Republic of Lithuania

The most common for-profit organizational form used in Lithuania is a private limited company (Lith. Uždaroji akcinÄ— bendrovÄ—, “UAB”), which is well understood and traditional in nature. This result is brought on not only by the flexibility, clear and understandable regulations and the limited liability, which this organizational form possesses, but also by the relatively small mandatory share capital, clear share reassignment process and corporate structure. Public limited companies (Lith. AkcinÄ— bendrovÄ—) are far rarer, but still more common than partnership enterprises.

Furthermore, Lithuania has available the small partnership (Lith. Mažoji Bendrija, “MB”). Although it was only introduced in 2012, it is among the most popular organizational forms. It is limited to 10 members, who must be natural persons and does not have a mandatory share capital. It is generally thought of as a perfect organizational form for small family business – MB is based on collective decision making and trust-based member relations, as there are no clear regulations on making business decisions in a MB. Generally speaking, the MB operates as modification of the traditional UAB form.

The individual enterprise (Lith. Individuali įmonÄ—, “IÄ®”) is organizational form most commonly used by small scale business operations, which only requires the work of a couple individuals and little capital, as the IÄ® may be only created by one natural person, who may function as both the owner and the managing body. It benefits from simplified financial regulations and does not have to file financial reports, only a tax declaration. The drawback of using this form is that of unlimited liability – the founder has to fully take into account the business risk he’s committing to.

Finally, general partnership enterprises (Lith. Tikroji Å«kinÄ— bendrija, “TŪB”) and limited partnership enterprises (Lith. KomanditinÄ— Å«kinÄ— bendrija, “KŪB”) are usually founded when the business operation requires the efforts of multiple business partners to be started. Partnerships in general also benefit from simpler financial regulation and does not have to file financial reports, except if all of the members of the partnership are (private) limited companies. On the other hand, they also suffer from the same problem – unlimited liability.  

a. When planning to attract new business partners and investors, individuals usually choose between UAB and TŪB/KŪB.

b. Under current Lithuanian law, only a very narrow set of companies commonly understood as Social Enterprises qualify as “Social Companies”. Out of those that do qualify, they heavily tend to form as private LLCs.

The Public Enterprise (Lith. Viešoji įstaiga, “VšÄ®”) cannot assign profits to other goals other than those set out in the Articles of Association (the profit cannot be paid out as dividends to the participants). The goal of VŠÄ® (as specified in regulation) is to satisfy public interest by engaging in education, teaching and scientific, cultural and other activities.

No, it does not.

Under current Lithuanian law, only a very narrow set of companies commonly understood as Social Enterprises qualify as “Social Companies”. These Social Companies are not restricted in organizational form, so they may be organized as nonprofits. The qualifying companies may receive state assistance in these ways:

• Subsidies for employee renumeration and insurance costs;
• Subsidies for generating new employment opportunities for the disabled;
• Subsidies for training employees that belong to a certain focus group;
• Subsidies for adapting workspace environment to disabled employees;
• Subsidies for extra administrative or transport expenses;
• Subsidies for hiring an assistant (sign language translator);
• Real estate tax breaks;
• Profit tax breaks;
• VAT breaks.

(c) No, there is not.

(d) It is very prevalent indeed, although the majority of the companies that qualify as “Social Companies” are UABs.

Yes, a cooperative is a legal organizational form in our jurisdiction.

• Benefits: limited liability.
• Restrictions:
  • must have not less than 5 members,
  • limited amount of dividend payouts (restricted to a maximum of 10% of the profits),
  • additional requirements for agricultural/forestry cooperatives, etc.

If a company qualifies as a “Social Enterprise” under Lithuanian law, it must:

• create and submit an annual plan of training for employees who belong to focus groups;
• process personal data which confirms that employees belong to focus groups and submit reports on the number of employees that belong to focus groups;
• provide reports on received and used state assistance;
• provide reports on profit use for the goals of the Social Enterprise;
• with 2 months left until the end of the term of planned state assistance, provide a new plan for foreseen need of state assistance.

These enterprises must report to the Employment Services Under the Ministry of Social Security and Labour of the Republic of Lithuania.

No, there is not.

Enterprises which pose a large public interest, who have over 500 employees on the last day of the financial year, must provide annual social responsibility reports.

The requirements are as follows; 

1. The main economic activity defined by the founding document must be geared towards a main goal of measurable and positive social impact;
2. Profits must be reinvested towards the main goals using pre-determined reinvesting schemes;
3. The Social Enterprise must be controlled accountably and transparently;
4. Social Enterprises must be independent from state institutions and related organizations.

No.

No major investor classes are required to look at ESG issues. However, pension funds that provide Lithuanian pillar II additional funds do consider ESG issues when making their investment decisions and have joined Principles of Responsible Investment of the United Nations.

Social Enterprises in Lithuania receive philanthropic funding and usually, it is in a form of donations (aid and charity).

For-profit impact investments are not prevalent in Lithuania. However, several pension funds are trying to combine different investment strategies, including for-profit impact investments strategies with others.

