Main Types of Companies in Lithuania
There are two types of companies which may be formed under the Law on Companies of the Republic of Lithuania (the Law on Companies):
The vast majority of companies established in the Republic of Lithuania are private limited liability companies that cannot be listed in the regulated market.
Only shares of public limited liability companies may be listed in the regulated market. AB NASDAQ Vilnius is the only regulated market in Lithuania, offering trading, listing and information services, and is part of the NASDAQ Baltic Market. The Bank of Lithuania is the single supervisory authority responsible for overseeing the financial market in the Republic of Lithuania.
It should be noted that the primary source of funding still comes directly from banks. The capital markets are not well developed and only an insignificant number of companies’ shares are listed in NASDAQ Baltic.
Restrictions on Investment in Lithuanian Companies
Generally, there are no restrictions regarding who may invest in Lithuanian companies. However, non-EU nationals or EU, NATO, OECD nationals with ties to national security threats may encounter some obstacles whilst trying to invest in certain economic sectors in Lithuania and will have to go through a national security screening.
The authority competent for the screening of investors is the Commission for Co-ordination of Protection of Facilities of Importance to Ensuring National Security of Lithuania (the Commission) which was set up under the Law on the Protection of Objects of Importance to Ensuring National Security of Lithuania.
The following industries are affected the most:
The following types of shares may be issued by the company:
Generally, the main type of shares issued in the companies in the Republic of Lithuania is ordinary registered shares. Ordinary shares constitute the majority of shares in a company and give the right to vote. The right of holders of ordinary shares to the dividend is practised only upon the exercise of relevant property rights of the holders of preference shares.
Furthermore, only holders of ordinary shares have the right to receive newly issued shares when the share capital of the company is increased from the retained profit of the company or the reserves formed from the distributed profit.
Generally, the holders of preference shares in the company have the pre-emptive rights to receive dividends (in comparison with the owners of the ordinary shares). The preference shares may grant a cumulative or non-cumulative dividend, depending on the issued shares.
The right to vote in the general meetings of shareholders may also not be provided for the owners of the preference shares unless otherwise agreed in the articles of association of the company. The right to vote is also provided in cases when the general meeting is voting regarding conversion of the preference shares into ordinary ones, and in some other cases – when the general meeting is voting regarding the increase or reduction of the share capital of the company.
Ordinary Shares Having the Status of Employee Shares
A company may issue ordinary shares which have the status of employee shares. The right to acquire employee shares is granted for the employees of a respective company issuing such shares.
A share subscription agreement must set a term for the holder of employee shares within which he or she may transfer shares only to another employee of a company. This restriction period may not exceed three years. Upon the expiry of the restriction period for the disposal of shares, employee shares become ordinary shares.
An employee must pay for subscribed shares by making initial monetary contributions. Remaining payments may be made through deductions from the salary if so desired by the employee.
Employee shares and preference shares are rather uncommon in the Lithuanian companies.
The following may be considered as main sources of regulation relevant to shareholders’ rights:
Under the Law on Companies, all shareholders of the company have the following property rights:
In addition, all shareholders have the following non-property rights:
The articles of association of the company may also establish other non-property rights. Other rights given, however, may not contradict the Law on Companies.
Although shareholders’ agreements are not regulated by any applicable laws, shareholders of the company may enter into a shareholders’ agreement with other shareholders and the company. Such agreements are fully enforceable by the parties to an agreement in the Republic of Lithuania unless an agreement contains provisions that are contrary to the imperative provisions of laws.
Shareholders’ agreements are more commonly concluded between shareholders of private limited liability companies, although in some cases such agreements are entered into between shareholders in public limited liability companies.
Each paid-up share grants one vote to its holder at the general meeting of the shareholders. The following are listed thresholds that require a certain number of votes to be able to adopt decisions separated by the respective threshold.
