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REPUBLIC OF LITHUANIA

REPUBLIC OF LITHUANIA REPUBLIC OF LITHUANIA LAW ON STATE ENTERPRISES Chapter 1 GENERAL PROVISIONS Article

  1. Objectives.
  2. This Law law shall define the establishment, reorganisation and liquidation, management, the basis of financial and other commercial-economic activities of state enterprise (SE) and state stock enterprise (SSE) set up (acquired) from the funds provided by the state (local government). This Law shall not apply to those special state enterprises which operate exclusively according to their own by- laws, i.e. the bylaws of the individual state enterprise. The list of such enterprise, also their model bylaws shall be approved by the Supreme Council of the Republic of Lithuania on the recommendation of the Government.
  3. When the text of this Law applies both to a state enterprise and a state stock enterprise, the word "enterprise" shall be used. Article
  4. State Enterprises (SE) and State Stock Enterprises (SSE).
  5. A state enterprise shall be an enterprise established from the funds provided by the state (local government) which has not issued shares (has not received subscriptions) or which has issued shares (has received subscriptions) with their nominal value not exceeding 1\5 of the enterprise's authorised capital. A state enterprise which has issued shares with the nominal value exceeding 1\5 of the enterprise's authorised capital shall be a state stock enterprise. The shares of a state stock enterprise shall be circulated publicly or may have a limited sphere of circulation. The shares of a state enterprise shall be neither bought nor sold on the stock exchange; nor shall they be registered with the appropriate state bodies.
  6. The share of a state (local government) enterprise in the SE or SSE may not be included into the amount of the nominal stock capital based on which enterprises shall be divided into SE, SSE and joint stock companies, and shareholders shall be granted rights to form managing bodies of the enterprises. An enterprise formed through a merger of the capital of several SEs or SSEs shall function as a SSE.
  7. The bodies of State governance and administration shall not be allowed to own shares of SSEs or SEs. Article
  8. The Enterprise as a Legal Person.
  9. From the day of registration, the enterprise shall have the rights of a legal person. The basis of economic activities of an enterprise shall be the capital owned by the state which through investment into an enterprise the state (local govern government) entrusts to the enterprise. The rights of the enterprise to manage, use and handle the assets entrusted to it by the state (local government) shall be established by this Law and the bylaws of the enterprise. The share capital and state (local government) capital shall belong under the joint-partial ownership plan to the shareholders and the state (local government).
  10. The enterprise shall be of a limited liability. It shall be liable for its obligations only by way of its property from which sums shall be claimed and recovered in accordance with laws of the Republic of Lithuania. Neither the State (local government), nor the shareholders or the employees of the enterprise shall be liable by way of their other property for the obligations of the enterprise. The enterprise shall not be liable for the obligations of the State (local government), its shareholders or employees.
  11. The enterprise shall have its own name (name of the firm), which shall include the words "state" or "state stock" or their abbreviations. The enterprise shall not have a name (name of the firm) similar to or identical with one of the registered enterprises which could interfere with normal economic activities of the enterprises.
  12. The enterprise shall have its own seal, which shall carry its name (name of the firm) and the words "the Republic of Lithuania". Article
  13. Composition of Assets of the Enterprise.
  14. Assets of the enterprise shall consist of:
  15. state capital;
  16. share capital; and
  17. loan capital.
  18. The authorised capital of the enterprise shall consist of the nominal state capital and the nominal share capital. The amount of the authorised capital shall be established by the bylaws of the enterprise. The managing bodies of the enterprise shall guarantee that the owned assets of the enterprise (the difference in the balance sheet between the net value of total assets and the loan capital) be not smaller than the amount of the state capital and the nominal share capital. If the owned assets of the enterprise become smaller than the amount of the state capital and nominal stock capital, the payment of bonuses and dividends from the profit of the enterprise shall be prohibited. To restore the balance between the amount of the state capital and the nominal share capital, and the owned assets, the state enterprise shall use, accordingly, the state capital and the share capital, and the state stock enterprise -- the share capital.
  19. The loan capital of the SSE cannot exceed the share capital 0, excluding the share of other enterprises (SE and SSE).
  20. The share capital of the enterprise cannot exceed the state capital. The enterprise which has accumulated share capital exceeding the state capital owned by it, shall be reorganised into a joint stock company or a private joint stock company within six months in the procedure prescribed by law. If the amount of the nominal share capital of the SSE becomes less than 1\5 of the enterprise's authorised capital, the minimum amount of the share capital of the SSE shall have to be restored within six months or the SSE shall have to be reorganised within the same period into a SE. A SE which has accumulated the nominal share capital exceeding 1\5 of the authorised capital of the enterprise must be reorganised within six months into a SSE.
  21. An enterprise shall be prohibited from acquiring shares of the enterprise, joint stock company or private joint stock company which is its shareholder and the nominal value of the shares of which exceeds 1\10 of the authorised capital, if the nominal value of the shares it is acquiring exceeds 1\10 of the authorised capital of said enterprise.
  22. The state capital accumulated (held) at the enterprise shall not be divided into shares. It shall be appropriated as the investment of the state (local government) into the enterprise and shall be entered in a separate state capital account of the enterprise. Article
  23. The Rights of the Enterprise.
  24. The enterprise, in conformity with the laws of the Republic of Lithuania, and in pursuance of the objectives specified in its bylaws, may: 1) have its own accounts with the banking institutions registered in the Republic of Lithuania or in foreign countries s and use funds deposited therein; 2) define the directions and ways of using all the state and share capital it owns; 3) make contracts on giving or obtaining loans and fix their interest rates; 4) issue securities ( with the exception of bonds); 5) buy out (return) part or whole of the state capital granted to the enterprise, using for this purpose the net assets of its employees, shareholders and its net assets received from commercial-economic activities (after discharging its liabilities); 6) purchase or acquire in any other way, own as its property, sell or exchange its securities or dispose of them in any other way; 7) pay out dividends on the shares or give premium shares; 8) define classes and kinds of shares, including those belonging to the employees, and the procedure for their selling and distribution; 9) establish economic and trade relations with domestic and foreign partners, promote commercial activities; 10) make payments for the delivered goods, performed work and services in any agreed form; 11) establish the organisational and production structure in the enterprise, set up subsidiaries, define the legal status of its departments; 12) set up a SSE, be a shareholder of such an enterprise, establish associations with enterprises of another type, under the agreements with other SE and SSE establish non-manufacturing companies (associations), also leave them; 13) improve the conditions of work, life and leisure of the employees of the enterprise, offer aid to their families, participate in charities, allocate funds for health care, culture, education, science, also physical education and sports of the citizens of the Republic of Lithuania; 14) conclude production, sales, scientific research, design, experimental and other commercial contracts; and 15) fix the prices, costs and tariffs for its products, services and other resources, its wages systems, with the exception of those cases when prices and other norms are regulated by the State (local government) in accordance with the laws of the Republic of Lithuania. The enterprise may also have other civil rights and obligations which are not specified by this Law, provided they do not contradict the laws of the Republic of Lithuania and the bylaws of the enterprise.
  25. The State shall regulate commercial-economic activities of the enterprise only through economic means: subsidies, rates of interest for the use of the state capital by the enterprise, orders (contracts) financed by the State and other economic measures. The founder of the SE in transport and communications, energy resources, and public utilities, shall have the right to define obligatory kinds of work, also standards for their quality. The same shall apply to the SSE if a contract with it has been concluded and if it has been issued an appropriate licence for its economic activities.
