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Beyond Borders: Eversheds Sutherland's ICR insights series. EU Mobility Directive – Legal Update – Lithuania

  • Lithuania
  • Europe
  • Corporate
  • Labor law and trade union issues

2022-10-24

Country specific - Lithuania

This country specific outline contains further information regarding the implementation of the provisions of the EU Mobility Directive into Lithuanian law and provides further local insight.

For further information and to access any of our other country-specific briefings that we have prepared, please refer to the bottom section of our general briefings page here.

Cross-border mergers, divisions and conversions

Current status of the implementation

The Lithuanian draft proposal (the “Proposal”) implementing Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019 amending Directive (EU) 2017/1132 with regard to cross-border conversions, mergers and divisions (the “Directive”) is currently pending submission to the Seimas (Lithuanian Parliament) for approval. This is a draft law (in new wording) to restate the current Law of the Republic of Lithuania on the Cross-Border Merger of Limited Liability Companies. During the presentation of the draft law at a sitting of the Seimas, the initiators of the draft will set forth the objectives and goals of the draft law and will answer any questions from the Seimas members. The Seimas will then adopt the decision whether to commence the procedure of consideration of the draft, whether to postpone it, or whether to reject the draft specifying the motives of rejection. If the Seimas decides to commence the procedure of consideration, the Seimas will appoint the principal Committee and the additional Committee to further consider the draft law. After consideration of the draft law at Committee(s), the stages of consideration and adoption of the draft law at a sitting of the Seimas will follow. If adopted, the law will be subject to promulgation by the President.

Whereas in the Proposal the effective date of the new legislation is set as 31 August 2023, it is not expected that Lithuania will implement the Directive into its national legislation in compliance with the implementation deadline of 31 January 2023. If not timely implemented, certain provisions of the Directive – i.e. only those that are unconditional, sufficiently clear and precise – will have direct legal effect.

If a cross-border merger is initiated before the effective date of the new legislation, such a merger will be regulated by the current wording of the Law of the Republic of Lithuania on the Cross-Border Merger of Limited Liability Companies.

Summary of the Lithuanian current and future legal landscape

Currently, Lithuania has legislation on cross-border mergers but there are no regulations regarding conversions (redomiciliations) and divisions across borders. To date, only domestic divisions and conversions are regulated under Lithuanian law (the Law of the Republic of Lithuania on Companies).

At present, in order to achieve an effect of a cross-border division, several steps in a complex scheme are required. For example, in order to effect a cross-border spin-off in the EU, it’s necessary to carry out a domestic division, establish a new entity in another member State and then carry out a cross-border merger of the relevant part of the divided company with the new entity. If the new legislation implementing the Directive is adopted, Lithuania will have a unified legal framework facilitating cross-border mergers, cross-border divisions and cross-border conversions within the EU/EEA and safeguarding rights of creditors, employees and (minority) shareholders. It should be noted that the rights of employees are additionally protected by the Labour Code and by the law on the participation of employees in the company after cross-border transactions in limited liability companies.

Permitted companies and geographic scope

In Lithuania, the companies permitted to participate in cross-border transactions with relevant limited liability companies from the other EU/EEA Member States will be Lithuanian private and public limited liability companies (the Lithuanian UAB (uždaroji akcinė bendrovė) and Lithuanian AB (akcinė bendrovė)), except for certain collective investment entities, entities in liquidation and others. Under the Directive, these cross-border transactions are principally limited to EU/EEA Member States and Lithuania does not provide the option to carry out those transactions with limited liability companies outside of the EU/EEA.

Timing

With implementation of the Directive, Lithuanian-side formalities in relation to a cross-border transaction can take approximately six months to complete. This takes into consideration, inter alia, the prescribed three month period for creditor opposition and the 12 week period for ‘due diligence’ prior to issuance of a pre-transaction certificate (please refer to the next paragraph). More complex cross-border transactions may require more time.

Competent authority, pre-transaction certificates and legality check of cross-border procedures

It is envisaged that the legality check of cross-border procedures will be coordinated by the registrar of the Register of Legal Entities (State Enterprise Registrų centras) which would issue a certificate of preparation for the procedure (pre-transaction certificate) after considering the findings of other legality checking authorities (the notary, the State Labour Inspectorate, the State Tax Inspectorate) on the legality of the procedures. Issuance of a pre-transaction certificate would confirm that all the necessary conditions and requirements for the cross-border procedure have been met and that the procedures have been properly completed in Lithuania.

In case of an outbound cross-border transaction, meaning a transaction whereby a Lithuanian company converts to or transfers (assets) (in)to a company based in another EU/EEA Member State, the cross-border transaction will subsequently be finalised in the other Member State involved. Based on the pre-transaction certificate issued by the registrar of the Register of Legal Entities, the designated competent authority of the other Member State is able to proceed and legally complete and effect the procedure locally.

In case of an inbound cross-border transaction, meaning a transaction whereby a company (or companies) based in another EU/EEA Member State transfers (assets) (in)to or is converted into a Lithuanian company, the cross-border transaction will subsequently be finalised in Lithuania. To be able to legally complete and effect the procedure in Lithuania, the Register of Legal Entities will require a pre-transaction certificate from the designated competent authority of the other Member State(s) involved. A pre-transaction certificate issued in another Member State is recognized in Lithuania as confirming that all conditions and requirements have been met and that all pre-transaction procedures in that Member State have been properly completed.

Effective date and validity of inbound cross-border transactions

The inbound cross-border conversion of the company is considered complete upon registration of the company operating after the conversion in the Register of Legal Entities. From that moment on, the conversion cannot be recognized as invalid.

The inbound cross-border merger of the company is considered complete after the registration of the company operating after the merger in the Register of Legal Entities. From that moment, the merger cannot be recognized as invalid.

The inbound cross-border division of the company is considered complete upon registration of the recipient companies in the Register of Legal Entities. From that moment, the division of the company cannot be recognized as invalid.

The registrar of the Register of Legal Entities publishes information about the registration in accordance with the regulations detailed in the register of Register of Legal Entities. When a cross-border transaction takes effect, the registrar of the Register of Legal Entities informs the register of another Member State about this.

Key local contacts

Should you have any questions or in case you require any assistance in this regard, please do not hesitate to contact us.

Other country specific

In case you are interested, please find other country-specific information we prepared as part of this Insight Series here.