Proposed Amendments to the Law on Companies of the Republic of Lithuania

In March 2025 the draft of the amendments to the Law on Companies of the Republic of Lithuania (hereinafter – the Law) has been registered. If approved by the Government and passed by the Seimas (Parliament), it is expected to enter into force on 1 January 2026. Some of the proposed amendments are likely to be particularly welcomed by the business community, especially investors and start-ups, which have so far often encountered outdated or confusing provisions in the Law that no longer meet market needs. Which of the proposed Law amendments are most relevant to business?

Provision of Financial Assistance for Acquisition of Company Shares

One of the most anticipated amendments, which has sparked considerable discussion in practice, is undoubtedly related to the regulation of financial assistance for the acquisition of company shares. Over the past decades, the development, understanding, and application of this concept have radically changed both in the EU and Lithuania.

In 2003, before Lithuania became a member of the EU, Article 44(9) of the Law clearly prohibited financial assistance by stating that “a company may not directly or indirectly make advance payments, grant loans or secure obligations for third parties if such actions are intended to enable others to acquire the company’s shares.”

Ten years later, in 2014, the Law has been liberalised with the addition of Article 452, regulating the provision of financial assistance for acquiring company shares under certain conditions. This provision stated that “a company may not directly or indirectly make advance payments, grant loans or secure obligations for natural and/or legal persons if such actions are intended to enable these persons to acquire the company’s shares,” with certain exceptions provided by law. In short, a company may not grant a loan or otherwise disburse funds to a person (including shareholders) if the purpose is to acquire shares in the company. One exception to this rule is where such actions aim to enable employees, or employees of a controlling or subsidiary company, to acquire shares – excluding those who are members of the management bodies.

This created considerable confusion in practice, as some interpreted the rule as an absolute ban on a shareholder (who is also an employee) borrowing from the company to acquire shares, while others connected the exception for employees with share-based incentive plans.

Finally, in May 2024, the Lithuanian Supreme Court provided some clarity, stating that a shareholder may be granted a loan to acquire company shares if they are not a member of the management body of the company or its parent; and under current regulation, the company is not prohibited from granting financial assistance to an employee who is also a shareholder, intending to acquire shares from another shareholder.

This clarification effectively gave the green light to a business practice, especially popular among start-ups, of enabling in-house employees who already hold shares as an incentive to acquire more shares using company-financed loans, or for shareholders to buy out others even without sufficient funds.

The proposed amendment seeks to formally enshrine this practice, eliminate ambiguity, and foster a more attractive environment for investors by amending Article 452 of the Law to state explicitly that:

The company may provide financial assistance to natural and/or legal persons acquiring shares in that company, either directly or indirectly, by granting loans or securing obligations in accordance with the procedure set out in this article.
The company may enter into a financial assistance transaction for the acquisition of its shares (hereinafter referred to as a “financial assistance transaction”) if the general meeting of shareholders has adopted a decision to conclude such a transaction, and prior to this decision, the company has established a financial assistance reserve not less than the intended amount of financial assistance. The financial assistance reserve shall be created from distributable profit.
The company's board (or the manager, if there is no board) must submit a written report in advance to the general meeting of shareholders, which includes the item on the financial assistance transaction in its agenda. The report must include information related to the transaction, including but not limited to: reasons for entering into the financial assistance transaction, the company’s interest in the transaction, terms and conditions, price, and an assessment of the financial standing of the parties involved.

Furthermore, it is proposed to establish the company’s obligation to ensure that the financial assistance transaction is concluded under market conditions, especially regarding interest rates; and to assess the financial situation of the counterparty (or counterparties) to the transaction.

If the financial assistance transaction is deemed void, restitution shall apply. If a loan has been granted through such a transaction, it must be repaid immediately with interest as provided in Article 6.210 of the Civil Code, plus an additional 2% interest calculated from the date the financial assistance transaction was concluded until repayment. A transaction providing for the securing of obligations that was concluded in violation of this article shall be binding on the company only if the other party (or parties) to the transaction did not and could not have known about the violation. If restitution is not possible or the financial assistance cannot be returned immediately, the members of the management body and shareholders who violated the provisions of this article by deciding on the transaction shall be jointly and severally liable for the company’s losses.

This regulation would undoubtedly improve the business environment and increase Lithuania's attractiveness as a business-friendly jurisdiction, facilitating the establishment and operation of companies with high added value, as well as attracting investment.

Redeemable Shares

Another notable amendment to the Law, if adopted, would introduce the concept of redeemable shares. These securities are particularly relevant for private companies involving temporary investors – such as business angels, venture capital funds, or strategic partners – who require pre-defined conditions for return on or redemption of investments. The Law would be supplemented with a new Article 42¹ regulating redeemable shares. Redeemable shares are those which the company (or the shareholder themselves) may redeem under pre-agreed conditions for a predetermined price. The article includes the following key provisions:

Redeemable shares may be either ordinary or preference shares, provided such an option is defined in the company’s articles of association.
A company may issue redeemable shares only if it has also issued non-redeemable shares. Shares already issued cannot be converted into redeemable shares.
The conditions and procedure for redemption must be clearly defined in the articles of association, and a reserve must be created or a new share issue undertaken.
Redemption may be initiated either by the company or at the request of the shareholder.
Shares may only be redeemed once they are fully paid.
Redeemed shares must be cancelled, and the authorised capital must be accordingly reduced.
The company’s manager must notify the Register of Legal Entities within 10 days from the date of redemption.
Upon redemption of shares, the redeemable shareholders must be paid the redemption price. Payment must be made within 12 months of the redemption date, unless the articles of association specify a shorter period.
Once a decision has been made to liquidate the company, redeemable shares may no longer be redeemed.
Redeemable shares of the same class must be redeemed on equal terms, unless all shareholders decide otherwise.

It is emphasised that for this instrument to function smoothly, it requires (i) careful drafting of the articles of association, (ii) prudent financial planning, and (iii) clearly defined procedures.

Both redeemable shares and treasury shares require the establishment of a reserve for share acquisition. This means that without such a reserve, the redemption of shares is not possible. The essential difference between redeemable and treasury shares lies in the fact that redeemable shares are bought back under predefined conditions as set out in the articles of association. Meanwhile, the acquisition of treasury shares is typically decided by a general meeting of shareholders, which must define: (i) the purpose of the acquisition, (ii) the maximum number of shares to be acquired, (iii) the time period (not exceeding 18 months), (iv) the maximum and minimum purchase price, and (v) the procedure and minimum price for resale. In the case of redeemable shares, once redeemed, they must be cancelled and the authorised capital reduced. If the company fails to do so, the capital is reduced by court order. For treasury shares, restrictions include that their total nominal value cannot exceed one-tenth of the authorised capital. Additionally, the company may not acquire treasury shares if doing so would reduce its equity below the sum of the authorised capital, the legal reserve, and the reserve for treasury shares. Moreover, once acquired, treasury shares carry no property or non-property rights.

In summary, the proposed amendments to the Law on Companies of the Republic of Lithuania show a clear intention to modernise the legal environment and make it more responsive to the needs of modern business and investors. If adopted, we can expect more flexible solutions in the areas of incorporation, governance and capital raising from 1 January 2026. This would undoubtedly enhance Lithuania's image as an attractive country for business and innovation.