  26. The enterprise shall have the right to receive from the state centrally allocated (sold) supplies of financial, material and other assets at a fixed state price or a contractual price and for the corresponding contractual obligations to the state (local government) assumed by the enterprise.
  27. The enterprise shall have the right through civil proceedings to demand compensation for the damage caused to it by unlawful actions of state bodies and organisations, also by administrative actions of officials in the performance of their duties. Chapter 2 FOUNDING, REORGANISATION AND LIQUIDATION OF THE ENTERPRISE Article
  28. The Founding of the Enterprise.
  29. The legal basis for the founding of an enterprise shall be the foundation act which may be adopted by the Government of the Republic of Lithuania (local council) or, on the instruction of the Government, by the authorised Ministry. The body which adopts the decision on the founding of an enterprise shall be its founder.
  30. The founding of enterprises shall be regulated by the Law on Enterprises of the Republic of Lithuania, this Law and other legislative acts. Article
  31. The Bylaws of the Enterprise.
  32. The bylaws shall be a legal document by which the enterprise is guided in its activities.
  33. The bylaws of a newly founded SE shall be drafted by the provisional administration of the enterprise formed by the founder. If a functioning enterprise is being reorganised, the bylaws of the SE shall be drafted by its administration. When founding (reorganising) the SSE, its bylaws shall be drafted by the shareholders-founders.
  34. The bylaws shall be signed by the members of the board of directors (in the event of the absence of the board - by the head of the enterprise's administration) or the shareholders-founders. If there is a council of observers at the enterprise, the bylaws shall also be signed by its chairman. The bylaws shall be sealed with the seal of the enterprise; if the enterprise has no seal with the founder's seal.
  35. The bylaws of the enterprise shall establish: 1) the name of the enterprise (name of the firm) and requisites of the seal; 2) the address of the enterprise; 3) the nature of its commercial-economic activities; 4) the duration of its operational activities if the enterprise is established for a specified term or a definite activity; 5) the amount of the authorised capital and its composition; 6) the composition of the nominal share capital according to the classes of the shares; 7) the nominal value of the shares and the rights conferred by them; 8) the administrative organs, their powers, composition and formation; 9) the procedure for convening meetings of the employees and shareholders; 10) the forms of notifying the employees and shareholders; 11) the procedure for buying out the state capital and share capital, payments for the shares and terms of payment; and 12) restrictions on the amount of the enterprise's capital and the volume of its production as established by the local government.
  36. The bylaws of the enterprise can also prescribe other rules which do not contradict the laws of the Republic of Lithuania and international agreements.
  37. The bylaws of the enterprise shall be revised and amended by the council of observers. The meeting of shareholders may adopt a decision that the bylaws of the SSE shall be revised and amended only by the meeting of its shareholders. If the council of observers has not been formed, the bylaws of the SE shall be revised and amended by its board, and the bylaws of the SSE -- by the meeting of its shareholders. Additions and amendments to the bylaws shall enter into force upon their registration. Article
  38. Registration of the Enterprise.
  39. The procedure of registration of the enterprise and its terms shall be established by the Law on Enterprises, the Law on the Register of Enterprises, and this Law.
  40. The founder of a new enterprise when registering the enterprise shall submit to the registering body the act on the founding of the enterprise, its bylaws and other documents prescribed by law. In other cases the registration documents shall be submitted by the author of the bylaws.
  41. The SSE shall be registered after all the shares have been subscribed for (distributed) and after the initial investments have been made.
  42. From the day of its registration, the administrative bodies of the enterprise shall acquire the right to discharge their functions established by laws and the bylaws of the enterprise. Article
  43. Liquidation and Reorganisation of the Enterprise
  44. The basis for the liquidation of the enterprise may be: 1) An act of the Government of the Republic of Lithuania (local council) to suspend the activities of the SE or to demand that the SSE buys out (returns) the capital of the state (local government); 2) A court order recognising the enterprise as insolvent; 3) A decision of state bodies exercising industrial control to revoke registration of the enterprise for legal violations stipulated by the legislation of the Republic of Lithuania. The decision of the above bodies can be appealed against in court; 4) A resolution of the meeting of shareholders of the SSE to terminate the activities of the enterprise; 5) A decision of the founder to liquidate the insolvent SSE in whose authorised capital the share of the nominal share capital accumulated from the investments of natural persons, partnerships, joint-stock companies, and private stock companies accounts for less than 1\10 of the authorised capital of the SSE.
  45. The body which adopts the decision to terminate the activities of the SSE, shall appoint its liquidator. The liquidator of the SE shall be appointed by its founder. From the day of the liquidator's appointment, the bodies of the enterprise shall be deprived of their powers to manage the enterprise, and their functions shall be performed by the liquidator. He shall organise the liquidation of the enterprise: re-register the enterprise as the enterprise in the process of being liquidated, fix and publicate in the press the date of termination of the enterprise's functioning, ascertain the creditors and debtors of the enterprise, draw up the balance of liquidation, make payments for the liabilities of the enterprise, and transfer the assets remaining after the liquidation to the founder of the enterprise or its shareholders.
  46. Upon acquiring the status of an enterprise in the process of being liquidated, the enterprise may conclude only contracts which concern its liquidation.
  47. The employees and shareholders of the SE shall have a priority within six months from the day of the appointment of the liquidator to acquire the state capital of the enterprise which is being liquidated, with the exception of cases when the enterprise is going bankrupt. If the shareholders and employees of the enterprise buy out within this time more than a half of the state capital of the enterprise which is being liquidated, the enterprise shall be reorganised into a joint stock company, a private joit stock company or a partnership.
  48. In the cases prescribed by this Law, after the reorganisation of the SSE into a joint stock company or a private joit stock company, the bodies of state governance and administration, possessing shares of the company, shall not be allowed to have more than one-third of the votes for five years after the reorganisation.
  49. The founder shall have the right to reorganise a SE into a SSE. The share-holders-founders of the SSE shall be natural and legal persons who have drawn up a certified treaty on the establishment of the SSE which specifies their rights and duties to draft the SSE's bylaws, and stipulates their individual commit- government to acquire an appropriate number of shares of the SSE. This treaty may be unconcluded, and the rights and duties of the shareholders-founders shall be established in the SSE's bylaws drawn up by them.
  50. If the enterprise is liquidated or reorganised in compliance with the request of the shareholders to buy out (recover) from the SSE or SE the share capital, the rules regulating the reduction of the share capital prescribed by this Law shall be applied.
  51. If the SE is liquidated or reorganised by a decision of the Government (local council) of the Republic of Lithuania, the state (local government) must within six months from the day of the liquidation of the enterprise refund to the share-holders, employees, as well as to other natural and legal persons their share of investment into the enterprise. Chapter 3 MANAGEMENT OF THE ENTERPRISE Article
  52. Managing Bodies of the Enterprise.
  53. Managing bodies of the enterprise shall comprise the board of directors, the council of observers, and meetings of employees and shareholders.
  54. During the period of construction of the enterprise, mounting of its equipment and machinery, preparation for its operation, also during the first year of its operation, the founder shall appoint the provisional administration. If the SE or SSE is established through reorganisation of a solvent state enterprise of a different status, permanent managing bodies shall be formed immediately.
  55. During the period when the enterprise is run by the provisional administration, the council of observers shall not be formed.
