A Practical Guide to Cross-Border Company Transformations in Lithuania
Navigating Mergers, Divisions, and Conversions Under Lithuanian and EU Law
The ability of companies to merge, divide, or convert is a fundamental aspect of operating within the European Union’s single market. The EU’s Mobility Directive (2019/2121 of 27 November 2019, amending Directive (EU) 2017/1132) introduced a harmonized legal framework for such cross-border corporate mobility, encompassing mergers, divisions, and conversions of limited liability companies within the EU.
While the Directive ensures consistency across Member States, the practical implementation of these procedures is governed by national legislation, which may differ in procedural details and administrative requirements.
In Lithuania, cross-border mergers, divisions, and conversions are primarily regulated by the Law on Companies and the Law on cross-border conversion, merger or division of limited liability companies. This legislation, which implements the EU’s Mobility Directive, establishes a detailed but complex process for carrying out cross-border transformations involving Lithuanian companies.
This guide provides a clear overview of the key procedural steps, stakeholder protections, and legal requirements applicable to companies undertaking cross-border mergers, divisions, or conversions under Lithuanian and EU law.
What is a Cross-Border Transformation in Lithuania?
Lithuanian law provides a comprehensive legal framework for several forms of cross-border company transformations, enabling companies to restructure and operate seamlessly within the European Union’s internal market.
The main types of cross-border transformations recognized in Lithuania are:
Cross-Border Merger into Lithuania
This occurs when one or more foreign limited liability companies merge into an existing or newly established Lithuanian company. Upon completion, the foreign companies cease to exist without liquidation, and all their assets, rights, and obligations are transferred to the Lithuanian successor company by operation of law.
Cross-Border Merger from Lithuania
A Lithuanian limited liability company may merge into a company governed by the laws of another EU Member State. In this scenario, the Lithuanian company is dissolved without liquidation, and all of its assets, liabilities, and legal relationships are transferred to the foreign successor company.
Cross-Border Conversion into Lithuania
A company formed in another EU Member State may convert into a Lithuanian limited liability company, thereby transferring its registered office and legal form to Lithuania while retaining the same legal personality. This operation allows the company to continue its business uninterrupted under Lithuanian law.
Cross-Border Conversion from Lithuania
A Lithuanian company may convert into a company governed by the law of another EU Member State, transferring its registered office and legal form abroad while maintaining its legal personality and continuity of rights and obligations. This form of conversion replaces what was previously referred to as the “relocation of registered office” or “re-domiciliation” under national practice.
Cross-Border Division
A Lithuanian company may divide into one or more companies governed by the laws of other EU Member States, or a foreign company may divide and transfer part of its assets to a Lithuanian company. Cross-border divisions allow for partial or full restructuring of corporate activities within the EU while ensuring continuity and stakeholder protection.
The Step-by-Step Process for a Cross-Border Transformation
The cross-border transformation process follows a strict procedural timeline and requires the preparation of several key legal documents. The central document is the draft terms of the cross-border operation (merger, division, or conversion), which must specify all participating companies, the exchange ratio of shares or interests (where applicable), the allocation of assets and liabilities, the proposed statutes of the resulting company, the legal and economic consequences for employees, and other essential information.
The draft terms of the cross-border operation must be evaluated by an independent expert. The company undergoing transformation must publicly announce the draft terms in the source specified in its articles of association either three times at intervals of no less than 30 days, or, alternatively, no later than 40 days before the general meeting of shareholders and notify all company creditors in writing. No later than on the first day of the public announcement of the draft terms, the company must submit the draft terms and other related documents to the Register of Legal Entities.
The decision to approve the cross-border transformation must be adopted by a qualified majority of no less than two-thirds of the votes represented at the meeting, unless the company’s articles of association require a higher threshold.
The Key Role of the State Enterprise Centre of Registers
In the Lithuanian legal system, the State Enterprise Centre of Registers (Valstybės įmonė Registrų centras) acts as the competent authority responsible for verifying compliance in cross-border transformations. Before a cross-border conversion, merger, or division can be registered in the destination Member State, the Centre of Registers must ensure that all requirements under Lithuanian law have been duly met and issue a pre-transformation certificate.
This verification involves examining the draft terms of the operation, confirming that protection measures for shareholders, employees, and creditors have been properly implemented, and ensuring that the general meeting’s decision approving the operation was validly adopted.
Without this pre-transformation certificate, the commercial register of the destination Member State cannot complete the registration of the cross-border operation, effectively suspending the entire process. The Centre of Registers also performs the final registration of the resulting or surviving company in Lithuania, thereby giving full legal effect to the transformation under Lithuanian law.
Protecting Stakeholders: Creditors, Employees, and Minority Shareholders
Lithuanian law provides a comprehensive system of safeguards for stakeholders who may be affected by a cross-border transformation, in line with the enhanced protection standards introduced by the EU Mobility Directive.
In a cross-border transformation, the company is additionally required to provide adequate security for the fulfilment of its obligations to any creditor who requests it. Also, a creditor no later than within three months from the date of publication of the draft terms of the cross-border operation is entitled to apply to the court and request adequate security for their claims if they can demonstrate that the transformation may jeopardize repayment or that the proposed protective measures are not adequate for the creditor.
Employees must be informed and consulted regarding the legal and economic consequences of the transformation. The Law on Employee Participation in a Company Following a Cross-Border Conversion, Merger or Division of Limited Liability Companies applies in this case.
The participants (shareholders) of the company in a cross-border transformation have the right to transfer their shares for fair monetary compensation. They may request compensation during the general meeting of shareholders at which the decision on a cross-border transformation is to be adopted, or no later than within 20 days from the date of that general meeting.
Also, shareholders are protected through statutory squeeze-out and sell-out rights. A shareholder holding at least 95% of the voting rights may require minority shareholders to sell their shares, while minority shareholders may demand that the majority shareholder purchase their shares at a fair price. These mechanisms ensure equitable treatment and protect minority investors during cross-border operations.
Consequences of Non-Compliance in Lithuania
Failing to comply with the strict procedural and substantive requirements of a cross-border transformation can lead to serious legal consequences. The most immediate sanction is the refusal by the State Enterprise Centre of Registers to issue the pre-transformation certificate, hereby preventing the registration of the transformation in the destination Member State. Without this certificate, the operation cannot take legal effect within the EU.
In addition, procedural or substantive defects— such as inadequate disclosure, invalid shareholder resolutions, or failure to protect creditors or employees – may rise to legal challenges before Lithuanian courts. If a court determines that the transformation was carried out unlawfully, it may declare the action invalid or unenforceable, even after the registration of transition. Such an outcome could reverse the legal effects of the transformation, causing significant legal uncertainty and financial disruption.
These risks underscore the necessity of strict procedural compliance and thorough legal preparation at every stage of the cross-border transformation process.
Ensure Your Compliance and a Smooth Transformation
Correctly navigating a cross-border transformation is a critical legal and administrative challenge. Our team of experts provides a comprehensive service that covers everything from drafting the transformation terms to representing you before the Centre of Registers and other authorities, ensuring your compliance with both Lithuanian and EU regulations. By entrusting this task to us, you can be confident that your cross-border restructuring will be managed efficiently, correctly, and without costly errors.
