB

Shareholder, holding at least 95% of votes (alone or acting together with other shareholders), is entitled to request remaining shareholders to sell their voting shares. On the other hand, such majority shareholder (holding at least 95% of votes, alone or acting together with other shareholders) has the obligation to purchase voting shares from minority shareholders if they wish to exercise their sell out rights. In practice, shareholders holding less than 5% shares cannot really influence management of the company. 

The rights may be exercised within 3 months from the date once 95% threshold is reached. Shareholders that have gained squeeze out or sell out rights prior to the effective date of the Law change (30 November 2022), are entitled to exercise their respective rights within one year.  

Shareholders that have acquired 95% or more or, on contrary, their share has decreased below 95% of votes, must notify the company within 5 working days. 

Price of shares must be fair and defined by the independent evaluator. However, it must be noted that practice in setting the fair price of shares has been rather limited.  

The Law provides detailed rules for squeeze out or sell out rights. Regulation is also applicable to convertible bonds that may be converted into voting shares. 

So far, similar regulation has been applicable to public limited liability companies only. 

Priority right to acquire shares may be revoked

The articles of association of the company may provide that that existing shareholders do not have priority rights to purchase shares from other shareholders. So far, shareholders have had the obligation to offer their shares to existing shareholders in case they were willing to sell them. 

Minimum requirement for share capital reduced

As of 1 May 2023, new requirement for private limited liability company – 1000 euros (reduced from 2500 euros). Reduced amount is more favorable for small and medium businesses and at the same time it serves as a preventive measure against inactive companies. 

To conclude, it is not mandatory to modify existing articles of association of the companies due to amendments to the Law on Companies in Lithuania. However, this must be done if there is a need to establish digital only general meetings or cancel priority rights of shareholders to acquire shares. Both investors and target companies may start getting ready for more flexible issuance of shares as of 1 May 2023. The amendments have been well received by the business community although still there are certain points expected to be modified (e. g. option agreements).