Any Number of Shares
5% of Shares
10% of Shares
More than 50% of Shares
66.67% of Shares
75% of Shares
Upon the written request of the shareholder, the company must provide the company's articles of association, set of annual and interim financial statements, company's annual and interim reports, auditor's report and audit reports, general minutes of shareholders' meetings or other documents formalising the decisions of the general meeting of shareholders, proposals of the supervisory council or responses to general meetings, lists of shareholders, lists of members of the supervisory council and management board, as well as other copies of documents.
The company may refuse to provide the shareholder with access to copies of documents related to the company's commercial secrets and confidential information. However, the company must provide the shareholder with access to other information of the company and/or provide copies of documents, if such information and documents, including information and documents related to the company's commercial secret and confidential information, are necessary for the shareholder to meet other legal requirements; the shareholder shall ensure the confidentiality of that information and documents.
In addition, companies listed in NASDAQ Vilnius stock exchange Lithuania are subject to strict disclosure and reporting obligations, for example pursuant to the Law on Companies, the MAR, the Listing Rules of NASDAQ Vilnius.
Questions concerning shareholder approval are listed in detail in 1.6 Rights Dependent Upon Percentage of Shares.
Additional requirements to obtain shareholder approval may be set out in the articles of association of the company, which may include giving consent regarding, for example, transactions to be entered into by the company.
Under the Law on Companies, the supervisory council or management board of the company have a right to initiate a general meeting of shareholders. In the event the supervisory board and management board are not formed in the company, those powers are vested in the general manager of the company.
Furthermore, shareholders holding at least 10% of all votes may also initiate the general meeting of shareholders by submitting a notice to the respective body of the company. Articles of association may also indicate a smaller number of votes required to initiate the general meeting of shareholders.
In the event the respective body of the company has not decided to convene a general meeting of shareholders within ten days from the date of receipt of the notice requesting to convene a meeting of shareholders, the general meeting may be convened by a decision of shareholders holding more than 50% of the votes.
All shareholders must be given notice of a general meeting, which should include the time and location of the meeting, as well as a statement of the nature of the matters to be considered at the meeting. Notice is given either by a public announcement or by every single shareholder of the company being notified in writing.
At least ten days prior to the general meeting of shareholders, the information and the documents related to the agenda of the meeting (including draft decisions) must be made available to all the shareholders. In respect of the meeting of shareholders of the public company the shares of which are traded on the regulated market, this information must be made available as of the notification date of the shareholders' meeting.
Each shareholder requiring to have more information about the proposed content of the meeting is entitled to provide questions to the company, which must be answered by the company before the general meeting of shareholders if the questions were provided to the company three business days before the date of the meeting.
Notice of general meetings must be given 16 or 21 days before the meeting, depending upon whether the company provides the possibility for the shareholders to participate and vote in the general meeting of shareholders by electronic means (in which case it may be decided that the notification period will be 16 days and no shorter). The aforementioned requirement is not applicable in the event that all of the shareholders are notified in writing and agree to the earlier date of the meeting.
If the general meeting of shareholders does not constitute a quorum, it shall be reconvened, and that reconvened general meeting of shareholders shall have the right to pass decisions irrespective of the number of the shareholders present. Only the agenda of the previous meeting shall be discussed in such a reconvened meeting.
The Law on Companies enables shareholders of the company to attend a general meeting of shareholders via electronic means. Neither the Law on Companies nor other applicable laws detail the procedure on how a virtual meeting may be held, so the respective company itself may detail the procedure on how such a general meeting of shareholders should be held. The procedure, however, may not be too restrictive and only minimal requirements to identify the shareholder and his or her intentions may be introduced.
However, no public companies have used this option as it requires significant technical preparation and most of the general meetings that were held during the quarantine caused by COVID-19 were conducted by means of shareholders sending filled and signed general ballots.
The reason for such a procedure was that the public notaries and other public institutions (for example, the Register of Legal Entities) still have some restrictions on the receipt of documents signed by a qualified electronic signature and not as an “inked” document.
