Small Partnership as a new legal form of a company

Author: Vilius Martisius, an Associated Partner, Attorney-at-law at METIDAMykolas Jakutis, an Assistant to Attorney-at-Law in METIDA

metida14On September 1, 2012 a new law on Small Partnership came into force by creating a new legal form of a company called ‘Small Partnership’.

Small Partnership behaves in the form of a private juridical person and can only be established by physical persons. This means that members of a company formed under Small Partnership conditions do not need to accept the liability for unaccomplished company’s duties by charging their own property. A company in the form of Small Partnership can be established by no more than 10 physical persons who have to prepare contracts and acts for establishment of such type of company. Setting up a business in the legal form on Small Partnership does not require an initial capital of 10 thousand LTL. Yet, each member of such company has to make a down payment the amount of which should be discussed in partnership meetings. Company’s profit should be divided proportionally among all the partners depending on how much they contributed to the down payment, yet other options of profit distribution can also be considered. A company becomes entitled to be called a Small Partnership company after it has been entered into the record of the Register of Juridical Persons. After this, the founders of this type of a company get the status of a Small Partnership member and become obliged to respect the regulations.

Small Partnership has its own advantages and disadvantages.

Advantages:

  • Limited responsibility of members
  • No requirement for the concrete sum of the initial capital
  • Members of a Small Partnership company may get a part of company’s financial recourses for their personal needs’ use.
  • Members have the right to step out from the business voluntarily
  • (if this happens, a member is entitled to take his deposit back or to sell his/her rights to other persons)
  • A Small Partnership company may be reformed into a private limited liability company, sole proprietorship or any other type of juridical person.
  • More capital may be attracted to a company by accepting more members.

Disadvantages:

  • There can be no more than 10 members in a company, who all have to be physical persons.
  • Due to the undefined voting and profit distribution system, quarrels and any other disagreements among the members are more difficult to tackle.
  • Only in some aspects bookkeeping of a Small Partnership company is less complicated than bookkeeping of a private limited liability company.

The following chart indicates the differences and similarities between Small Partneship, private limited liability company and sole proprietorship (click the table to see the differences).

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