Category: Corporate law

Will Europe finally simplify the process of starting a business—and will that be enough?

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The European Commission recently unveiled a proposal that could significantly change the rules for starting a business in Europe—the so-called “EU-Inc.” initiative. Its goal is to create a single legal form for companies across the European Union, which would allow businesses to operate across national borders more easily and quickly than ever before.

Today, business expansion in Europe often faces a paradox: although we have a single market, setting up and operating a business in different countries still means dealing with 27 different legal systems, different legal forms, and complex administrative procedures. As a result, even a simple step toward expanding into another EU country can take weeks or even months. The EU–Inc. system proposed by the European Commission aims to simplify this situation.

What does EU–Inc. offer? 

Under the proposal, a single European company form would be established, characterized by several key elements:

  • a company could be registered within 48 hours for less than 100 euros;
  • there would be no requirement for a minimum authorized capital;
  • the company could operate in all 27 EU member states under a single legal framework;
  • the information would be submitted once, and the data would automatically be transmitted to registries, tax authorities, and VAT systems across the EU;
  • provide for the possibility of implementing harmonized employee stock option plans (ESOPs) across the EU.

If the European Parliament and the Council approve this proposal, the initiative could become operational by the end of 2026.

The launch of such an initiative sends an important signal. For some time now, Europe has been looking for ways to help startups and fast-growing companies expand more easily within the single market and compete with technology ecosystems in the U.S. and Asia.

This is a welcome step, as it finally acknowledges a problem that the business community has been discussing for many years—the European single market remains highly fragmented from a legal standpoint.

However, the question arises: will simplifying the registration process alone really address the main obstacles to business growth in Europe?

The problem lies not only in registration 

The procedures for establishing a company are often seen as the main challenge, but in practice they are usually just the first—and often the shortest—stage of a business’s journey. Far more complex obstacles arise later on, as the company grows and expands into different jurisdictions.

The biggest obstacles in Europe are usually not related to company registration. They stem from differing tax systems, labor law regulations, inconsistent application of the law, and often rather slow dispute resolution in the courts.

Even if a company could be established within 48 hours, as the business expands, it would still have to deal with:

  • different labor law regimes in each country;
  • inconsistent taxation of employee stock options;
  • under different tax regimes;
  • inconsistent administrative and regulatory practices.

In practice, businesses often face another problem—one that may seem technical at first glance but is very real—namely, opening a bank account. Even today, when it is possible to establish a company relatively quickly in most EU countries, banks often take a very cautious approach to clients whose founders are not residents of that country. In such cases, opening an account can become a lengthy and complicated process requiring additional checks and documentation. Therefore, the question remains open as to whether the new EU–Inc. form will truly facilitate relations with banks, or whether this practical obstacle for businesses will persist.

Therefore, the question of whether EU–Inc. will actually operate under a unified system will essentially depend on the extent to which genuine harmonization is achieved in other areas.

ESOP – an important but insufficient step 

The unified ESOP model set out in the proposal is one of the strengths of this initiative. Employee stock options are an important incentive tool for startups, particularly in the technology sector.

However, if these options continue to be taxed differently in different countries, their practical application may remain limited.

If taxation remains a national matter, the system will still not be as simple and clear as the one we see today in the United States, for example. And capital and talent often flow to places where the regulatory environment is clearer and more predictable.

Is Europe truly ready for a unified business area? 

The EU–Inc. initiative undoubtedly reflects a political ambition to strengthen Europe’s business environment. It could also serve as an important symbolic step—demonstrating that Europe aims to be a place where global businesses can be established and grown without leaving the continent.

However, simplifying the procedures for setting up a business can only be the first step.

If Europe truly wants to create a level playing field for business, a single corporate form will not be enough. Much deeper harmonization will be needed—particularly in the areas of taxation, labor law, and regulatory practices.

Nevertheless, it must be acknowledged that the EU-Inc. initiative sends an important signal that European institutions are beginning to address the problem of single market fragmentation in a more systematic manner. If the proposal is adopted and consistently developed further, it could become the first concrete step toward a truly unified business space in Europe.