  56. The council of observers may not be formed if: 1) the founder of the SE adopts a corresponding decision in response to the proposals made by the employees of the enterprise; or 2) a corresponding decision is adopted by the meeting of the SSE's share-holders. In both above cases, the meeting of the employees of the SE or the meeting of the SSE's shareholders shall form a three member auditing commission for a period of five years. A member of the auditing commission shall not be removed or have a disciplinary penalty imposed on him without the approval of the meeting of the SSE's shareholders or the meeting of the SE's employees. Article
  57. The Board of Directors.
  58. Commercial-economic activities of the enterprise shall be directed by the board of directors (hereinafter -- the board). It shall consist of members-directors whose number shall be not less than 3 and not more than
  59. The board shall be headed by the chairman.
  60. Members of the board shall be appointed for a period of not less than five years and their salaries shall be fixed by the council of observers, with the exception of cases established in Paragraph 2 of Article 34, and also upon the expiration of the powers of the provisional administration of the enterprise when one-third of the members of the board are appointed for a period of one year by the founder of the enterprise. If the council of observers is not formed, the board shall be formed by the meetings of shareholders and employees in accordance with the regulations for forming the council of observers. In such cases the board must consist of not less than 6 members. Their salaries, also their share of dividends in the SE shall be fixed by the founder, in the SSE -- by the meeting of shareholders. A member of the board, and its chairman may be removed by the body which has appointed them.
  61. An employee of the enterprise who is 18 years of age and over, and has been appointed a member of the board by the founder or the council of observers of the enterprise, and who has not been deprived of the right to hold this post, as well as a person not employed at the enterprise and who has been appointed by the council of observers may be a member of the board. A member of the council of observers may not be appointed to be a member of the board. The council of observers may appoint its member to be a member of the board only temporarily, for a period not longer than six months. If the same member of the council of observers is appointed repeatedly for temporary work on the board, the whole term of his office shall not be longer than twelve months during five successive years. The council of observers by a two- thirds vote may remove its member for neglect in the performance of his duties, for unsatisfactory work or failure to carry it out efficiently. The decision to remove a member of the board may also be adopted by a two-thirds vote of the shareholders' meeting.
  62. If the provisions of Paragraph 2 of Article 34 are not applicable to the enterprise and no provisional administration is formed, the council of observers (in case it has not been formed -- the shareholders' meeting) shall appoint the chairman of the SSE's board, while the chairman of the SE board shall be ap pointed by the founder on the recommendation of the council of observers (if it has not been formed, on the recommendation of the board). Disputes between the council of observers and the founder concerning the appointment of the chairman of the SE's board shall be settled by the Government (local government) of the Republic of Lithuania.
  63. The chairman of the board of the SE may be removed by a two-thirds vote of the council of observers or by the Government of the Republic of Lithuania, if it has been established that there is a real threat of insolvency for the SE or the chairman of the board manifestly fails to discharge his duties. The chairman of the SSE's board can be removed by a two- thirds vote of the SSE's council of observers or of the shareholders' meeting, also by the Government of the Republic of Lithuania if it establishes that there is a real threat of losing the state capital for the SSE. After the removal of the chairman of the board, the board shall be dissolved. Article
  64. Powers of the Board and its Members.
  65. The board shall be a collegiate managing body of the enterprise. It shall adopt the rules of procedure of the board's work and deal with commercial-economic, organisational and other questions within its powers. At the expiration of its term of office, the board shall continue to discharge its duties until the formation of a new board.
  66. Decisions of the board shall be adopted at its meetings. All its members shall have equal voting powers. The rules of procedure of the board's work shall be adopted by a two-thirds vote of the entire membership of the board as established by the bylaws of the enterprise. Other decisions shall be adopted by a simple majority vote of the members present at the meeting of the board. The meeting (voting) shall be regarded as valid if it is attended by no less than two-thirds of the board's members. If the draft of the decision under consideration is circulated before the meeting, the member of the board who is not able to attend the meeting shall have the right to take part in the voting before the opening of the meeting by expressing in writing his will "yes" or "no". Meetings of the board shall be convened and organised in accordance with the rules of procedure of the board.
  67. The chairman of the board, in accordance with the bylaws of the enterprise, the rules of procedure of the board and its decisions, shall have the right to conclude all contracts of the enterprise. The bylaws of the enterprise or the rules of procedure of the board may define the spheres of activity in which other embers of the board shall have the right to engage and conclude contracts of the enterprise. By the decision of the board of the SSE, a part of the functions of the board may be delegated to the head of the enterprise's administration. Other persons shall act and conclude contracts only when authorised by the enterprise.
  68. The contracts concluded by the chairman of the board or other members of the board shall not be recognised as invalid only because, in accordance with the bylaws of the enterprise or the rules of procedure of the board, said persons had no right to conclude said contracts at their own discretion, with the exception of cases, when the contracting party knew or should have known that he was entering into an unlawful contract.
  69. The board shall not: 1) restrict the powers of the council of observers (auditing commission) or in any other way obstruct it from supervising the commercial-economic activities of the enterprise and auditing its financial performance; 2) without the consent of the council of observers dismiss from work or from the post, or impose disciplinary penalties upon an employee who is a member of the council of observers; and 3) without the consent of the shareholders' meeting adopt decisions connected with the rights or interests of the shareholders, if such cases are provided by this Law.
  70. At the end of the business year, prior to the approval by the council of observers or the shareholders' meeting of the annual balance sheet of the enterprise, the board shall submit to the council of observers (in the SSE - also to the shareholders' meeting) a report with the answers to the questions presented by the council of observers ( the shareholders' meeting of the SSE) on: 1) the results of the commercial-economic and financial activities, and the balance sheet of the enterprise for the business year; 2) the policy and prospects in the spheres of production, equipment, research, design and experiment, as well as in other commercial-economic activity; 3) the organisation of production and management at the enterprise, its departments and subsidiaries; 4) the projected sources for the accumulation of financial resources and ways of their use; and 5) new contracts.
  71. After the approval by the SE's council of observers of the annual balance sheet, the board shall approve the distribution of profit.
  72. Members of the board shall be jointly liable for the losses caused to the enterprise by reason of the decisions of the board adopted in violation of the enterprise's bylaws or of this Law. A member of the board who voted against such a decision, shall be exempt from the liability if his protest has been entered into the minutes of the board's meeting. A member of the board who did not attend the meeting shall also be exempt from the liability if within seven days after being notified of such a decision or after he was supposed to have been notified thereof, he submitted his protest to the chairman of the board. The resignation or removal of a board member shall not exempt him from the liability for the losses caused through his fault. A member of the board may be excused from making compensation for the losses he caused through the discharge of his duties, provided he was guided by the documents and other information about the enterprise whose validity he had no grounds to doubt, or acted within the limits of normal operational or economic risk. Article
  73. Officers of Administration.
  74. The operational commercial-economic activities of the enterprise shall be managed and run by the administration of the enterprise. The board shall establish the departments of the administration, duties of the officers, shall employ the officers under employment contracts and fix their salaries (with the exception of salaries of the members of the board).
  75. Each enterprise shall have head of the administration (president, general director, director) and the chief financier (accountant).
  76. The post of the SE's head of the administration may be held only by the chairman of the board. The employment contract with head of the enterprise's administration shall be concluded on behalf of the enterprise by the chairman of the council of observers; if the council of observers has not been formed, the contract shall be concluded by the founder of the SE and the board of the SSE.
  77. It shall be prohibited to combine the duties of head of the administration with the duties of the chief financier (accountant). Head of the administration shall be prohibited from holding the post of chairman of the board, and of head of the administration or representative of another enterprise ( partnership, public or private joint stock company).