The general meeting of shareholders may adopt resolutions and shall be deemed to have taken place when those shareholders holding more than 50% of the votes are present. Once the quorum is established at the beginning of the meeting it shall be deemed to be present throughout the entire meeting.
In the event a quorum is not established, the general meeting of shareholders shall be deemed not to have taken place and a repeated general meeting shall be convened. A repeated meeting of shareholders can adopt decisions only according to the original agenda of the failed meeting and the quorum criterion is not applicable.
Shareholders may vote at a general meeting personally, on a basis of power of attorney or transfer of voting right agreement. The voting in the general meeting of shareholders is public unless at the beginning of the meeting it is decided that the voting shall be secret.
A shareholder may also vote in writing by filling a general voting ballot. A general voting ballot may be sent via registered post or transmitted to the company by electronic means, provided that the security of the transmitted information is ensured, and the identity of the shareholder can be confirmed.
Shareholders (or their groups) who have more than 5% of the total voting rights may also propose amendments to the agenda of the general meeting. The amendments with draft resolutions on additional items of the agenda may be proposed not later than 14 days before the day of the general meeting.
The right to vote at the general meeting of shareholders may be withdrawn or restricted in the cases established by the Law on Companies and other laws, as well as when title to the shares is contested.
Shareholders have a right to participate in the management of a company and could sit on the board of directors.
Corporate governance structures in companies are as follows:
It is legally prohibited to assign powers of the general meeting of shareholders to other bodies of the company and the general meeting of shareholders may not decide on the management issues falling within the powers of other bodies of the company nor on those issues which by their essence are the functions of the corporate bodies.
A shareholder who is a natural person may be elected to the collegial management body of the respective company. The procedure is detailed in 1.12 Shareholders’ Rights to Appoint/Remove/Challenge Directors.
According to the Law on Companies, the general meeting of shareholders appoints a collegial body - a supervisory council or, in the absence of a supervisory council, the management board. If the supervisory council is formed in the company, the management board is elected by the supervisory council.
When electing the members of the supervisory council or the management board, each shareholder shall have the number of votes equal to the number of votes granted by the owned shares. These votes need to be multiplied by the number of members of the supervisory council or the management board being elected. The shareholder shall distribute the votes at his or her discretion, giving them to one or several candidates. The candidates who receive the largest number of votes are elected. If the number of candidates who received an equal number of votes exceeds the number of vacancies on the supervisory council or the management board, a repeat voting will need to be held in which each shareholder may vote only for one of the candidates who received the equal number of votes. These rules are intended to ensure that not only the representatives of the major shareholders are appointed to the supervisory council or the management board.
In the event that neither the management board nor the supervisory council is established in the private company, the general meeting of shareholders will elect the general manager (CEO) of the company. The person who received 50%+ one vote of the general meeting of shareholders is appointed to the position of CEO of the private company. In the public companies, at the least a supervisory council or the management board must be formed in addition to the CEO.
In the event that a member of the supervisory council or the management board is removed from the office, resigns or ceases his or her duties due to other reasons and the shareholders whose shares grant at least 10% of all votes object to the election of individual members to the supervisory council or the management board, the entire supervisory council or the management board shall cease the activity, and the entire supervisory council or the management board shall be appointed anew.
Additional provisions regarding the appointment of the supervisory council, the management board or the general manager may be established in a shareholders’ agreement or the articles of association of a company.
Financial statements must be audited annually and therefore auditors have to be appointed if at least two of the following conditions are satisfied:
The general meeting of shareholders has the exclusive right to elect and recall the auditor or audit firm for the auditing of the set of annual financial statements, as well as to determine the terms of payment for audit services.
The Law on Companies sets out that a person who has acquired all of the shares of a private limited company or acquired a part of the shares of a public limited company from the owner of all the shares, as well as a person who has acquired shares of a private limited company, must notify the respective company.
