Legislation: Amendments of the Law on Companies

On 6 January 2012 and 1 March 2012 amendments of the Law on Companies on the payment of bonuses and dividends respectively came into force.

Amendments on interim dividends

According to the new amendments, the dividends may be distributed to shareholders before the end of financial year for a shorter period than a financial year. Companies which have been profitable for such period can allocate interim dividends if after the application of shareholders holding not less than 1/3 of the total vote cast, unless the articles of association of the company establish higher threshold, the general meeting of shareholders adopts a decision to distribute interim dividends.

It should be noted that after the distribution of interim dividends, dividends for the next period can be allocated not earlier than after 3 months.

3 main conditions should be met in order to allocate interim measures:

• Approval of a set of interim financial reports for a period shorter than financial year (if the company has to be audited, then audited financial reports);
• Positive results of a period shorter than financial year (no losses incurred);
• There are no unperformed obligations, the term for fulfilment of which has expired before the adoption of a decision, and, after distribution of dividends, the company will manage to meet its commitments for the current financial year.
• Although this new regulation provides much greater flexibility in the distribution of profits, not all companies can benefit from these provisions. They are not applicable to banks, other credit finance institutions, regulated market operators, Central Securities Depository of Lithuania, insurance, and reinsurance companies.

Amendments on payment of bonuses to members of the Board and the Supervisory Board

We recall that a company may allocate not more than 1/5 of the net profit of the reporting financial year for the purposes of payment of annual bonuses to members of the Board and the Supervisory Board. According to the new amendments, the part of a profit that may be allocated for bonuses to members of the Board and the Supervisory Board cannot exceed 1/3 of the sum to be paid as dividends. This also means that bonuses may be paid only if a decision to appropriate profits by distributing dividends is adopted.

Furthermore, we would like to draw your attention that 15 % income tax is applied for the bonuses paid.

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