  78. The chairman of the SE's board (head of the administration) shall have relations of permanent employment with the enterprise which shall be laid down in the employment contract. Article
  79. Formation of the Council.
  80. In the cases prescribed by this Law a council of observers shall be formed for a term of 5 years of the persons selected at the meeting of the employees or shareholders of the enterprise to monitor the activities of the board and the ad ministration. The number of members of the council of observers shall be established by the enterprise's bylaws : it shall be not less than 6 and more than
  81. A new council of observers must be formed before the day of expiration of the powers of the functioning council of observers. If an enterprise of a different status becomes a SE or a SSE, a council of observers must be elected not later than within a month of the change in the status of the enterprise.
  82. Members of the council of observers shall be elected by secret ballot separately by : shareholders, the administration officers, the working personnel and other employees who do not belong to the administration.
  83. Administrative officers who are employees of the central management of the enterprise, as well as heads of various divisions and their deputies shall have the right to elect representatives to the council of observers. The final decision in resolving the disputes as to what group an employee belongs to shall rest with the founder of the enterprise.
  84. A SE with the nominal share capital accounting for no less than 1\20 of the authorised capital, shall reserve one-third of the seats on the council of observers for its shareholders. A SE with the nominal share capital accounting for less than 1\20 of the authorised capital shall reserve one seat on the council of observers for its shareholders.
  85. In a SSE shareholders shall be given two-thirds of seats on the council of observers, irrespective of the amount of the share capital.
  86. The number of seats reserved for the shareholders on the council of observers of a SE or SSE shall not exceed the number of shareholders of the enterprise.
  87. The seats on the council of observers reserved for the employees shall be divided into two equal parts - those for the representatives of the administration, and those for the representatives of the other employees. The founder of the enterprise shall have the right to appoint his representative to the council of observers. In this case the number of seats for the administrative officers shall be one seat less.
  88. The bylaws may specify the qualifications for a member of the council of observers. The shareholders may elect to the council of observers persons who are not employed at the enterprise. The employees of one category may elect as their representative to the council of observers a person, who according to the order established by this Law, belongs to another category of employees. Article
  89. Resignation and Removal of a Member of the Council of Observers.
  90. A member elected to the council of observers by the employees shall be removed by a two-thirds vote of an electoral meeting (voting) of the employees.
  91. A member of the council of observers elected by the shareholders may be removed by the meeting of the shareholders.
  92. Upon submitting a written notice to the chairman of the council of observers, its member may resign at any time. A member of the council of observers shall forfeit his right to be a member of the council and must resign, if the council of observers resigns following the decision of the majority of its members. A member of the council of observers elected by the employees shall resign if he breaks off his employment contract with the enterprise, or loses his right to be elected to the council of observers.
  93. If the council of observers or its member commits a gross violation of his powers and duties, the court may dissolve the council or remove its member from the council acting on the report of no less than three employees having the right to elect members to the council of observers, or on the report of the trade union functioning at the enterprise, or of the board (administration) of the enterprise. Article
  94. Powers of the Council of Observers.
  95. The council of observers shall elect from among its members the chairman and his deputy. Work on the council of ob servers shall not be remunerated. The bylaws of the enterprise may provide for the additional remuneration for the chairman and his deputy for the work on the council of observers payable from the net profit. The amount of their remuneration shall make up 60 and 50 percent respectively of the average pay of the enterprise's employee (including various bonuses) during the preceding business year.
  96. The council of observers shall: 1) put forward proposals, appoint or remove the chairman of the board and its other members (if such right under this Law does not belong to the founder); 2) taking into consideration the proposals of the chairman of the board, fix salaries for the members of the board working at the enterprise under employment contracts for a period not shorter than two years, but not longer than their term of office, as well as approve the portion of net profit (the normative) which is allocated in bonuses to members of the board; 3) at the request of the board, consider the question of dismissing from work (or the post) persons elected to the council of observers, or of imposing on them disciplinary penalties; 4) observe and analyse the activities of the board, the use of financial resources and distribution of profit, organisation of production and management, profitability of the capital, remuneration for work, depreciation charges and deductions (in percentage) for the use of the state capital, competitiveness of production (services), the prospects of the financial situation; 5) audit the balance sheet and the inventory report; 6) approve the assessment acts of non-monetary (property) contributions; 7) consider the report of the board on the results of the enterprise's performance during the business year, approve its annual balance sheet. The SSE's bylaws may prescribe that the annual balance be approved by the shareholders' meeting; 8) on behalf of the enterprise institute legal proceedings to recover from members of the board compensation for damages caused through their fault; and 9) make amendments and additions to the bylaws of the enterprise, with the exception of cases specified in Paragraph 6 of Article
  98. The council of observers shall have no right to: manage the enterprise's affairs which fall within the powers of the other bodies of the enterprise; revoke the decisions of the board or of its authorised persons; alter the salaries of the members of the board more often than once every two years; adopt decisions on the rights and interests of the shareholders without the consent of the share-holders' meeting.
  99. If the council of observers has not been formed: 1) the functions established in subparagraphs 1 and 9 of Paragraph 2 hereof shall be performed by the board of the SE; 2) the auditing commission of the SE shall exercise the functions laid down in subparagraphs 5, 6, 7, and 8 of Paragraph 2 hereof; 3) the auditing commission of the SSE shall perform the functions established in subparagraphs 5 and 8 of Paragraph 2 hereof; and 4) the shareholders' meeting of the SSE shall perform the functions established in subparagraphs 1, 2, 4, 6, 7 and 9 of Paragraph 2 hereof.
  100. The enterprise's administration, at the request of the council of observers (the auditing commission), shall present the documents concerning the enterprise's activities, as well as provide conditions for auditing the enterprise's securities, merchandise, material supplies and other assets. Members of the council of observers (the auditing commission) must keep commercial secrets which they learn during the inspection of the enterprise's activities. Article
  101. Meetings of the Council of Observers.
  102. When a member of the council of observers cannot be present at a meeting, he may give a written notice about it in advance stating his opinion on the question under consideration which was announced beforehand. In such a case, a member of the council of observers shall be considered as having been present and voting at the meeting.
  103. Members of the council of observers shall have equal rights. Each member of the council shall have one vote. In the event of a tie, the vote of the council's chairman shall be decisive.
  104. The council of observers shall adopt its decisions by a simple majority of the number of members of the council of observers established in the bylaws, with the exception of the decisions on the amendments and additions to the enterprise's bylaws or on the removal of a member of the board. Said decisions shall be adopted by a vote of two thirds of the entire membership of the council of observers prescribed by the bylaws. The first council of observers of the SE shall adopt decisions on the amendments and additions to the enterprise's bylaws by a simple majority.
  105. Meetings of the council of observers shall be held according to the schedule, not less frequently than once every three months. In the event of an exigency, special meetings may be held and each member of the council shall be given a written notice thereof five days in advance. The meetings shall be called by the chairman of the council of observers and, in his absence, by deputy chairman. One third of the number of members of the council of observers as prescribed by the bylaws of the enterprise, but no less than three persons, shall also have the right to demand a meeting be called. The agenda of the meeting announced beforehand may be changed or supplemented if such a proposal is approved by all the members of the council of observers present at the meeting. Article
  106. Electoral Commission.
  107. The electoral commission shall be formed for the election of the council of observers (the auditing commission of the SE) or members of the board. Members and the chairman of the electoral commission shall be appointed by the council of observers. In its absence, members of the electoral commission shall be appointed by the board or the administration of the enterprise, taking into consideration the proposals of the employees.
