Establishing a Business. What Type of Enterprise to Choose?

“Only people with lots of money can start a business.” “I won’t start a business, because I don’t want to risk my private funds.” “Once you’re in it, you won’t be able to get out of it that easily.” These are the things people often say when they haven’t got a clue about how to start a business in Lithuania.

Here are the few most popular types of enterprises. After familiarizing yourself with them, you should be able to choose one that suits your business model.

Sole Proprietorship

If you have a business idea but can’t put a lot of money into its implementation, it is recommended to establish a sole proprietorship. In such a case, you don’t need to have an initial share capital or even any employees. You can work alone without a work contract and thus pay less taxes. However, if your business proves unprofitable, you yourself will have to pay for any broken commitments. You will not be able to share this burden with anybody else, because a sole proprietorship is the responsibility of a single person, who warrants their own personal funds. However, this also means that the founder of a sole proprietorship has the freedom to spend their profits freely and use company funds for their personal needs.

Private Limited Liability Company

If you are thinking about developing a larger business, you could establish a private limited liability company. In such case, you will need a minimum share capital of 10,000 Litas (€2,896), and you can either be the sole founder or join other legal or natural persons. The number of shareholders cannot exceed 249, while every important company decision will have to be made through their voting (every share equals one vote, so more shares equals a more important opinion). In the event of bankruptcy, you will only risk the capital you’ve invested in the company and not your personal funds. If in need of extra funds, new shares can be issued, while leaving the business entirely is also always possible. However, profits can only be distributed through dividends or wages, in which case especially large taxes will also have to be paid.

State Enterprise

This type of organization is non-profit and usually does work, that is useful to the public. Large tax exemptions apply to state enterprises as well as various opportunities to get financial backing, so sometimes it might also be used for commercial activity. The amount of shareholders, in this case, is unlimited, share capital is not required, nobody risks their private funds while shareholders can join and leave at will. However, this type of company can distribute its profits through wages only.

Small Partnership

This is a relatively new type of company which only appeared two years ago. The rules of establishing one are quite simple, and it can even be done online. Its founders can be 1 to 10 natural persons, who do not warrant their personal funds and are not required to have a share capital. All members pay certain contributions and profit is later distributed according to the sizes of those contributions. Members of a small partnership work without a work contract and therefore avoid large taxes as well as being allowed to distribute profits in advance.

Because the Small Partnership Act is still relatively fresh, most people are not familiar with the pros of this type of company, so we will review them in more detail next week.

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