Small Partnership or Private Limited Liability Company: choosing the right legal form for future business structure
When establishing a business, founders often choose a legal form based on immediate needs, such as the speed of incorporation, administrative simplicity or initial capital requirements. As the business grows, however, questions arise that may not have seemed relevant at the outset: bringing in new partners or investors, allocating management control, a member’s departure, employee share option plans or the sale of the entire business. At that point, it becomes clear that the legal form determines not only how the business is administered, but also how its ownership and governance structure can be changed.
Both the small partnership (mažoji bendrija, MB) and the private limited liability company (uždaroji akcinė bendrovė, UAB) are private legal entities with limited civil liability. As a general rule, their members or shareholders are therefore not liable for the entity’s obligations with their personal assets. The main difference between these forms lies in how participants’ rights are structured.
Only natural persons may be members of an MB, and an MB may have no more than ten members. Membership is not represented by shares or other standardised units. A member’s contribution, voting rights and share of distributed profits do not necessarily correspond to one another. Where an MB has a manager, its regulations may provide for different voting rights among members and a profit distribution method that is not proportional to their contributions.
This framework offers flexibility for a small, closely held group of partners, but can create legal mismatches in a more complex structure. For example, the law does not provide for a member to transfer only part of their membership rights while remaining an MB member. In the event of a member’s departure or liquidation, the economic outcome may also depend on the value of contributions rather than voting rights or the proportions ordinarily used to distribute profits. As a result, a control or profit distribution model set out in the regulations may not operate consistently in every situation.
Ownership in a UAB is represented by shares. A shareholder may transfer some of their shares, and shares may be issued to a new investor by increasing the share capital. Both natural persons and legal entities may hold shares in a UAB, and there is no limit on the number of shareholders. This generally makes it easier to align investment amounts, voting rights, dividends and exit arrangements within a coherent framework.
Additional arrangements—such as matters requiring an investor’s consent, restrictions on share transfers, pre-emption rights, tag-along rights or drag-along obligations—are typically set out in the articles of association and a shareholders’ agreement.
In transaction planning, it is worth assessing a legal form against several potential scenarios: bringing in an investor, a founder’s departure, a disagreement among participants or the sale of the business. An MB is generally suitable where the business is run by one or two natural persons who have a clear agreement with each other, and no changes to the ownership structure or external investment are planned. If the business expects to raise investment, bring together a larger founding team, introduce share options or accommodate investors with different rights, a UAB provides a clearer framework that is more familiar to market participants.