  108. No less than three members of the enterprise's employees shall be on the electoral commission. It shall also include at least one member of the administration and other employees who are not officers of the administration. A representative of public organisations may also be a member of the electoral com mission.
  109. Upon its formation, the electoral commission shall immediately set the time and place of the electoral meetings (separate votings), organise the election, and sum up, approve and announce its results.
  110. The council of observers or, in its absence, the board or the administration of the enterprise shall be responsible for the timely formation of the electoral commission and its efficient functioning. If the management of the enterprise fails to appoint timely the electoral commission, it may be appointed by the founder of the enterprise at the request of no less than three employees having the right to elect the members of the council of observers. Article
  111. Election of the Members of the Council of Observers from among the Employees.
  112. Members of the council of observers shall be elected (removed) by secret ballot at annual general meetings or separate elections of the employees which shall be held not earlier than one month before the expiration of the powers of the council of observers.
  113. All employees of the enterprise who are of full age, and have been working at the enterprise for at least six months, shall have the right to elect (remove) members of the council of observers. The requirement of an uninterrupted work record at the same enterprise shall be not applied if the enterprise has been functioning for less than one year.
  114. Members of the council of observers from among the employees of the enterprise who under Paragraph 3 of Article 14 do not belong to the administration, shall be elected (removed) not at the meeting of the administrative officers. If all the employees cannot gather at one and the same time because of the specific character of production, separate polls shall be held.
  115. Candidates to the members of the council of observers not from among the administrative officers shall be nominated at the meeting of this group of employees (conference of its representatives). Delegates of separate divisions of the enterprise, that differ in the manner of their organisation and are located at different territories, shall be elected to the conference in proportion to the number of employees of those divisions. The norm of representation at the enterprise's conference shall be established by the electoral commission, yet it must guarantee that no less than one-tenth of the employees is delegated to the conference. The number of candidates nominated to the council of observers must exceed the number of seats on the council of observers established for the given group of employees by the electoral commission. The maximum number of candidates shall not be limited. The candidate shall be nominated by open voting if his candidature is supported by not less than one-fifth of the participants of the meeting (conference). The employees who have the right to take part in the election may submit to the electoral commission a list of candidates signed by not less than one-tenth of the members of the given group of employees but by not less than ten persons. In any event, it shall be enough if a list of candidates is signed by 100 employees of said group having the right to take part in the election.
  116. Candidates from the administrative officers shall be nominated and members shall be elected to the council of observers at a general meeting of this personnel in accordance with the provisions hereof.
  117. Public notice of the time of the electoral meetings (voting) shall be given in each division of the enterprise ten days in advance, and in the event of a repeat election - five days in advance.
  118. At the beginning of the meeting a list of the participants of the meeting (conference) of employees who have the right to vote must be made. The first and second name of the participant shall be given in the list. If members of the council of observers are elected not at the meeting (conference) and a special voting is held, a list shall be made of the employees who have the right to vote. The list shall be signed by all the members of the electoral commission. The electoral meeting (conference) of the employees shall have the right to adopt resolutions (the voting shall be valid) if not less than a half of the employees (representatives) of a given group (either the administration or non-administration) take part in it. If the required number of employees (representatives) fail to turn up at the meeting (conference) or to take part in a separate voting, another meeting (separate voting) shall be called within 15 days. The repeated meeting (separate voting) shall be valid regardless of the number of employees (representatives) taking part in it.
  119. The minutes of the meeting (separate poll) must be taken.
  120. A participant of the meeting (separate voting) shall have as many votes as the number of members planned to be elected to the council of observers. The returns of the election shall be established according to a larger number of votes given for a candidate.
  121. The electoral meeting (separate voting) held with the aim of removing or reelecting members of the council of observers shall be convened not later than within two months after such necessity arises. The election of a member of the council of observers in the place of the member who has terminated his activities (has resigned) shall not be held if the expiry of his term of office is less than one year away.
  122. Disputes concerning the election shall be settled by the founder of the enterprise whose decision may be appealed against at the court. No less than three employees having the right to elect members of the council of observers, any trade union functioning at the enterprise, or the board (administration) of the enterprise shall have the right to submit an appeal to the court protesting the validity of the election. Article
  123. Annual General Meetings.
  124. Annual general meetings (conferences) of the employees shall be called not less frequently than once a year. Participating in them shall also be members of the council of observers, auditing commission and the board. At the meetings the employees shall be informed about the economic policies of the enterprise, economic and financial performance, social problems; proposals and requests shall be considered.
  125. Annual general meetings shall be organised by the council of observers or the board of the enterprise in accordance with the procedure for organising meetings (conferences) established by Article 19 of this Law. Article
  126. Meetings of Shareholders.
  127. Meetings of shareholders shall be called not less frequently than once a year. The first meeting of shareholders of a newly founded SSE shall be, at the same time, the constituent meeting and shall be convened by the shareholders-founders not later than within three months from the day of the subscription to the last share. The right to attend shareholders' meetings shall belong to: 1) shareholders; and 2) members of the council of observers and the board, representatives of the administration. To represent his interests at the meeting, a shareholder may delegate his power to vote to another person under an authorisation certified in the established manner.
  128. A shareholders' meeting shall have the right to: 1) elect and remove members of the council of observers; if the council is not formed, elect or remove members of the board, with the exception of the members elected by the employees; 2) at the request of the board, confer on it the right to issue preference shares; and 3) in the cases provided by this Law, consider the question of liquidation (reduction) of share capital or of buying out (returning) the state's (local government's) share of capital.
  129. A meeting of the SSE's shareholders shall also have the right to: 1) amend and supplement the bylaws of the enterprise, if the meeting has not authorised the council of observers therewith; 2) remove members of the board; 3) adopt a resolution on the distribution of profit and, if the bylaws contain a provision therefor, approve the annual balance sheet; 4) liquidate or reorganise the enterprise; and 5) revoke the decisions of the council of observers.
  130. At the meetings members of the council of observers shall inform the shareholders about the commercial-economic and financial performance of the enterprise, its state and prospects, as well as present a report on the activities of the council and its implementation of the instructions of previous meetings.
  131. A shareholders' meeting shall be called by the board. Initiative to call a meeting shall be also vested in the council of observers or a group of shareholders with the nominal value of shares in their possession no less than 1\20 of the nominal share capital.
  132. A public notice about the meeting shall be made in the manner specified by the bylaws, not later than fifteen days prior to the meeting and not later than seven days prior to a repeated meeting. The notice shall indicate the name of the enterprise (name of the firm) and its location, the date and place of the meeting, its agenda and the organisers of the meeting.
  133. Prior to the opening of the meeting, a list of shareholders (their proxies) attending the meeting shall be made, indicating the number of votes held by each participant. The list shall be signed by the chairman and the secretary of the meeting.
  134. At the meeting its chairman and secretary shall be elected from among the shareholders. The meeting may consider issues which are not on the agenda and adopt decisions if the participants of the meeting represent shareholders with not less than three-fourths of all the votes.
  135. A meeting of shareholders may adopt resolutions if it is attended by share-holders (their proxies) with more than a half of all the votes. If the required number of shareholders fails to turn up, another meeting shall be called within fifteen days. This meeting shall have the right to adopt resolutions regardless of the number of the shareholders present.
