On 5 June 2014, the Lithuanian Parliament passed new amendments to the Law on Companies (the Law) on the corporate governance and audit of companies, financial assistance for the acquisition of shares in a company, and for acquisition by a company of its own shares. Most of these amendments came into force on 17 June.
Changes to the Law that may affect your business appear below.
The major changes in the management of companies apply to the competence and formation of the Management Board and the Supervisory Council.
From now on, in companies with no Supervisory Council, certain supervisory functions can be assigned to the Management Board. These include, eg supervision of managerial activities and assessment of a manager’s suitability for his/her position (where the company is operating at a loss), proposals for the manager of the company to cancel a decision that violates legislation or a decision of the company Management Board or shareholders, as well as other functions set out in the Articles of Association of the company. Assignment of supervisory functions to the Management Board must be provided for in the Articles of Association of the company.
The Law also provides that more than half of the members of the Supervisory Council must not be in an employment relationship with the company. Thus, if the company has no Supervisory Council and some of its functions as discussed above are assigned to the Management Board, more than half of the members of the Management Board must not be in an employment relationship with the company. However, these rules only apply to newly elected Management Boards and Supervisory Councils. Management Boards or Supervisory Councils formed before entry into force of the Law (17 June 2014) need not be dismissed and their members can hold office until the end of their term of office (or until dismissed). The Law also states that if the Management Board performs supervisory functions then the manager of the company may not be a member of the Management Board.
The amendments entitle the Management Board to decide to exclude a member of the Management Board from voting on decisions on specific matters if that member informs the Management Board about any circumstances giving rise to a situation where the personal interests of the member conflict or may conflict with the interests of the company.
The Management Board has also been deprived of the right to decide on restructuring the company in cases listed in the Law on the Restructuring of Enterprises, with the right to decide on restructuring exercised by the General Meeting of Shareholders in its exclusive competence.
The only amendment to the Law on Companies which will come into force on 1 July 2015 applies to public limited companies. From that date, all public limited companies will have to have at least one collegial body, ie a Management Board or a Supervisory Council.
Definition of an auditor
In addition to the term “audit firm”, the Law introduces the term “certified auditor”. Therefore, from now on, for the purpose of auditing their annual financial statements and performing other acts referred to in the Law, companies can hire not only audit firms but also certified auditors (natural persons holding the title of certified auditor issued in line with the procedure prescribed by law).
Financial assistance for the acquisition of shares in a company
The amendments enable companies directly or indirectly to financially assist their own employees and employees of their parent or subsidiary companies (except for members of the management bodies of those companies), ie to make direct or indirect advance payments to them, to provide a loan or ensure fulfilment of obligations in order to enable them to acquire shares in the company. Until the amendments, companies were prohibited from providing financial assistance for the purpose of acquiring their shares.
Acquisition by a company of its own shares
The Law as amended distinguishes between acquisition of and subscription for the company’s own shares. Before the amendments, the Law prohibited a subsidiary from subscribing for and acquiring shares in the parent company, while the amended Law prohibits only subscribing for such shares. In the event of acquisition by a subsidiary of shares in the parent company, the shares in the parent company are now considered to have been acquired by the company itself.
In addition, the Law states that where shares in a company are acquired by someone acting in their own name but in the interest of the company, the shares are considered to be acquired by the company whose shares are acquired. Meanwhile, if someone acting in their own name but in the interest of the company subscribes for those shares, the shares will be considered to have been acquired by that person.