8 Mar 2018
Investing in Lithuanian companies – debt financing v. equity financing?
12 Feb 2018
What is the role of a local lawyer overcoming local regulatory challenges?
Over the last decades, Lithuania has been experiencing a significant economic growth, which makes it an attractive jurisdiction to start a new business. Foreign investors may enjoy relatively low legal and accountancy costs and take advantage of predictable tax system. According to the World Bank that ranks economies worldwide, Lithuania has been acknowledged as the 27th economy in the “Starting a Business” subcategory in 2017.
Against this background, a few practicalities should be highlighted that may improve international ranking of Lithuania, facilitate incorporation of new companies and the flow of foreign investments.
Use of foreign (English) names
An investor coming to Lithuania should first consider what corporate name should be chosen, then what share capital should be injected and where a bank account should be opened.
At the beginning, an investor may check if the desired company name is already reserved or not. Also, an investor might be willing to register a relevant trademark including the firm's name with the Lithuanian State Patent Bureau prior to registration of the company.
The firm’s name will also have to include a few letters that denominate if this is a local private limited or public limited company, or a foundation, or such other corporate form. Typically, a firm’s name shall include the abbreviation "UAB" which specifies that this is a private limited liability company.
When an investor decides on a firm's name, the Lithuanian language required should also be considered. In particular, the regulation of the Government of the Republic of Lithuania dated 5 December of 2012 (effective as of May 1, 2013) stipulates that the name of a legal entity must meet the norms of standard Lithuanian language. Effective, this means that the regulation should preclude a Lithuanian company, subject to certain exceptions, from using foreign names.
Nevertheless, in practice some companies are still registered with foreign names and such names of a company may also include endings ".com" or ".io".
In practice, whether a foreign name is granted for a new company or not, depends on the knowledge and creativity of local lawyers, which is why the choice of a local legal services provider becomes of paramount importance.
The role of local lawyers opening a bank account
After executing the act of incorporation, an accumulating account has to be opened for the company at a local Lithuanian bank. The accumulating account is opened solely for the purpose of collecting initial funds to finance share capital of a company. The funds deposited in the accumulative bank account may not be used (except getting them returned to the incorporator) until they are transferred to the company business account, which is basically the same account, but converted from the accumulative bank account after incorporation is completed.
However, opening a bank account at a local bank can be a challenge for many foreign investors. A majority of banks have followed the EU suit by strengthening the KYC rules and sometimes act arbitrarily in deciding what KYC information is satisfactory or what is not. For example, foreign investors can be required to present a corporate business plan which is however not something that is required by laws.
This is nevertheless not applicable for all banks based in Lithuania, and the knowledge and understanding of local practices become of quite important so that to ensure smooth and quick opening of a new business in Lithuania. Accordingly, a foreign investor should make a thoughtful decision in choosing local legal service providers.
Our law firm has an impressive track record of assisting foreign businesses starting operations in Lithuania as well as we have been successful in challenging the decisions of local banks to refuse opening a bank account for a starting company. Moreover, our law firm has been successful in helping foreign corporations (Irish, etc.) opening bank accounts in Lithuania even when such companies did not have a subsidiary or representative office here.
Šulija Partners Law Firm Vilnius, registered office Jogailos street 4, 3rd floor, Vilnius, LT-01116, Lithuania, fax +370 52051926, e-mail: info@SulijaPartners.com
© 2008 - 2018, Šulija Partners Law Firm Vilnius. All rights reserved. The contents of this website and all information contained therein is protected under the laws of the Republic of Lithuania and applicable international agreements. The information contained on this website may not be copied, shared or reproduced or published without the written permission of Šulija Partners Law Firm Vilnius.