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17 Aug 2012

From 1 September 2012, it will be possible to establish the new legal form of legal entity in Lithuania – Small partnership. 

On 1 September 2012 the Law on Small partnerships (hereinafter – the „Law“) will come in force, enabling individuals to establish a new form of legal entity in Lithuania.  A small partnership (lit. – “Mažoji bendrija”) is a limited liability legal entity – a company whose all members are individuals. Only natural persons will be authorised to establish a small partnership and the total number of incorporators may not exceed 10.
One of the most significant advantages this new form of legal entity brings is that there is no requirement to form a minimum authorised capital of the small partnership. Moreover, the Law provides for a possibility to distribute the profits of a small partnership before the end of the financial year and the participants are also entitled to receive funds of the small partnership for their personal needs.
The Law gives the freedom to agree on the procedure of calling the assembly of participants, as well as on the terms and conditions of receiving community funds for personal needs of its participants, paid in the form of advance payment of small partnership’s profit distribution. Therefore, duly prepared incorporation documents are essential both for proper functioning of the company as well as for effective dispute resolution between its participants. 
The Law provides for a dual corporate structure of a small partnership: it can either have the assembly of participants as the sole decision-making body or incorporators may choose to have both: the assembly of participants and a sole governing body – the manager of a small partnership. In case there is no manager elected, the assembly of participants shall perform all governing functions. For that purpose a representative of the assembly must be appointed. He/she shall represent the small partnership in relations with third parties and shall execute transaction that were previously approved and accepted by the assembly of participants. In case the position of a manager is formed in the company – he/she shall act on its behalf and shall have the right to enter into any transaction. Another unique feature of a small partnership is that the manager of a small partnership shall act on a basis of a civil (service) contract and shall not be employed at the small partnership on the basis of an employment contract. 
Nevertheless, the establishment of a new form of legal certainly leaves a lot of tax, administrative and labor law issues. In order to take advantage of the benefits small partnership offer our Law firm strongly recommends seeking professional legal assistance in preparing incorporation documents and elucidating tax and other important aspects.


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