However, the true impact of this initiative will depend on whether Europe is willing to address the deeper structural issues that often lead ambitious companies to plan their global expansion outside of Europe.

AVOCAD Partner, Corporate Law Expert, Attorney Jonas Zaronskis

The Supreme Court of Lithuania has clarified that termination of a service contract in an administrative building is not a decision of a single owner. 

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When a business operating in an administrative building wants to terminate a contract for the maintenance of common areas, it often seems that one decision is enough – the contract is open-ended, notice of termination has been given, and an alternative service provider has already been selected. However, in practice, such a decision often comes up against the will of other owners of premises in the building: services are provided for the entire building, common property is indivisible, and there is no joint decision. It was precisely this situation that the Supreme Court of Lithuania assessed and concluded that the right to terminate such a contract is not absolute.

The Supreme Court of Lithuania (hereinafter referred to as the SC) issued a new important ruling in a civil case and stated that a co-owner of an administrative building does not have the right to unilaterally terminate a contract for the maintenance of common use objects without the unanimous decision of all co-owners.

According to Mantas Baigys, a lawyer from the AVOCAD law firm representing the party in the case, this decision highlights a very important rule: the right to terminate a service contract is not absolute in all cases, especially when the contract relates to the maintenance of common property and affects the interests of all co-owners.

"The newly formulated rule of the Supreme Court shows that a person's right to terminate a service contract cannot be exercised under any circumstances," says lawyer M. Baigys.

The case dealt with whether the owner of premises in an administrative building could unilaterally terminate individually concluded open-ended maintenance service contracts if there was no joint decision by all owners (co-owners) of the premises to change the administrator and terminate the contractual relationship.

The Supreme Court upheld the findings of the lower courts and emphasized that in relationships of this nature, the specifics of joint partial ownership and the decision-making procedure of co-owners in administrative buildings are of decisive importance. The ruling highlights several important points:

  • In administrative buildings (where most of the space is non-residential), decisions on the management of common property are essentially linked to the agreement between the co-owners.
  • Although the Civil Code allows for the termination of an indefinite contract, this rule must be applied after assessing whether the law or contract imposes any restrictions. The Supreme Court emphasized that restrictions in the administration and supervision of joint property are determined precisely by the co-owners acting "as a single owner" in relations with third parties.
  • When the subject matter of the contract covers the maintenance of all common areas (rather than a separate part thereof) and all co-owners have concluded a similar contract, such agreements may be regarded, in terms of their content, as a single joint agreement, which may only be amended or terminated by a joint decision.

According to AVOCAD lawyer Kamilė Šemeklytė, who represented one of the parties in the lower courts in this case, this court ruling is particularly important for owners and administrators of commercial and administrative buildings. This is especially true when some owners want to change service providers but there is no consensus, when services are actually provided to the entire building, so "disconnection" may have consequences for others; when questions arise as to whether a unilateral notice is sufficient to terminate the contract.

"The Lithuanian Supreme Court's ruling in this situation is focused on balancing interests and ensuring the continuity of joint property management until the co-owners reach a joint decision or establish rules for use," the lawyer emphasises in her commentary on the ruling. This decision of the Supreme Court of Lithuania is final and not subject to appeal.

Business with friends: invisible risks that cost friendships

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Starting a business with friends or close associates often seems like a natural and safe choice. There is trust, shared enthusiasm, belief in the idea, and a feeling that "we will work everything out among ourselves." However, according to lawyers, this is where one of the biggest risks lies—the lack of formal agreements. Practice shows that when starting a business without clearly defined rules, friendships often do not withstand the realities of business.

The first serious challenges usually arise not immediately, but when the company begins to grow, when income is generated and it is time to calculate the results for the year. Then, naturally, questions arise: who contributed how much, whose contribution was greater—capital, ideas, connections, or daily work. What seemed self-evident at the beginning turns into disputes over workload, responsibility, and the fair distribution of profits. And when these issues are not discussed in advance, emotions take over.