Social Enterprises can receive state assistance (as mentioned in Section I Question 5 above), however, there is no special government funding specifically available to Social Enterprises as such. Depending on the Social Enterprise’s form and industry, government and EU Structural Funds grants, loans, bonds, and guarantees may be available. For example, guarantees for small and medium-sized enterprises are provided by the “Investment and Business Guarantees” (INVEGA) institution, which provides guarantees equivalent to state guarantees to credit institutions, helping Social Enterprises to secure financing from credit institutions.

No.

Under Lithuanian laws, publicly traded Enterprises are not required to disclose ESG factors.

Impact bonds are not prevalent in Lithuania, however, the Lithuanian government with EU Commission are making way for future legislation on impact bond issuance.

No.

Crowdfunding is regulated activity in Lithuania and Crowdfunding Platform Operators are supervised by the Bank of Lithuania. However, only one successful crowdfunding project involving Social Enterprises has been carried out since the adoption of the crowdfunding legislature. Therefore, it can be concluded that this kind of funding is not very popular in regards to Social Enterprises. Additionally, there are no rules that make it easier for smaller businesses or Social Enterprises to take money from investors that are not professional.

There are tax exemptions available both for-profits and Nonprofits generally. However, there are no tax exceptions that are uniquely available for Social Enterprises (whether for-profits or Nonprofits).

Nonprofits (whether or not Social Enterprise) that (i) are established for purposes other than profit-making and (ii) are not entitled to distribute the generated profits among its founders and (or) members, have a right to reduce taxable profit with the funds directly allocated to finance public interest activities (allocation shall be made within three tax periods).

For-profits (whether or not Social Enterprise) may reduce corporate income tax (CIT) if they meet the following criteria: (i) income received for own produced products accounts for more than 50% of all income received, and (ii) part of the workforce employed, consists of persons with limited working capacity. Reduction of calculated CIT depends on the percent of employees with limited work capacity and may vary from 25% to 100%. Please find the detailed points in the table below:

No.

No.

No.

No, it does not.

There are few types of state aid measures dedicated to Social Enterprises:

• Government subsidies for wages, social security contributions, training, creating and adapting workplaces and work tools of target groups and in specific cases subsidies for transportation of target groups, reimbursement of costs of administration, and assistance. These subsidies are provided by Employment Service Under the Ministry of Social Security and Labour of the Republic of Lithuania.
• Corporate income tax (CIT) relief. CIT can be relieved up to 100 percent. Exact reduction of CIT depends on proportion of persons with reduced working capacity among all persons in employment (see part III).
• State and municipal property (premises) may be provided to Social Enterprises for temporary use free of charge. The contracting authority or contracting entity may impose special conditions limiting the participation in public procurement only to Social Enterprises.

For small businesses, there are loans, grants, subsidies, other staid aid measures and incentives in various forms provided by different governmental institutions.

Yes, but all requirements are the same regardless of the type of Social Enterprise. Social Enterprises are required to produce state aid reports every quarter of the year. Social Enterprises must also produce a report on the use of their profits for their purposes. They must also produce monthly reports showing the number of employees in the target group and their share of all employees in the Social enterprise.

Yes, in accordance with the procedure established by the Law on Public Administration State Labour Inspectorate of the Republic of Lithuania is supervising the compliance of Social Enterprises with the requirements established by laws and other legal acts.

No, it does not.

Upon verification of establishment documents of UAB by the Notary Public, usually, the registration takes up to 3 business days with limited exceptions when the term is extended. The registry fee for the registration of UAB is approx. EUR 50, however, the documents additionally have to be verified by the Notary Public before their provision.

There is no government or third-party certifications or accreditations that allow Social Enterprises to gain a special taxation status. However, Nonprofit Social Enterprises may gain a special status - the recipient of sponsorship. If such status is granted, sponsorship received by Social Enterprise is not included in the corporate income tax base.

Yes, startups can easily form and flourish in Lithuania. They have a number of Enterprise forms available to choose from, there are relatively few reporting requirements for private for-profit businesses and incorporation processes are fast, cheap and simple.

Yes, Social Enterprises can easily form and flourish in Lithuania. Social Enterprises may choose any legal form (with some exceptions). When the status of the Social Enterprise is granted, the Social Enterprise may receive state aid, e. g.  wages and state social insurance contributions subsidy; subsidy for job creation for the disabled and acquisition of their work tools and other types of subsidies. However, it should be mentioned that the Social Enterprise status may be granted only to those Enterprises that have a purpose to promote the reintegration of persons whose work capacity is reduced due to disability.

In the general corporate form, directors must use their powers in the best interests of the company and shareholders. While they are not prevented from considering other interests, such as the environment or the larger community, it would be better were they more easily able to consider those interests.

No.

1. Revising rules governing fiduciary duties of Enterprises and managers to enable or require them to consider factors other than financial return.
2. Introduction of separate legal form oriented strictly for Social Enterprises.
3. Introduction of a tax relief that would exclude Social Enterprises from the corporate income taxpayers’ list, i. e. profit received by Social Enterprises would be tax free.  

N/A

N/A