  136. A meeting of shareholders shall adopt resolutions by a simple majority vote of those present at the meeting, with the exception of resolutions on the removal of the council of observers or the board elected by the shareholders, and with the exception of resolutions concerning issues prescribed by subparagraphs 1, 2, 4 of Paragraph 3 hereof, and by subparagraph 2 of Paragraph 3 of Article 10 of this Law. In said cases resolutions shall be adopted by a two-thirds vote.
  137. The proceedings of the shareholders' meeting shall be recorded in the minute. Chapter 4 STATE CAPITAL Article
  138. Ownership of the State Capital Entrusted to the Enterprise.
  139. The capital of the Lithuanian State entrusted to the enterprise and comprising the state's investments of capital and interest on the use of the state capital, shall belong by ownership right to the Republic of Lithuania. If the state capital used by the enterprise is created out of the funds or property of the local government, the right of ownership of this capital shall belong to the local government. A certain portion of depreciation charges proportionate to the share of the state capital in the enterprise's capital, shall also belong to the state (local government) by ownership right.
  140. The enterprise shall have no right to use the state capital for the payment of wages, bonuses, dividends and other payments, or for financing non-commercial activities.
  141. The enterprise must ensure the safety and profitable use of the state (local government) capital entrusted to it. The state capital may be reduced only in cases prescribed by law. Article
  142. Interest on the Use of the State Capital.
  143. The enterprise shall use the state capital for the interest which shall be deducted from the profit of the enterprise less the taxes payable to the budget.
  144. The rate of the interest on the use of the state capital, uniform for all enterprises, shall be approved by : 1) the Government of the Republic of Lithuania or, at its behest, the Ministry of Finance, if the capital, by the right of ownership, belongs to the Republic of Lithuania; 2) the local council or, at its behest, by the board, if the capital, by the right of ownership, belongs to the local government.
  145. The enterprise which has failed to produce interest on the use of the state capital at the prescribed rate shall be considered as having violated its monetary obligations, and sanctions stipulated by this law shall be applied to it. Investment of the enterprise's state financial funds into social and cultural objects shall not exempt it from payment of interest on the state capital used for said purposes.
  146. The board of the SE shall have the right to leave at the enterprise not less than 2\3 of the amount of the interest on state (local government) capital and to increase thereby the state capital used by it. The Government of the Republic of Lithuania (local government) shall have the right to specify separate enterprises (enjoying special status) which shall be financed from depreciation charges and which shall transfer deducted sums of interest on state capital to the budget.
  147. Sums of interest on the use of the state (local government) capital shall be transferred to the budget of the Lithuanian State (local government). The Government of the Republic of Lithuania (local government) may, at the request of the enterprise, leave (invest) a portion of the amount of interest at the enterprise and increase the enterprise's state capital thereby.
  148. The interest on the use of the state capital shall be deduced (paid) each month in the manner established by the Minis try of Finance of the Republic of Lithuania. Article
  149. Insurance of the State Capital.
  150. The enterprise must insure the state capital in its possession with the insurance agency registered in the Republic of Lithuania and recognised as reliable by the Bank of Lithuania, or pay an equivalent insurance premium to the state (local government).
  151. The amount of premium payable to an insurance agency shall be established by the insurance contract. If insurance premiums on state capital are paid to the state (local government), their uniform rates in each sphere of commercial activities shall be established by the Ministry of Finance of the Republic of Lithuania (the local council or, at its behest, the board). Article
  152. The Increase of the State Capital.
  153. The state capital at an enterprise may be increased by: 1) leaving at the enterprise the amounts of interest on the use of the state capital; 2) appropriating investments from the budget; 3) merging the state capital of another enterprise; and 4) taking over or receiving other monetary and non-monetary (property) contributions from the state (local government).
  154. With the increase of state capital the enterprise must increase the nominal state capital and register all the state capital it uses as the nominal state capital only if the enterprise increases or reduces the nominal share capital. The increase of the nominal state capital shall become valid only from the moment of its registration. Article
  155. The Right of the Enterprise to Invest State Funds.
  156. If an enterprise wishes to invest the state (local government) capital on the territory of another country (on the territory of another local government) it must obtain a licence therefor from the Ministry of Finance of the Republic of Lithuania ( the local government). The state capital which is being invested in other countries must be insured with a banking institution or an insurance agency recognised as reliable by the Bank of Lithuania. An application for a licence shall be filed together with a certificate from the Ministry of Finance of the Republic of Lithuania on the economic and financial state of the object of investment, and the economic and financial state of the investing enterprise, as well as a state property (local government property) insurance certificate in the from established by the Ministry of Finance of the Republic of Lithuania. The licence must be issued or a motivated refusal to issue said licence must be given within thirty days from the filing of the application. A refusal to issue a licence may be given if the established procedure for filing the application documents has been violated, or if the enterprise or other object of investment is unprofitable and is not able to ensure a fixed rate of interest on the use of the state capital, or if the investment runs counter to the interests of the state (local government).
  157. If the capital of the state (local government) is being invested in another country (on the territory of another local government), the interest on the use of this capital shall be paid at the established rate into the budget of the Lithuanian State (local government).
  158. The amount of state capital which is invested in other enterprises (partner-ships, public or private joint stock companies), deposited with banking institutions or given on loan in other forms, must not exceed 1/2 of the state funds possessed by the enterprise or its subsidiaries. If the enterprise violates said rule, the founder must compel refundment to the state (local government) of the appropriate share of the state capital invested in other enterprises.
  159. Annual investments in long-term (exceeding 12 months) construction projects and the mounting of the equipment shall be discounted by reassessing the value of said investments at the completion of the project in accordance with the norms of interest on the use of the state capital. During the period when construction projects (the mounting of the equipment) are under way, but not longer than for three years, the enterprise shall have the right not to deduce from its profit the interest on the invested state capital, but this interest shall be deposited in the enterprise's state capital account. Article
  160. Reduction of State Capital.
  161. The state capital in the possession of the enterprise shall not be returned to the budget of the Lithuanian State, with the exception of the following cases: 1) if the activities of the enterprise are terminated or the state capital is reduced (liquidated); and 2) if the enterprise reduces the amount of the state capital in its possession
  162. If the SE cannot effectively use the state financial funds in its possession, it may transfer a portion of the interest on state capital or of the depreciation charges to the budget of the State (local government), or, with the consent of the Ministry of Finance of the Republic of Lithuania (local council or, at its behest, the board), transfer same without refundment to other state (local government) enterprises.
  163. If, in accordance with this Law and other legislative acts of the Republic of Lithuania which regulate privatization, the Government of the Republic of Lithuania (the local council) compels liquidation the SSE's state capital or reorganisation of the SE into the SSE, the shareholders or employees, based on the prescribed rates of depreciation of fixed assets, must buy out (return) the state capital within the period of depreciation of the appropriate volume of fixed assets. If the enterprise fails to comply with said requirements, it may be liquidated on the decision of the Government (the local council). Chapter 5 SHARE CAPITAL Article
  164. Composition and Ownership of Share Capital
  165. The share capital of the enterprise shall be formed from monetary and non-monetary (property) contributions of natural and legal persons, as well as from the portion of profit which is assigned to the share capital in the manner prescribed by this Law.
  166. The share capital shall consist of: 1) the nominal share capital which equals the nominal value of the issued shares; 2) the reserve fund of the nominal share capital; and 3) the profit reserve fund.
