BUSINESS FORMOS
Individual activities
Business licence rates in Utena district: RATES
The most common forms of business are small and medium-sized enterprises:
Which company to set up?
When you decide to set up a company, the first step is to decide which type of company is best suited to achieve your objectives. Depending on the risk you want to take, you can choose between a limited or unlimited liability company. The most common businesses in Lithuania are:
Sole proprietorship (PIE)
A sole proprietorship (SE) is a private legal person with unlimited liability. This means that the owner is liable for the IJ’s unfulfilled obligations out of his own assets. Only one natural person can be the founder and owner of an IJ, and he cannot be the owner of another IJ. Setting up an IJ is recommended if the business is a sole proprietorship for 1 person and the type of activity chosen is not risky. If the business fails, the owner of the business will be personally liable for the outstanding liabilities of the business. As the law does not require a minimum start-up capital, it is possible to start a business with a good idea and a small amount of start-up money.
Benefits:
- No contribution to the share capital is required (for comparison, the minimum share capital of a limited liability company is €1,000);
- Easy to withdraw profits – the owner of an IJ can take the IJ’s money or other assets for his/her own personal use at any time (this is not possible in an LLC);
- The owner can work alone in his/her own company without an employment contract, which means less tax is payable. Other people can be recruited if necessary;
- An IĮ can be converted into a UAB;
- IĮ tax relief: if the average number of employees does not exceed 10 and the income for the tax period does not exceed €300,000, a reduced corporate tax rate of 5% applies instead of the normal 15% (the tax relief is the same as for LLCs).
Disadvantages:
- If the business makes a loss, the IJ may go bankrupt, but the owner is liable for the IJ’s outstanding liabilities with his/her assets;
- Only one person can be the owner of an IJ and he cannot set up an IJ together with partners;
- No new shares can be issued to raise funds;
- In many cases, accounting for an IJ is not simpler than for an LLC.
Private limited liability company (UAB)
A private limited liability company (UAB) is a private legal person with limited liability. This means that the shareholders are not liable for the UAB’s outstanding liabilities with their own assets. The authorised capital of a limited liability company must be at least EUR 1000. A UAB can be set up by one or more natural and/or legal persons and the number of shareholders is unlimited. A shareholder may sell or otherwise transfer (e.g. by gift, exchange, etc.) his/her shares in UAB. Major decisions are taken by shareholders by vote. Each share carries one vote, so the person with the most shares has the most influence when voting at a general meeting. A UAB must have a single-person management body – the manager – and may also have a collegiate management body – the board.
Benefits:
- In the event of a business failure, a shareholder only risks the assets he has contributed to the LLC, thus protecting his personal assets;
- To raise additional funds, the UAB may issue new shares, which are purchased by shareholders paying a fixed amount of money;
- Exit from the business by transferring shares in the UAB to other persons or by selling the business;
- Tax incentives for LLCs: if the average number of employees does not exceed 10 and the income for the tax period does not exceed €300,000, a reduced corporate tax rate of 5% applies instead of the normal 15%.
Disadvantages:
- When setting up a limited liability company, you must contribute at least EUR 1,000 to the authorised capital;
- Shareholders can only withdraw the profits earned by the UAB through dividends (if the UAB is profitable) or through wages, but in this case they will have to pay high taxes.
Public body (Public Institution)
A public body (PBO) is a non-profit public legal person with limited liability, whose purpose is to serve the public interest by carrying out activities of public benefit. A public enterprise may be established by one or more natural and/or legal persons, and the number of founders is unlimited.
Benefits:
- Limited civil liability – the shareholder is only at risk with the assets he contributes to the public benefit purpose, thus protecting his personal assets;
- No contribution to the share capital is required (for comparison, the minimum share capital of a limited liability company is €1,000);
- A public enterprise may carry out commercial activities;
- Public bodies can receive support from legal entities and 1.2% from individuals;
- Option to exit by transferring shareholder rights to other persons;
- Opportunity to raise additional funds by taking on new shareholders.
Disadvantages:
- The profits of a public limited company cannot be paid to the shareholders, so the shareholders can only receive money from the company through salary payments;
- A public limited liability company cannot be converted into a limited liability company;
- A public limited liability company may engage only in the activities specified in its statutes.
Small partnership (MB)
A small partnership is a private legal person with limited liability. This means that the members are not liable for the outstanding obligations of the small partnership. A small partnership can be set up by up to 10 natural persons (there can be one founder). A small partnership may carry on any activity not prohibited by law. Although a small partnership is not required to have a minimum authorised capital, members of a small partnership pay contributions (the amount and the procedure for payment of these contributions are determined by the members’ meeting) and the profits of the small partnership are distributed in proportion to the amount of the member’s contribution (other arrangements may be made for the distribution of profits). A small partnership can be set up electronically by using the model incorporation documents via the self-service system of the Centre of Registers.
Benefits:
- Limited liability of members, i.e. y. in the event of a business failure, the members risk only their contribution, thus protecting their personal assets (in comparison, the owner of an I.L.I. is liable for the unfulfilled obligations of the I.L.I. with his/her personal assets);
- There is no minimum share capital requirement (compared to the EUR 1,000 share capital of UAB);
- Option to voluntarily leave the business, i.e. y. A member of a small partnership can leave the partnership by withdrawing his/her contribution, and membership rights can be sold or otherwise transferred to other persons.
Disadvantages:
- Only a natural person can be a founder/member, up to a maximum of 10 in total (for comparison, a shareholder of a UAB can be both a natural and a legal person, and there is no limit on the number of shareholders);
- The absence of clear voting and profit distribution procedures can make it more difficult to resolve disputes between members of a small partnership;
- The accounting of a small partnership is simpler than that of a limited liability company only in certain cases (e.g. when the small partnership has no employees or is not subject to VAT).
Comparison of business forms:
SETTING UP AN E-SHOP
The website https://busyfuture.eu/lt is for product developers who want to set up an e-shop.
The site provides information on e-commerce, business conditions, creating product promotional photography, specifications and requirements of the main e-commerce platforms.
SUPPORT FOR BUSINESS
Programme of support for small and medium-sized enterprises in the municipality of Utena district.
For more information, see the link: https://www.utena.lt/index.php/lt/smulkiojo-ir-vidutinio-verslo-remimo-programa.
Business measures funded by the Innovation Agency.
For more information, see the link: https://inovacijuagentura.lt/.
EU funds investments 2014-2020
For more information, see the link: http://www.esinvesticijos.lt/.
INVEGA financing instruments for business:
For more information, see the link: http://invega.lt/lt/apie-invega/veiklos-tikslai/.
NMA funding programmes:
For more information see the link: https://www.nma.lt
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