Eimantas Čepas, a lawyer at the AVOCAD law firm, discusses why a shareholder agreement is necessary even when you are setting up a business with your closest friends and family.

A shareholders' agreement is a private agreement between the shareholders of a company that supplements the company's articles of association but is not publicly registered. Unlike the articles of association, it focuses not on the formal structure of the company but on the actual relationships between the partners and day-to-day decisions.

"A shareholders' agreement allows for more flexible regulation of relations between shareholders – determining how decisions are made, how profits are distributed, and what the conditions are for withdrawal or transfer of shares. It helps to avoid situations where decisions have to be made spontaneously or on the basis of emotions," explains E. Čepas.

Emotions are often the main catalyst for conflict. When there is no clear agreement on who is responsible for what and how each person's contribution is evaluated, even a successful business can become a field of disagreement. From a legal point of view, a shareholders' agreement is a civil contract with all the consequences of a normal contract, so its provisions are binding on all parties to the agreement.

"The shareholders' agreement acts as a safeguard, ensuring that the business partnership is managed transparently and that disputes are resolved according to predefined rules," emphasizes the lawyer.

It is important to understand that such an agreement is not only relevant for large companies. On the contrary, it is often even more important for small and growing businesses. When a business is created by friends, colleagues, or family members, trust often replaces formal agreements, but as the company grows, this becomes a weak link.

"Even in a small company, disagreements about money, decisions, or workload can become a serious source of conflict. A legal document helps to separate personal and business relationships, maintaining a clear line of responsibility," says E. Čepas.

A well-drafted shareholders' agreement covers decision-making procedures, profit distribution principles, conditions for transfer of shares and withdrawal, non-competition and confidentiality obligations, as well as dispute resolution mechanisms. If these issues are not addressed, disputes later become more complex, longer, and more expensive.

It is also important that shareholder agreements have full legal force. Although they are not registered in public registers, courts consider them to be valid and enforceable agreements between shareholders, provided that they do not violate mandatory legal provisions.

"This is one of those cases where good legal form means real content and legal certainty," emphasizes the lawyer.

The most common mistake in practice is not concluding a shareholders' agreement at all or concluding it too late, when the conflict has already begun. Another mistake is to rely on abstract, universal templates that do not reflect real relationships and the specific activities of the company.

"It is often believed that an agreement is unnecessary if the shareholders are friends or family members. In practice, however, it is precisely these relationships that most often turn into the most complex disputes," notes AVOCAD attorney Eimantas Čepas.

A shareholder agreement is not a sign of mistrust. It is proof of a mature partnership and an investment in long-term stability. According to the lawyer, it is better to agree clearly today than to argue in court tomorrow. "Clear rules help protect not only the business, but also what is often most important – the human relationships that started it all," notes Eimantas Čepas.

 

Legal impasse: who is liable when shareholders fail to take decisions?

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In practice, it is often the case that a company's shareholders, because of internal disagreements or conflicts, do not take decisions that only they can take. Such inaction complicates corporate governance and decision-making and, at the same time, creates the risk of the manager being held liable for failing to fulfil his/her statutory duties.

As Karolina Briliūtė, Senior Associate at AVOCAD, points out, even when the CEO has no realistic opportunity to fulfil his or her duty - for example, to present a set of financial statements because the shareholders do not approve them - the CEO is still responsible.

Both the Civil Code and the Companies Act provide for broad limits to the liability of the manager. The CEO is responsible for organising the company's day-to-day operations, ensuring that reports are prepared and submitted to shareholders for approval. However, only the General Meeting of Shareholders can approve the set of annual financial statements - and without this decision, the manager cannot transmit the documents to the Centre of Registers.

"This creates a paradox - the law requires the manager to submit certified accounts, but the manager does not have the right to certify them. This leaves him between two conflicting requirements - the obligation and the actual possibility of fulfilling it", comments an AVOCAD lawyer.

Shareholder conflicts - a manager's responsibility?

When a set of financial statements is not approved because of shareholder conflicts, the authorities often impose administrative liability on the CEO. In such cases, no circumstances, even objective ones, normally remove the manager's liability.