  167. The reserve fund of the nominal share capital shall be formed from the income which is not attributed to profit; said income shall be received from selling new shares of the enterprise at a higher price than their nominal value. The income channeled to said fund shall be exempt from taxation.
  168. The profit reserve fund shall be formed from the portion of profit which has not been paid in dividends and bonuses, or has not been used in any other way, and is invested in this or other enterprises.
  169. The reserve fund of the nominal share capital and the profit reserve fund may not exceed 1\10 of the enterprise's authorised capital. If this provision is violated, the surplus amounts of the reserve funds shall be apportioned to the authorised capital within three months after the approval of the annual balance sheet and, in accordance with the provisions of Article 31 of this Law, the nominal share capital shall be increased. If these regulations are not complied with, the founder of the enterprise may direct the surplus amounts of the reserve funds to the authorised capital upon a written request therefor from any of the share-holders or employees of the SE. If the founder of the enterprise does not adopt such a decision, said persons shall have the right to appeal to the court. Article
  170. Shares and the Rights Incident to Them.
  171. The issuance and circulation of the enterprise's shares, share certificates, and temporary shareholder's certificates shall be regulated by the Law of the Republic of Lithuania on Stock Companies and other laws on the issuance and circulation of securities.
  172. The property and personal non-property rights of the shareholders of the enterprise shall be defined by the Law of the Republic of Lithuania on Stock Companies, if this Law does not provide otherwise.
  173. The enterprise shall have no right to issue nonvoting shares. Article
  174. Increase of the Share Capital.
  175. The enterprise may increase the nominal share capital by issuing new shares or increasing the nominal value of the issued shares. The increase of the nominal share capital through additional investments shall be allowed only by issuing new shares.
  176. The enterprise may issue new shares for capital investments if the nominal share capital has been fully paid. In other cases the nominal share capital may be increased through non-monetary (property) contributions.
  177. The SSE which has been found insolvent in the manner established by law, shall have no right to increase the share capital by issuing and offering new shares to persons who are not its shareholders or employees. If the SE is insolvent, it shall have no right to issue shares.
  178. The nominal share capital of the enterprise may be increased on the decision of the board when, based on this Law, the council of observers or the meeting of shareholders approves the appropriate amendments to the bylaws. In the instances when it is planned to issue new preference shares, the approval of the share-holders' meeting shall be necessary.
  179. The amendments to the bylaws shall be registered together with the registration of the increase of the capital.
  180. An appropriate state body shall register, in the manner prescribed by law, the amendments to the bylaws and the increase of the nominal share capital if: 1) all the shares have been subscribed to in the established manner, and the initial investments have been made; 2) in the instances established by law a permission to expand production has been received from the state (local government); and 3) other requirements under laws have been met. If a state body refuses to register the increase of the nominal share capital and the amendments to the bylaws, it shall notify the applicant of the reasons therefor within the established period. The nominal share capital shall be considered as increased only after its registration.
  181. If, through the fault of the enterprise, the increase of the nominal share capital was not registered within three months from the termination of subscription for shares, the paid sums must be returned to the subscribers for shares without any deductions. The enterprise that causes a delay in the refunding of the paid sums must pay the shareholders a fine in the amount of 10 percent of the unreturned sum, unless the bylaws of the enterprise prescribe other fines.
  182. The shares (share certificates and temporary shareholder's certificates) may be issued only after the registration of the increase of the share capital. Prior to that it shall be prohibited to transfer to other persons the rights to subscribed shares. Article
  183. The Increase of the Nominal Share Capital from the Income of the Enterprise.
  184. The enterprise shall have the right to issue new shares and transfer them to shareholders free of charge, or increase the nominal value of shares by transferring the reserve funds of the share capital and profit (its portion) belonging to the shareholders and employees of the enterprise to the nominal share capital. Such a transfer of the reserve funds to the nominal share capital shall be prohibited before the losses of the enterprise assessed in the balance sheet have been compensated for.
  185. The share of the profit reserve fund belonging to the employees of the SE, as well as to the employees who are shareholders shall be equal to the share of the nominal state capital in the authorised capital of the enterprise. An employee's portion of the income in this fund accumulated during the accounting year shall be proportionate to his actual pay (including bonuses) during said period. A shareholder's right to the surplus of the profit reserve fund and to the reserve fund of the nominal share capital shall be established in proportion to the nominal value of the shares held by him.
  186. In the manner established by the bylaws, the enterprise shall notify each shareholder and employee having the right to obtain the shares issued by the enterprise from its own income, of the bonus shares or partly paid shares issued in the above manner, and inform him about the procedure for obtaining the shares. If a shareholder or an employee does not acquire the shares belonging to him within one year after the above notification, the enterprise shall have the right to realize the shares at its own discretion. Article
  187. Reduction of the Share Capital.
  188. The enterprise shall have the right to reduce the nominal share capital in the cases and manner prescribed by this Law and the bylaws of the enterprise. Within 10 days from the adoption of said decision the board must notify the founder, creditors and shareholders thereof in the manner prescribed by the bylaws.
  189. If the SE is reducing its nominal share capital, its creditors shall have the right to request guarantees.
  190. The amendments to the bylaws and the reduction of the nominal share capital may be registered not later than 30 days after the notification of the decision concerning the reduction of the capital in the manner prescribed by the bylaws of the enterprise.
  191. Until the reduction of the share capital has not been registered, the enter-prise shall have no right to pay out money or transfer material assets to the shareholders. Upon the reduction of the share capital the shareholders may be not exempt from the payment for the shares in their possession.
  192. The SE may not reduce the nominal share capital on its initiative, if it has been declared insolvent according to the procedure established by this Law. The enterprise shall be prohibited from reducing the nominal share capital if this may result in its insolvency.
  193. If the nominal share capital is reduced not according to the procedure established by the bylaws of the enterprise, or if same is done under different conditions for separate classes of shares, the consent of the shareholders' meeting must be had therefor. If the nominal share capital of the SE is being reduced, a permission from the founder must be received. The founder's permission to reduce the nominal share capital of the SSE shall also be required if after the planned reduction the nominal share capital would amount to less than 1\5 of the authorised capital.
  194. The enterprise may effect the reduction of its nominal share capital by: 1) purchasing or acquiring in any other way its own shares which are retired thereafter; or 2) reducing the nominal value of its shares.
  195. If after the notice about the retirement of the shares the shareholders do not return them by the fixed time, the enterprise may declare said shares invalid.
  196. When reducing the nominal share capital, the shares owned by the enterprise shall be retired in the first place.
  197. When the enterprise reduces its nominal share capital in a way different from the provisions of this Law, its creditors shall have the right to bring an action against the enterprise. The court may issue an order charging the enterprise with compensation for the losses sustained by a creditor, but the amount of the compensation shall not exceed the sum paid to the shareholders.
  198. The enterprise shall not be bound to purchase the shares submitted by the shareholders with the exception of cases prescribed by law. Chapter 6 FINANCES OF THE ENTERPRISE AND THE DISTRIBUTION OF PROFIT Article
  199. Finances.
  200. The enterprise shall make use of internal and external sources of finance. The internal sources shall embrace depreciation charges, interest on the state capital if it remains at the enterprise, and the profit. The external sources shall embrace shareholders' investments, one-time non-repayable contributions of other natural and legal persons, and the loan capital. For large-scale investments a solvent state enterprise may obtain additional funds from the state (local government) budget.
