German GmbH and the Lithuanian UAB: The main differences

published on 8 November 2021 | reading time approx. 4 minutes
   

The GmbH (Gesellschaft mit beschränkter Haftung / in English: limited liability company) is one of the most popular corporate forms for companies in Germany. In particular, the limitation of liability to the company's capital is a great advantage, especially in businesses involving large sums of money. The counterpart to the GmbH in Germany is the UAB (Uždaroji akcinė bendrovė / in English: closed joint stock company) in Lithuania. For German companies that want to set up a company in Lithuania and do not want to forego the usual advantages of the GmbH, it is therefore crucial to know not only the similarities between these two forms of company, but also the most important differences.
   

For reasons of clarity, not every small difference between the GmbH and the UAB will be presented here. Instead, the three most important differences for practice will be examined in more detail:

• The conditions around the management of the company » 

• the necessary majority shares in the resolution of the general meeting »

• the transfer of the company shares »

   

Management of the company

An essential difference is that in the GmbH there can be one or more managing directors, whereas in the UAB only one managing director can be appointed. In the UAB, this managing director acts as the sole governing body of the company and represents it in and out of court. His original duties include, for example, the organization of the day-to-day business as well as the employment and dismissal of the company's employees. It also follows from this position that the duties of the managing director of the UAB include everything that does not belong to the duties of other bodies.
 
As far as other bodies are concerned, the UAB has the option of appointing a management board and/or a supervisory board. In the case of a limited liability company, there is no management board, but there is the possibility of appointing a supervisory or advisory board.
 
However, the fact that only one managing director may exist in the UAB can also lead to difficulties: Foreign companies in particular find it difficult to implement the four-eyes principle they are accustomed to in Germany in Lithuania. In this case, the formation of a board of directors is an option, which automatically limits the managing director's power of representation in the external relationship.
 
In addition, a joint power of representation with external effect can be agreed between the managing director and a board member or between the managing director and an authorized signatory.
 
A restriction of the managing director's power of representation in the internal relationship is possible at any time by means of rules of procedure or in the managing director's employment contract.
 
In both types of companies, the managing director can be appointed directly at the time of formation by stipulation in the articles of association. Otherwise, in the case of a GmbH, the shareholders' meeting is responsible for the appointment, whereas in the case of a UAB, this is done by the board of directors or by the shareholders' meeting. 
 
Last but not least, the managing director must have an employment contract. For him, as for any other employee, regulations on minimum wage, working hours and protection against dismissal apply.
 

Adoption of resolutions at the shareholders' meeting

In the German GmbH, resolutions are generally adopted by a simple majority of the votes cast. Each euro of a share grants one vote. In the Lithuanian UAB there is also the principle of adopting resolutions by simple majority, whereby in principle each share grants one vote. However, there are some legally enumerated cases in which a larger majority of the votes cast is required. The most important decisions that can only be made with a two-thirds majority are:

• Amendment of the Articles of Association (Articles of Incorporation)
• Distribution of profits and losses
• Dividend distribution before the end of the fiscal year
• Increase or decrease of capital
• Opening of restructuring, liquidation or insolvency proceedings

 
This requirement of a two-thirds majority cannot be deviated from by provisions in the articles of association. Rather, only a majority of more than two-thirds can be stipulated.
 
A resolution to revoke the shareholders' right of first refusal with respect to the shares issued by the company even requires at least a three-quarters majority. In the case of the German GmbH, on the other hand, the rules regarding the passing of resolutions and thus also regarding the necessary majority quota can be determined freely to a large extent in the articles of association.
 
In view of the regular necessity of such predominant majority ratios at the Lithuanian UAB, it makes sense to include in the articles of association regulations on voting behavior in general and for cases of inability to make decisions, so-called "deadlock". These are cases where, due to the distribution of the voting shares of the shareholders, no sufficient majority can be reached for resolutions.
 

Transfer of the company's shares or stock

In the case of a GmbH, the shares are transferred by notarized assignment of the shares. In the case of UAB, a transfer takes place by means of a notation on the corresponding shares or in the share register. Although the UAB is a stock corporation, its shares are not listed on the stock exchange and the transfer of the shares also takes place over the counter.