"Even in the case of an apparent shareholder dispute that is not resolved, the authorities usually apply a formal assessment - they do not look at the reasons, but at whether the obligation has been fulfilled," says K. L. Briliūtė.

Case law has established that neither disputes between shareholders nor the fact that shareholders do not approve a company's annual accounts for certain reasons, which may be subjective, is considered sufficient to exclude liability. The courts also note that, even if shareholders deliberately block the adoption of decisions, this does not reduce the liability of the manager for the formal failure to perform his duties.

"This means that a manager can be punished for actions that he or she could not objectively perform. This situation raises questions about the balance of justice - whether the formal imposition of liability in all cases is in line with the rule of law", she notes.

Although there are cases in the case law of the Court of Cassation where objective circumstances are taken into account, these precedents remain rare. In some cases, the courts have held that the gravity of the act and the actual violation of the shareholders' rights must be taken into account when assessing the liability of the manager. However, in most cases, the liability of the manager remains formal, irrespective of the consequences or context.

There are few legal options for the CEO. One of them is to go to court to order the shareholders to take a decision. However, such a process can take several years and costs, during which time fines can continue to be imposed on the manager.

"In this situation, court proceedings can only be a solution in the long term, but they do not prevent new fines and can only create a legal precedent in the long term," points out K. L. Briliūtė.

In conclusion, she stresses that treating the circumstances more favourably for the manager is the exception rather than the rule. Therefore, according to Karolina Briliūtė, it is important for the authorities to take into account objective circumstances beyond the manager's control when assessing the imposition of administrative liability, especially when shareholders deliberately delay or block decision-making.

"A manager's responsibilities should be assessed in a holistic way, taking into account not only the formal requirements but also the actual possibilities of implementing them. Otherwise, the manager becomes a hostage to a situation created by legally independent shareholders", she concludes.

 

When a farm is not a UAB: The court has drawn the boundaries of who owns the money

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Can a farmer use the farm's money as he or she sees fit? Is he subject to the same requirements as a company manager - first pay taxes, pay debts, then "you"? Karolina Laura Briliūtė, Senior Associate at AVOCAD, answers these questions by commenting on the recent case law of the Supreme Court of Lithuania. According to her, the Court's decision is particularly important for those who own, transfer or intend to acquire a farm.

Farmer - not a legal person

Although a farm is often seen as a "business unit", it is not a legal entity and cannot be considered as a separate entity. The Court emphasised in its ruling that a farm is not a limited liability company, even if it has a structure, assets and even employees. Legally, everything is managed by the farmer as a natural person. "This is a crucial point of reference: in the absence of separate personality, there is no obligation for the farmer to behave as the managing body of a legal person," notes Karolina Laura Briliūtė.

The Supreme Court noted that neither the Civil Code nor the Farmer's Farm Law creates a separate category of ownership of "farm property". Accounting is designed to record financial flows, but it does not create or limit ownership. Even if the funds are referred to in the accounts as 'farm money', they remain the personal property of the farmer.

According to AVOCAD's lawyer, the Court of Justice took a hard look at the Court of Appeal's attempt to apply business law analogies. The attempt to treat the farmer as the manager of the company, who only disposes of the funds after the "profit balance" is left, was found to be inappropriate and dangerous to the precedent. A farmer's activity is not a collective activity, but an individual activity under the Personal Income Tax Act (PITA), where all the assets generated belong to the person running the activity. The purpose of the funds - payment of taxes, fulfilment of obligations - is important, but it does not restrict the owner's right to use the property, unless otherwise stipulated in the contract.

Taxes: an obligation on the state, not on the other party to the contract

The Supreme Court has also given a detailed assessment on taxes. Although a farmer is subject to VAT and GPT on the income he receives, this does not mean that he is not entitled to use the money until he has paid these taxes. These are two separate lines of liability: one against the State (tax liability) and the other against the contractor (contractual liability). The applicant could not rely on tax arguments to recover the funds as 'misappropriated'.

