Amendments to the Law on companies in Lithuania
After a long time, substantial amendments to the Law on Companies are coming in Lithuania. On 17 November 2022, The Parlament of the Republic of Lithuania adopted an amendment to the Law on Companies, facilitating the management of companies and introducing a liberalised legal regulation of classes of shares. Some of these amendments took effect immediately, while the rest will take effect from May 1, 2023.
Following the recent pandemic that swept the world, corporate governance is also being liberalised with the alternative of remote decision-making and voting. Today’s amendments to the Law on companies allow voting instructions to be submitted electronically at a general meeting of shareholders where a shareholder holds at least 1/10 of the total votes. Companies may provide in their articles of association for participation and voting by electronic means only, but the requirements remain that shareholders are sent a confirmation of the results of the electronic voting without delay and that the identity of the person who has voted must be established prior to the general meeting. The requirements of the European Union Directive, i.e., the use of qualified electronic signatures, using a qualified electronic signature certificate complying with the requirements of the Directive, should not be forgotten.
Another fundamental change is related to more liberal regulation of the issuance of share classes. In particular, the new version of the Law on Companies removes the prohibition to issue shares not provided for in the Act, and the new regulation now restricts only the right of companies to issue shares that could be converted into bonds. It should also be noted that these amendments give companies the right to issue different classes of convertible shares, subject to the limitations set out in the law – non-voting preference shares may not account for more than 1/2 of the share capital, and the classes of such shares and the rights they confer are to be set out in the company’s articles of association. The amendments also introduce the right to issue shares at different issue prices within the same share issue.
Furthermore, a new article has been added to the Law on Companies to regulate the squeeze-out and sell-out of private and public companies’ shares (i.e., not only companies listed on the stock exchange, as it was until now). A shareholder, alone or together with other persons, holding at least 95% of the votes at a general meeting of shareholders, may require the remaining minority shareholders to sell him their shareholding at a fair price to be determined by a valuer (squeeze-out). This article also provides for the reverse right (sell-out): a minority shareholder has the right to demand that a major shareholder, alone or together with other shareholders holding more than 95% of the shares, sell the minority shareholder’s shares, conferring the right to vote in the company, in which case the minority shareholder is obliged to sell the said shares. It should also be noted that there are statutory time limits for the exercise of this institute: the squeeze-out of the company’s shares may be initiated 3 months after the majority shareholder has acquired 95% of the shares, and the majority shareholder must notify the company of the threshold reached within 5 working days. This addition to the law should bring efficiency to the management of the company by allowing the concentration of decision-making in the hands of the majority shareholders and allowing minority shareholders to protect their interests by withdrawing from a company dominated by a majority shareholder.
Finally, the requirement of the authorised capital of a Private Limited Liability Company (hereinafter referred to as UAB) was reduced to EUR 1 000. This introduces a more affordable threshold for new business start-ups.
In conclusion, the amendments to the Law on Companies, related to the reduction of the authorised capital of private limited liability companies, the possibility to vote remotely at the general meeting of shareholders, the flexible regulation of share issues and the introduction of the squeeze-out and sell-out rights for all private and public companies (not only to listed on stock exchange), will allow companies to adapt to today’s business needs, to move closer to the more liberal practices, will allow to avoid the bureaucratic restrictions on start-ups, and will open up the possibility of a more flexible and more efficient organisation of the company’s management.