Furthermore, a person that has reached or exceeded the threshold of 5%, 10%, 15%, 20%, 25%, 30%, 50%, 75% and 95% of votes in the company whose shares are traded in the regulated market must immediately, but no later than within four trading days, notify the supervisory authority and the issuer of the number of votes held. A person shall also have this obligation if the limits of votes are exceeded in descending order of transfer of votes.
Furthermore, an obligation exists to disclose the ultimate beneficial owners (UBOs) of a private limited liability company to the Information System of the Members of Legal Entities (JADIS).
The obligation to disclose information on the UBOs to the JADIS arises from the implementation in Lithuania of the 4th Anti-Money Laundering Directive.
To date, the Register is not yet operational in the Republic of Lithuania.
Shareholders are generally free to grant security and dispose of their shares, unless any restrictions are placed upon laws or contractual obligations, such as, for example, shareholders’ agreements.
A shareholder may not, however, dispose of partly paid-up shares to other persons.
The Law on Companies states that shareholders of a private limited liability company have a pre-emptive right to acquire shares being sold by other shareholders. The right of pre-emption to acquire all the shares offered for sale in a private limited liability company is vested in the shareholders who own shares on the day of receipt of the selling shareholder’s notice of intention to sell shares.
Furthermore, shares sale and purchase agreements of private limited liability companies must be certified by a notary public if:
Certification of a shares sale and purchase agreement by a notary means additional costs for a company and a more complex share-transfer procedure. However, the notarisation requirement is not applicable when personal securities accounts of shareholders are kept by licensed account managers (commercial banks or securities brokerage firms). Several banks and securities brokerage firms are providing such services in Lithuania.
A public limited liability company may not restrict the shareholders’ right to dispose of fully paid-up shares to another person.
In an insolvency situation, the functions of management board members and the CEO are carried out by the appointed insolvency administrator. The insolvency administrator may be appointed by a court or by a general meeting of shareholders (in the event of an out-of-court insolvency). In an insolvency situation, the insolvency administrator acts in the best interest of the company’s creditors and company itself and not for the benefit of the shareholders. Accordingly, shareholders have fewer rights in an insolvency situation.
Upon the insolvency of a company, the insolvency administrator must pay creditors in the statutory order of priority (insolvency costs, remuneration to the insolvency administrator, preferential and secured creditors, etc) Only after the creditors have been paid are the shareholders entitled to any surplus assets of the company.
There are no specific laws governing shareholders' activism as different provisions related to activism may be identified in most legal acts related to the companies. The main sources of legal and regulatory provisions in the Republic of Lithuania that govern and restrict shareholder activism are the Law on Companies, the Listing Rules of Nasdaq Vilnius, and the Law on Securities.
Recent changes to the Law on Companies (2017) were meant to accelerate shareholding engagement in the participation activism by obliging companies to provide more information to their shareholders. Also, requirements to approve transactions between the company and its affiliated persons were added to the Law on Companies. This, however, did not lead to any publicly declared goals of increased shareholder engagement and activism.
Shareholder activism is generally a term used to describe engagement and actions of shareholders in listed companies. It must noted that the reported level of shareholder activism in the Republic of Lithuania is rather minor.
The absolute majority of Lithuanian companies are private limited companies, therefore relations between the shareholders remain a private internal affair. In some rare cases whereby the disagreements between majority and minority shareholders become so great that they start to appear in public (disputes between shareholders of Vilniaus Prekyba, Achema being the most widely publicised).
Most of the companies listed in the NASDAQ Vilnius have strong majority shareholders or shareholding groups which have majority control of the respective company.
More recent cases involved minority investors where legal action was taken in order to drive up the share buy-back price.
More Recent and Prominent Cases
In one of the recent and most prominent cases, minority shareholders filed lawsuits seeking annulment of the decisions made by the extraordinary general meetings of shareholders of Energijos skirstymo operatorius (ESO) and Ignitis Gamyba to delist the shares of the companies from trading on the NASDAQ Vilnius Stock Exchange.