The Court's position is clear: the farmer may dispose of all the funds in the farm account as his own property, unless the contract expressly provides otherwise. Unless the parties have agreed that the funds are to be used for certain payments prior to the transfer, there is no reason to believe that the farmer was obliged not to use them.

According to the lawyer, this Supreme Court ruling makes it clear that a farmer's activity, although governed by accounting rules, loses any legal personality when it comes to property rights:

  • If you want to use certain farm funds specifically (e.g. to pay debts or taxes), agree this clearly and in writing - only a written agreement creates obligations on the part of the farmer in favour of the partner.
  • Don't overestimate accounting terms such as "farm money" or "farm account" - these are used in accounting but do not give money a separate legal status.
  • Tax law (VAT, GPT) cannot be invoked to restrict the farmer's right to dispose of his money - taxes must be paid, but the obligation to do so lies with the farmer in his relationship with the State and not with the other party to the contract.
  • A farmer is not a director of a company, so the business law analogy of holding funds "outside" his control until taxes have been paid and debts settled does not apply. When a farm is transferred, the exact use of the assets, debts and money must be defined in advance - otherwise the court will consider that the farmer was free to use the money as he saw fit.

 

Can a shareholder be convicted of credit fraud?

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With the information in the public domain that law enforcement authorities have opened a pre-trial investigation into suspected credit fraud in a company owned by the Prime Minister, questions arise as to what the allegations mean, who can be prosecuted, and whether only the head of the company is liable, or whether the shareholder is also liable.

There are a number of cases of farmers and entrepreneurs who have been tried for fraudulently obtaining loans or aid, so this case is neither new nor exceptional.

What constitutes credit fraud?

According to the Criminal Code of the Republic of Lithuania, credit fraud is a situation where a loan, aid, subsidy or grant is obtained by fraud. Such acts are qualified as a criminal offence under Article 207 of the CC.

Fraud usually involves misrepresentation, including information about the borrower's financial situation. However, such information is only considered fraudulent if it was decisive for the creditor's decision to grant financing.

The objective part of Article 207 of the Criminal Code is that the perpetrator obtains a loan or credit by deceiving the victim. The person must be aware that he or she is acting fraudulently and is seeking a pecuniary advantage or knowingly allowing damage to occur. It should be noted that the fact that a loan has been illegally obtained, irrespective of how it has been used, is sufficient for criminal liability.

For example, if a person knows that his or her existing company does not qualify for soft loans, but sets up a new company, obtains a loan and uses the funds to operate the old company, this could amount to credit fraud.

Setting up companies or selling assets is not prohibited. However, if such transactions are carried out with the criminal intent of obtaining financing by deception, they may be considered a crime.

Who can be prosecuted?

As a rule, specific natural persons acting on behalf of a legal person are prosecuted. This can include:

CEO - if he or she decided to apply for a loan and then used the funds for the benefit of another company;

  • Company staff responsible for drafting or signing documents;
  • Shareholders - if they gave instructions to carry out unlawful acts or took other decisions related to the offence.

Can a shareholder be convicted?

Being a shareholder in a company that has received credit does not automatically mean that you will be prosecuted. However, if it is established that the shareholder not only invested, but also effectively controlled the company, exercised shareholder rights, gave instructions or encouraged fraudulent conduct, he or she may be liable.

Evidence of shareholder-manager communication, shareholder decisions and shareholder knowledge of activities is crucial in such investigations. It also assesses whether the manager was not merely a formal figure (a figurehead).

A shareholder can only be prosecuted if his role goes beyond that of a passive shareholder to active participation in the illegal activity - especially if he acts as a de facto manager.

What are the possible consequences?

In addition to personal criminal liability (fines, imprisonment or restriction of liberty), the company itself can also be sentenced. It can be fined, restricted or even wound up. It may also be liable to claim damages.

Egidijus Kieras, Attorney at Law, AVOCAD

Inaccurate shareholder data - a fine or even criminal liability?

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While it may seem that formal registers are just "paperwork", it is worth remembering that mistakes or delays in submitting shareholder data to JADIS (the Information System of Legal Entities Participants) can cost money and have far more serious legal consequences.

