Company law changes: towards convenience and clarity

New amendments to the Law on Companies allow easier share structure management and clarify employee share allocation procedures.

Following numerous major updates to the Law on Companies that came into force from 13 July 2017, further changes are to follow this year.

One innovation to be of real practical use and that could allow simplification of investment project legal structure is the possibility to change the number and value of a company’s shares without altering its share capital. This instrument will not only allow less complicated investment schemes but can also open ways for more convenient application of business funding alternatives.

In addition, the Law on Companies is moving along with the new Labour Code and brings clarity to employee share allocation. The new regulation not only establishes rules for doing so but also allows shares to be distributed not only among employees (and management) of a specific company but also among those of daughter or parent companies.

These rules are closely followed by measures preventing abuse of a majority shareholder’s rights and protection of minority shareholders, which means that most acts potentially diluting the shareholder structure (including confirmation of employee stock ownership plans) require a qualified majority (no less than 2/3) shareholder vote.

Another novelty is aimed to aid business startups and allows partial exemption from the minimum capitalization requirement for newly-established companies. The general rule is that a company’s equity capital may not be lower than 1/2 of the share capital indicated in the articles of association. This ratio is often hard to maintain, especially in new companies with smaller share capital. From now on, companies established no more than 18 months ago may continue operating without actually complying with the required ratio for 12 months after noncompliance occurs. This not only provides “breathing space” for young companies but may also mean that the 1/2 ratio requirement (which was often neglected in practice) will play a more important role when deciding management and shareholder liability questions.

Source: Law on Companies of the Republic of Lithuania, 13 July 2000. No. VIII-1835.

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