The courts granted interim measures and suspended the delisting proceedings for ESO and Ignitis Gamyba shares. Both of the companies belong to the Ignitis Group – a state-owned energy company which also is one of the biggest companies in Lithuania.
In the end, parties agreed to a settlement whereby a higher per-share price than planned in 2019 for the delisting shares of ESO and Ignitis Gamyba was offered. It was also agreed that both companies would pay dividends to its shareholders.
Furthermore, it was also agreed to give shareholders the right to acquire Ignitis Group shares to the desired extent, when the Ignitis Group undergoes an initial public offering (IPO) this autumn.
A minority shareholder went to court in 2015 against the general manager of Rokiškio sūris claiming that the aforementioned publicly listed company Rokiškio sūris illegally provided financial assistance to another company, Pieno pramonės investicijų valdymas, controlled by the same general manager, to acquire the shares of Rokiškio sūris.
It was claimed that the proceedings were started with a view to force the company and its majority shareholders to buy the shares held by the minority shareholder.
The court eventually dismissed the claims of the minority shareholder and the minority shareholder Feast sold its shares to another buyer at a cost that was about two times lower than requested from the Rokiškio sūris shareholders.
All around the world, most of the time, shareholder activist strategies start by acquiring shares of the target company.
In Lithuania, the agenda of the activist shareholders may be described as ad hoc and is generally reactive to actions performed by publicly listed companies (for example, arguing the price of buy-back of shares).
Publicity is the main strategy used by activist shareholders, followed by public litigation proceedings.
No particular changes due to COVID-19 may be seen in the market regarding shareholder activism.
As mentioned previously, capital markets are at an early development stage therefore the availability of information is somewhat erratic and it is rather difficult to make definite conclusions on targeted industries, sectors or sizes of the companies.
In some cases, the main triggers that initiated movements that could be attributed to shareholder activism are connected to share buy-backs or delisting procedures.
Based on the available public information, minority shareholders represented by investors’ associations (such as the Investors’ Association) are the most active groups.
There are no public examples of hedge funds or other investors who were trying to acquire a significant shareholding with a view to engaging with the management of the company to elicit changes in the governance of the company.
Other than the aforementioned association, the Investors’ Association, no other notable shareholder groups could be considered as activist shareholders.
There is no data available in Lithuania as regards the proportion of shareholder activists' demands met by the companies.
More public cases would suggest that the companies are reluctant to meet the demands of the activist shareholders. As the control is often consolidated in Lithuanian companies the majority shareholders are often negotiating from the position of strength as the activist shareholders, being the minority shareholders, do not have significant capabilities to influence the direction and decisions of the respective company.
In most cases, shareholders make settlement agreements whereby each side makes concessions towards the other.
There are no typical strategies identified in the Republic of Lithuania regarding the response to activist shareholders.
The company may agree to the demands of activist shareholders, fight them, or simply ignore them, whereas in other jurisdictions, activist shareholders may try to improve an under-performing company by trying to change the management or to propose the main trend.
The activist shareholders' strategies ideally would involve companies adopting the best corporate governance practices and keeping the highest level of transparency.
A company is a legal entity with limited (civil) liability. Shareholders are only liable to the extent of the amounts due to be paid for their shares in the relevant private company, with some exceptions, ie, if a company becomes unable to perform its obligations due to unfair actions of one of its shareholders, the shareholder may assume subsidiary liability for those obligations with his or her personal property.
The company, therefore, has its own legal personality and may own and deal in property, contract on its own behalf, and sue and be sued in its name.
Shareholders should not be liable for the debts of the company. Under Lithuanian law, a shareholder may be found responsible for the debts of a limited liability company only in exceptional cases. One of the main criteria for a shareholder’s liability is the company’s failure to settle with its creditors due to unfair (as opposed to good-faith) actions (or omissions) of its shareholders (piercing of the corporate veil).