  201. The economic rates of depreciation charges for the physical and functional replacement of the equipment, machinery, facilities and other fixed assets shall be established by the enterprise which assesses real changes in the efficiency of said assets during a fixed period of time. The amount of actual depreciation charges of the enterprise shall not be smaller than the established tax rates of depreciation charges which, together with the procedure for their application, shall be established by the Government of the Republic of Lithuania. Further depreciation of the equipment, facilities and other fixed assets completely depreciated in value as against their original cost shall be discontinued. In the event of a premature writing off of the [not fully depreciated] assets, their residual cost shall be included into the losses of the enterprise.
  202. For the failure to deduct (pay) by the fixed time the interest on the use of the state capital, the enterprise shall pay to the budget a 0.5 percent fine per day. If the enterprise conceals or reduces the interest or depreciation charges (payments), a fine equal to the amount of the concealed income shall be paid into the budget.
  203. If the enterprise violates repeatedly or heavily the established procedure for the payment of depreciation charges and interest on the use of the state capital, also if it loses in any other manner the state property entrusted to it, the founder may dissolve the board of the enterprise, or apply to the enterprise the regime of a special supervision, or reduce the share of the state capital in the possession of the enterprise, or liquidate (reorganise) the enterprise.
  204. The enterprise shall form a reserve (obligatory profit reserve) fund. It shall be formed by appropriating thereto not less than 5 percent of the amounts of annual deductions from the profit remaining after the payment of required taxes. Every year sums shall be appropriated to the fund until, together with the reserve fund of the nominal share capital, it amounts to 1/20 of the enterprise's authorised capital. If the profit is not sufficient for making mandatory payments (interest on the state capital and insurance, as well as minimal dividends), deductions into the profit reserve fund shall be reduced accordingly.
  205. The losses and debts sustained in the commercial-economic activities of the enterprise shall be covered from: 1) the share of profit belonging to the employees and shareholders of the enterprise, also from the resources of the reserve fund of the nominal share capital and the profit reserve fund; 2) the share of the profit appropriated for the payment of mandatory and minimal dividends; 3) the resources of the nominal share capital of the SSE (this provision shall not apply to the SE); and 4) the subsidies received by the SE fom the state (local government) if the sums under subparagraphs 1, 2, 3 hereof prove insufficient.
  206. The losses resulting from bankruptcy of the SE or from other causes, shall be covered proportionately from the state capital and share capital.
  207. When the SSE goes bankrupt, the losses shall be covered from the share capital. If this amount is not sufficient, the losses shall be covered from the funds of the state capital. Article
  208. Insolvency of the Enterprise.
  209. At the request of the founder, insolvency of the SE shall be established and recorded in the insolvency act by an agency of the Ministry of Finance of the Republic of Lithuania based on the analysis of the results of the financial performance of the enterprise, established according to the documents of financial ac counting and inventory inspection. The enterprise may also be declared insolvent if it fails to make the mandatory payments within more than three months from the deadline fixed for making said payments, or if a real (supported by evidence) insolvency is being expected.
  210. If the SE is insolvent, as well as for a year after the enterprise became solvent or profitable, the founder shall have the right to: 1) remove or appoint the chairman of the board; 2) remove or appoint members of the board on the recommendation of the council of observers; 3) set the size of salary and bonuses for the chairman and other members of the board, also for head of the administration; 4) establish the order of using the enterprise's financial resources; and 5) liquidate or reorganise the SE.
  211. The enterprise may appeal to the court against the act on its unprofitability or insolvency.
  212. A person dismissed from the post of the chairman of the board on the grounds of unprofitability or insolvency of the enterprise headed by him, shall not be appointed a member of the board of another SE or SSE, its chairman or head of its provisional administration for five years since the day of his dismissal.
  213. Regulations provided in this article may be applied to the SSE when, upon the reduction of its net assets, the remaining nominal share capital amounts to less than 1\10 of the authorised capital of the enterprise. Article
  214. Dividends.
  215. Dividends to the owners of ordinary shares shall be paid from the profits less taxes and other mandatory payments. Dividends shall be paid in view of the time (during a year) of the acquisition of the share, its nominal value and the received profit. Dividends on preference shares shall be paid after the payment of profit taxes, interest on the state capital and insurance deductions. The sum of dividends paid to one person shall not be limited.
  216. The rate of dividends shall be planned and paid so that the expected profit is sufficient to make the mandatory payments. Final payments to the shareholders shall be permissible only after making the mandatory payments and also after meeting the liabilities to the creditors.
  217. Together with the additional dividends paid with the shares the rate of the planned and paid dividends shall not be in excess of the rate of the comparative profitability achieved by the enterprise during the accounting year (the ratio between the balance profit and the enterprise's paid authorised capital less the investments in the unfinished capital construction).
  218. The minimal dividends on ordinary shares of the SE paid in cash or in property shall not be less than the minimal amount established by the Government of the Republic of Lithuania and equal for all the SEs, maximized by the rate of payments out of the profit per one rouble of the authorised capital of the enterprise to the employees of the enterprise.
  219. If the profit of the SE is not sufficient for paying the minimal dividends, the unpaid amount shall be transferred to the following (one) year. No distribution of profits shall be made, with the exception of taxes and other mandatory payments, if the minimal dividends have not been paid. If the debt is not met within one year, the SE may be declared insolvent. In that event, a meeting of share-holders may compel the liquidation of the nominal share capital of the SE with the enterprise purchasing its own shares. If the SE refuses to purchase the shares, it must be liquidated within one year. The founder, wishing to prolong the functioning of the enterprise, may, within the liquidation period, purchase the shares with his own money.
  220. The share capital of the SE shall be liquidated from the depreciation income of the share capital, and, with the consent of the founder, from the deductions of interest on the state capital. The shares of the share capital under liquidation must be purchased not later than within the average term of depreciation of fixed assets owned by the SE. The value of capital purchased annually must not be less than the annual average nominal value of shares subject to being purchased during a fixed (announced) period, this proportion being computed in an increasing (accumulative) order. The shares shall be purchased in accordance with the provisions of this Law and the bylaws of the enterprise. Article
  221. Distribution of Profit.
  222. The following mandatory payments shall be made out of the enterprise's balance profit: 1) taxes to the budget; 2) deductions of interest on the state capital; 3) insurance premiums for the state capital accumulated at the enterprise; 4) mandatory and minimal dividends; and 5) payments into the profit reserve fund of the enterprise. The residual profit shall be used for the payment of dividends and bonuses, formation of the reserve fund, and for financing additional social, cultural and other programmes.
  223. Prior to the discharge of the enterprise's liabilities to its creditors or to the state (local government), the payment of dividends to shareholders, or bonuses to the employees, or any distribution of the profit to the employees and shareholders shall be prohibited.
  224. At the termination of the business year, dividends may be paid in advance, if the preliminary annual balance for the accounting year envisages a profit sufficient therefor. The sum paid in advance may not exceed 1\2 of the profit of the preceding year which remained after making mandatory payments.
  225. Bonuses for the employees of the SE may be paid in advance every three months if, on the evidence of the current financial results of the economic performance, a sufficient amount of profit is expected. Not more than 2\3 of the bonuses which are planned to be paid for work for a corresponding period shall be paid in advance. The remaining amounts shall be paid at the termination of the business year on the basis of the received profit. Not more than 2\3 of the amount of bonuses factually paid for the preceding year shall be paid in advance. VYTAUTAS LANDSBERGIS President Supreme Council Republic of Lithuania Vilnius 25 September 1990 No. I-604

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