According to the Companies Act, as soon as a private limited liability company is established or its shareholders change, all relevant information on the shareholders must be submitted to JADIS within 5 working days: their details, the number of shares, the date of acquisition etc.

Although the manager may delegate this responsibility to another person, the responsibility remains with the manager. This means that if data is not provided, is provided late or is incorrect, it is the manager who is responsible.

Domantas Velykis, a lawyer at AVOCAD, explains what legal liability may be imposed on the head of a company for failure to provide shareholder data of a private limited liability company, late provision of data, or provision of incorrect data .

According to the lawyer, in a standard case, a company manager who violates the obligation or procedure for submitting shareholder data to the JADIS is subject to an administrative penalty of between six hundred and one thousand four hundred and fifty euros, i.e. administrative liability.

The legal basis for this penalty is established in the Code of Administrative Offences, which stipulates that, firstly, the submission of incorrect data of a legal entity and other information to be provided to the data manager of the Register of Legal Entities, the information system manager of participants of legal entities, and secondly, the failure to provide data of a legal entity and other information to be provided to the data manager of the Register of Legal Entities, the information system manager of participants of legal entities in due time according to the procedure provided for by the legal acts, shall entail the aforementioned administrative liability for the head of the legal entity.

Given the similarities between administrative liability and criminal liability, a reasonable question arises - can the head of a company be held criminally liable for failure to provide shareholder data, late provision of data, or provision of incorrect data?

Domantas Velykis reminds that the Supreme Court of Lithuania has heard a case in which a question was raised about the possibility of applying two criminal offences for false information of shareholders in the public register, when the head of the company, being the sole shareholder and head of the company, sold 50 shares of the company to another person by a share sale and purchase agreement in 2014, but in 2017 the head of the company submitted an application to the Centre for Registers to register himself as the sole shareholder of the company, falsely stating that he had acquired the entire number of shares in 2016, when in fact he had not recovered the shares from another person.

First of all, the Supreme Court of Lithuania found that the Share Purchase and Sale Agreement concluded in 2014 was valid - it was neither annulled nor declared invalid. Therefore, the Court assessed whether the company's CEO could have committed a crime by submitting an application to the Centre of Registers to register himself as the sole shareholder, i.e. whether he had illegally acquired someone else's property, in this case, 50 shares which were already owned by another person.

In this situation, the lawyer said, it is important to know that company shares can only be transferred after a certain transaction (for example, a sale or a gift) has been concluded and an entry has been made in the securities accounts. In contrast, the JADIS is only an information system that registers changes in shareholders that have already taken place, but the entry in it does not in itself create ownership rights.

"Therefore, a manager's mere request to register himself as the sole shareholder does not guarantee that he has legally acquired those shares. As such entries do not reflect a real transaction, the court concluded that this action cannot be considered fraud - the manager did not actually acquire shares or rights related to them that do not belong to him," says Domantas Velykis, lawyer at AVOCAD.

Secondly, the issue was whether the company's director, by submitting an application to the Centre of Registers to register himself as the sole shareholder and by providing false information, could be considered as the creator or user of a forged document - in other words, whether his actions fall within the offence of forgery of a document.

In assessing whether such an act is genuinely dangerous, it is important to take into account whether the provision of false information has led to real legal consequences - whether the rights or interests of others have been violated.

The Supreme Court of Lithuania noted that in this case only a formal situation had been created which gave the impression that the CEO was the sole shareholder. However, such an entry is not sufficient on its own - it did not produce any real effects. Although, in theory, such information could have been used, for example, in transactions with third parties, there was no evidence that the manager intended to harm or actually took advantage of it.

In conclusion, the court concluded that although the manager's application to the Centre of Registers contained incorrect information, it was not sufficiently dangerous or harmful to give rise to criminal liability. His actions did not cause real damage to other persons or to the legal system and did not therefore amount to falsification of a document.

Thus, when inaccurate shareholder data is entered in JADIS, the most common administrative liability is a fine of between €600 and €1,450. Meanwhile, criminal liability can only be imposed in exceptional cases where it is clear that the director has deliberately provided incorrect data and has used it to his advantage, for example, to enter into transactions or to deceive others.

 

 

Selling on Instagram or TikTok? You're already an entrepreneur - even if you don't think so yourself 

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Social networks have become more than just a place to share photos - they are the new shop window. Increasingly, products are offered on Instagram, TikTok or Facebook, and orders go through messages. Simple, fast and no headache of setting up an e-shop. But there's a "but": if you're selling, it's a business. And there are clear rules for business. What are they? - Egidijus Kieras, attorney at AVOCAD, answers .

Not registered? That doesn't mean you're not an entrepreneur

According to the lawyer, if you offer goods or services on a regular basis, advertise, accept payments and ask your customers for a delivery address, you are a businessman. It doesn't matter whether you are trading as a small partnership, a limited liability company or as a natural person. If you meet the criteria of an entrepreneur, you are also subject to the requirements.

What is a must for every social media marketer?

Whether you find customers through Reels or Story, you need to ensure compliance with the law, for example:

  • Before the product is sold, provide the consumer with information about the product and its price,
  • who you are (name, title, contacts),
  • explain how the consumer can return the goods,
  • exercising the buyer's right to withdraw from the purchase within 14 days (in the case of a non-food item or individual product)
  • have at least a simple privacy policy if you collect any information (e.g. email, address);
  • inform you about the dispute resolution procedure.

Lawyer Egidijus Kieras stresses that even through Instagram posts, it must be clear to the buyer what they are buying, from whom and under what conditions.

Under the EU Consumer Rights Directive and Lithuanian law, e-commerce on social networks is not "special" - it is subject to the same rules as any other e-shop. And if you're still collecting customer names, phone numbers or addresses, welcome to GDPR territory.

"The Data Protection Inspectorate has repeatedly fined small businesses for collecting customer information without any clear policy or consent. And no, 'send us a message' is not a sufficient form of consent or contract," says the lawyer.

What are the real risks?

Sellers often say: "I'm too small to be of interest." But according to Kier, any dissatisfied buyer can complain. This could lead to an inspection by the Consumer Rights Protection Authority, possible fines or even blocking of the account for violations. You may also have to answer personally if you are not a legal entity.

Taxes are another risk. If you haven't registered your business, you could also face the IRS.

"Doing business through social networks is not a 'grey area'. The law has long since caught up with practice. The sooner you realise this, the less likely you are to move from consumer comments to the eyes of the Consumer Protection Authority and the Tax Inspectorate," warns an AVOCAD lawyer.

The question is - what if I just sell clothes on Vinted? Is that also considered a business?

The answer depends on the scope and systematicity. According to Egidijus Kieras, the one-off sale of a second-hand jumper is not really a commercial activity. However, if you sell a lot, on a regular basis and for profit, it can already be considered a business. In this case, there is an obligation to register the activity, to comply with consumer protection and data processing rules, and to declare income.

The Court of Justice of the European Union has clarified that even a natural person can be considered a "seller" if he or she regularly sells goods via an online platform, even if they are second-hand. Therefore, it is not what you sell, but how often and for what purpose.

 

Dividends: when are they illegal?  

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The end of the financial year is a good time to learn more about dividends. This is an important aspect of a company's financial planning, but according to lawyers, businesses often forget a fundamental rule: dividends should only be paid when the company is stable and the interests of creditors are not affected. If a company has outstanding debts that should have been paid, the payment of dividends may be considered unlawful.

According to Domantas Velykis, Associate at AVOCAD, the Law on Joint Stock Companies provides that dividends are a share of profit allocated to a shareholder in proportion to the value of the shares owned by the shareholder. Simply put, dividends are a share of profit distributed to shareholders according to the number of shares they hold. Normally, companies allocate only a portion of their profits to dividends and invest the rest in business development, innovation or other needs.

The distribution of profits takes place after the end of the financial year, when the company's annual accounts are approved. The General Meeting of Shareholders decides on the payment of dividends and their amount. Although dividends are usually paid once a year, the law allows companies to distribute dividends more frequently - for example, every six months.

Only those persons who are shareholders of the company at the close of business on the day of the General Meeting of Shareholders or who are otherwise legally entitled to dividends are entitled to receive dividends. In the event of a subsequent acquisition of shares, the new shareholder is not entitled to past dividends but may be entitled to future payments.

Dividends must be decided in accordance with the legal framework. "If dividends are distributed in violation of the law, the shareholder may be obliged to repay the amount received to the company," notes Domantas Velykis. The Companies Act provides that if a shareholder knew or should have known that dividends were unlawfully distributed, the company is entitled to recover the amounts paid.

According to AVOCAD's lawyer, there are three cases where a company cannot decide to pay dividends:

  1. If the company has outstanding liabilities that have already fallen due.
  2. If the company's distributable profit is negative, a loss has been incurred.
  3. If the company's equity is too low or would fall to a critical threshold after the payment of dividends.

The Supreme Court of Lithuania has stated that dividends should only be paid when the company is stable and such payments do not harm the interests of creditors. One of the indicators of the stability of an undertaking is its ability to pay its creditors. Therefore, if a company has outstanding debts which should have been paid, the payment of dividends may be considered unlawful.

However, case law recognises that if a company, after having declared a dividend, pays the outstanding debt before actually paying the dividend to the shareholders, the infringement is deemed to be eliminated. In such a case, the dividends paid to the shareholders would not be considered unlawful.

Another relevant situation, according to the lawyer, is if the company agrees with the creditor to postpone the payment of the debt by adopting new payment terms. Case law shows that in such cases the obligation is not considered to be in arrears and therefore the granting of dividends can be considered legitimate if the company complies with the new payment terms. In this way, the company can safeguard the interests of its shareholders without infringing the rights of its creditors.

Thus, the distribution of dividends is a delicate process that requires careful legal assessment. It is important for companies not only to comply with the law, but also to take a responsible view of their financial position and liabilities in order to avoid potential legal consequences.

Recruiting a manager: what are the biggest mistakes and what has changed since the New Year?

Posted on by avocad_bxgv12hf

The recruitment of a CEO is a key element of an organisation's activities, requiring not only legal clarity but also a clear division of responsibilities. The manager of a legal entity is responsible for the day-to-day running of the company and his/her decisions have a direct impact on the success and reputation of the organisation. However, in practice, according to lawyers, there are often situations where the employment of a manager teeters on the brink of illegal employment.

Why this happens, what mistakes are made and how to avoid legal violations in this situation and how to properly organise the recruitment of a manager - answers AVOCAD Managing Partner, attorney-at-law Egidijus Langys.

The CEO is appointed by the company's board of directors or, if there is no board of directors, by the general meeting of shareholders. This body also approves the manager's remuneration, the job description and decides on bonuses or disciplinary action.

The Labour Code stipulates that a manager must have an employment contract, except for exceptions provided for by law. "This means that a manager's activity in a company without a properly concluded employment contract may be considered illegal employment," points out Langys.

While these requirements are clear, in practice companies often face situations where non-compliance leads to legal and financial consequences.

According to the lawyer, it is not uncommon for company managers not to be given employment contracts on the grounds that they are appointed by the shareholders, or not to be informed of their employment. This omission also leads to illegal employment, which has a number of negative consequences for companies.

The lawyer notes that a common mistake is the incorrect submission of information to Sodra. Failure to notify the manager's employment or late notification can not only lead to fines, but also hinder the provision of social security benefits to the manager. If the company's HR department fails to notice that the manager's employment contract must be registered in the Sodra system before the start of his/her employment. This exposes the company to administrative fines and the manager to temporary loss of insurance cover.

As of 1 January 2025, the Labour Code changes to provide that the conclusion of an employment contract and the recruitment of the head of a legal person must be notified to the territorial division of the State Social Insurance Fund Board at least one hour before the scheduled start of work.

"It is likely that this provision will not raise any questions about the proper recruitment of a manager, and that the amendment will be a help and a reminder to the company's accountants or HR representatives who perform the company's recruitment functions," notes AVOCAD's lawyer.