Under Lithuanian case law, when assessing whether a shareholder acted fairly, the general principle of good faith shall be applied. This means that a shareholder shall be considered as acting in good faith if he or she was not aware, could not be aware, and should not have been aware that his or her behaviour harmed the company’s ability to fulfil financial obligations.
In addition, shareholders shall be considered as acting in good faith when, in the decision-making process, the respective shareholder considers the public interest, acts for the benefit of the company, and ensures that the decisions taken are lawful and reasonable.
Examples of unfair actions could be the following: shareholders adopt a decision to pay dividends when the company faces financial difficulties, a shareholder’s assets are commingled with those of the company, shareholders do not hold annual shareholders' meetings and do not adopt required decisions, etc.
It should be also noted that a shareholder’s liability shall be applicable only when the company’s assets are insufficient to cover all its obligations. In other words, in the case of unfairness, a shareholder of the company will only be liable to the extent that the company does not settle with its creditors.
Shareholder or shareholders owning shares which amount at least to 10% of the share capital of the company are entitled to apply to the court and make a request for the appointment of the experts who would investigate whether the company or members of the governing bodies (the management board members or the CEO) have acted (performed their duties) properly.
In the event that the experts and the court establish that the company (members of the governing bodies) acted improperly, the court may remove members of the management board and/or the CEO and appoint temporary members of those governing bodies, oblige the company (its management bodies) to implement or not to implement particular actions.
Each shareholder is entitled to apply to the court with a request to declare the resolutions of the shareholders' meeting, supervisory council, management board, or the CEO, null and void. The court shall declare that the resolutions of the aforementioned corporate bodies are null and void if the court finds out that the resolution contradicts mandatory laws, constitutional documents of the company, or principles of reasonableness or good faith.
Shareholders may pursue legal remedies towards the management bodies of the company indirectly by bringing derivative actions. Derivative actions are detailed in 3.6 Derivative Actions.
The same remedies are available to all shareholders, regardless of the percentage of their shareholding.
Shareholders of the private company owning the shares of which the nominal value amounts at least to 33.34% of the share capital of the private company are entitled to apply to the court and request that the shareholder of the private company acting in the contravention of the objectives of the private company, where there are no reasonable grounds to expect any changes in those actions in the future, sell his or her shares to the shareholder(s) applying to the court. The price of the shares shall be determined by the experts and the court.
If the shareholder(s) of the private company owning the shares the nominal value of which amounts at least to 33.34% of the share capital of the private company are not able to implement the rights of shareholders properly, due to the actions of the other shareholder, and where there are no reasonable grounds to expect any changes in those actions, those shareholders shall be entitled to apply to the court and request that the shareholder, due to whose actions they are not able to implement their rights properly, would buy the shares of the shareholders applying to the court. The price of the shares is established by the experts and the court.
Furthermore, in the event that shareholders have signed a shareholders’ agreement, contractual damages may be claimed against other shareholders.
Generally, an auditor enters into a services agreement with the respective company and does not bear any liability toward the shareholders of the company. As a consequence, shareholders cannot bring actions against auditors directly.
Shareholders in Lithuania may benefit from rights enforced by shareholders for the benefit of the company. A shareholder of the company who holds at least one share is entitled to submit a derivative claim to the court. This shareholder can request that the respective company be compensated for losses that may possibly have been incurred by the company due to the actions of the CEO of the company or the collegial management bodies of the company.
A derivative claim may be brought against the management bodies of the company: the supervisory council, or the management board, and the CEO of the company.
In order for the derivative claim to be satisfied and for the losses of the company to be compensated, the court must establish that all of the following conditions exist:
After establishing these four civil liability conditions of the CEO or the collegial management body of the company, the court shall order the CEO or the management board of the company to compensate losses to the company (but not directly to the shareholder that submitted the derivative claim).
Shareholders typically evaluate whether litigation against the company, its directors via derivative claims, or litigation against other shareholders, might bring them significant gains.
The following factors may be considered: