Dear clients and cooperation partners,
We highlight the following issues, at first sight self-evident, but in practice often forgotten, where compliance is essential to lawful and successful activity of a Company under Lithuanian law.
Additionally, we would remind you about amendments to the Lithuanian Law on Companies (Company law) which came into force on 1 March 2012.
Convening Annual General Meeting of Shareholders
Under Company Law, the Management Board (if a Management Board is not formed – the Managing Director) must convene a regular (annual) General Meeting of Shareholders (AGM) to approve the Company accounts, not later than four months after the end of the financial year (three months for companies that carry out certain activities, such as financial institutions). Thus, if the financial year of your Company coincides with the calendar year, the regular AGM for approval of accounts for 2011 should be convened on or before 30 April 2012.
In addition to other issues, the AGM (or the sole shareholder if all shares in the Company are owned by one person) must approve the Company accounts and adopt a resolution on profit (loss) appropriation.
The Management Board (if the Management Board is not formed – the Managing Director) must approve the annual report of the Company, which is submitted to the AGM together with the accounts and auditor’s report (if audit is mandatory by law or under the Articles of Association).
Auditing of accounts is mandatory for public limited liability companies. Private limited liability companies must audit their accounts if on the last day of the reporting period at least two of the following limits are exceeded:
- LTL 12 million (approx EUR 3.5 million) net turnover during the reporting financial year;
- LTL 6 million (approx EUR 1.7 million) value of assets in the balance sheet;
- 50 payroll employees on average during the reporting financial year.
Please note that only Companies that prepare a full set of accounts need to prepare an annual report. Companies may prepare abridged accounts if on the last day of the reporting period at least two of the following indicators do not exceed the following limits for two consecutive years, including the reporting financial year:
- LTL 10 million (approx EUR 2.9 million) net turnover during the reporting financial year;
- LTL 6 million (approx EUR 1.7 million) value of assets in the balance sheet;
- 15 payroll employees on average during the reporting financial year.
The AGM must be convened following the requirements established by Company Law and the Articles of Association of the Company. Notice of the AGM must be published in the daily press as indicated in the Articles of Association, delivered against acknowledgement of receipt, or sent by registered mail to each shareholder at least 21 days before the AGM. If the Articles of Association indicate a longer term for notice of the AGM, such as 30 days, then the longer term applies.
The approved accounts of the Company together with the annual report and the auditor’s report (if audit is mandatory) must be filed with the Register of Legal Entities within 30 days after approval by the AGM or the sole shareholder.
Monitoring of Management Board and/or Supervisory Council authorisations
Before convening the AGM it is advisable to inspect the term of authorisations of the current Management Board and/or Supervisory Council members and to re-elect the members for a new term or elect new ones in case of expiry of the original terms.
The Company must notify the Register of Legal Entities of election of new Management Board and Supervisory Council members. We also recommend inspecting whether your Company has notified the Register of Legal Entities of other changes in registration data.1
Interim dividends
Please note that on 1 March 2012 an amendment to Company Law came into force establishing the possibility to pay interim dividends. As a result, shareholders owning shares to which are attached not less than 1/3 of all votes in the company (if the Articles of Association do not establish a higher threshold) may apply for payment of dividends for a period shorter than a financial year. A company Managing Director who receives such an application has to prepare the documents necessary to adopt a decision to pay dividends for a period shorter than a financial year.
If audit of the annual financial statements is mandatory for the company by law or the Articles of Association of the company, the interim financial statements must be audited as well. If the company adopts a decision to pay dividends for a period shorter than a financial year, the interim financial statements of the company, the interim report and the auditor’s report (if audit is performed) have to be filed with the Register of Legal Entities within 30 days from adoption of the decision.
According to Company law, the beginning of the period for which the dividends are paid must coincide with the beginning of the financial year. In addition, (i) not more than 3 months can pass from the end of the period for which the interim dividends are paid until adoption of the decision to pay dividends and (ii) at least a 3-month interval must pass between decisions on payment of dividends for a period shorter than the financial year.
Note that only companies in profit for the relevant period can pay dividends for a period shorter than the financial year. Loss-making companies cannot pay interim dividends even if they have undistributed profit from the previous reporting period.
In addition, a company cannot pay the interim dividends if:
- it has outstanding obligations due on the date of the decision; or
- payment of dividends would mean inability to fulfill company obligations for the current financial year; or
- the equity capital of the company is lower or upon payment of the dividends would become lower than the sum of the share capital, mandatory reserve, revaluation reserve and reserve for acquisition of own shares.
Interim dividends are paid according to the financial accounts of the particular period for which dividends are paid. Furthermore, under Company law the amount allocated for payment of interim dividends cannot exceed the sum of the profit (loss) of the period shorter than the financial year, the amount of the undistributed profit (loss) at the end of the previous financial year (after deduction of part of the profit of the period shorter than the financial year which has to be attributed to the reserves).
The rules on payment of interim dividends do not apply to banks, other credit or financial institutions, insurance or reinsurance companies, regulated market operator, or the Central Securities Depository of Lithuania.
1 A Company must notify the Register of Legal Entities of changes of Management Board members and chairman, Supervisory Council members and chairman, the Managing Director of the Company, and in other cases established by law. Company law requires that the Register of Legal Entities be informed of sale of part of shares owned by the sole shareholder of the Company or acquisition of all shares in the Company. |