STATE AND MUNICIPAL ENTERPRISE

STATE AND MUNICIPAL ENTERPRISE STATE AND MUNICIPAL ENTERPRISE LAW OF THE REPUBLIC OF LITHUANIA (As amended by 27 April 1995) CHAPTER 1 GENERAL PROVISIONS Article

1. Objectives of the law This Law shall regulate the creation, administration, activities, reorganisation and liquidation of enterprises which are legally the property of state or municipal authorities. Article
2. Concept of a State or Municipal Enterprise
3. A state enterprise shall be an enterprise which has been established by using state funds or has been transferred to the state in the order prescribed by law, the entire property of which belongs, under the right of ownership to the Republic of Lithuania, however the enterprise administers the property, utilises and disposes of it in accordance with the property trust rights.
4. A municipal enterprise shall be an enterprise, established from funds legally belonging to the municipal enterprise, or shall be one which has in accordance with the law, been transferred over to municipal ownership, whose entire property belongs to the municipal authority by right of ownership, however, the enterprise administers, utilises and disposes of it in accordance with property trust rights.
5. In cases where the regulations of this law shall be applied to both a state and a municipal enterprise, the term "enterprise" shall be employed. Article
6. Enterprise Status
7. The enterprise shall become a legal person from the day of its registration. According to its obligations, the enterprise shall be responsible only for that enterprise property, which may become an object of recovery. This Law and the statutes of the enterprise shall regulate the enterprise's rights to administer, utilise and dispose of the property entrusted to it by the state or the municipal authority. The enterprise shall not be liable to state or municipal obligations.
8. The founder shall have the right to determine for the enterprise: 1) obligatory jobs (tasks); 2) prices and tariffs of merchandise (services) and regulations for calculating such; 3) duties of the administrations, whose staff is appointed by the founder. The term "State Enterprise" must be included in the name of a state enterprise, while the name of a municipal enterprise must include the terms "Municipal Enterprise" or the appropriate word abbreviation "SE", or "ME", must be included. The name of the enterprise must conform to requirements of the Firm name regulations confirmed by the Government of the Republic of Lithuania. Disputes concerning the name of an enterprise shall be settled in court.
9. An enterprise shall have a seal with its name appearing on it.
10. An enterprise shall enjoy the freedom of activity, initiative and decision taking, which has been accorded to it by the Constitution of the Republic of Lithuania and by this and other laws of the Republic of Lithuania and it shall base its activity upon the registered Articles of Association which have been registered in the order prescribed by this Law.
11. An enterprise's economic year corresponds to the calendar year. Article
12. Rights of an Enterprise An enterprise may: 1) engage in economic activities within the Republic of Lithuania and outside its boundaries as prescribed by law; 2) maintain a settlement account and a currency account in only one selected bank of the Republic of Lithuania, and also maintain one currency account in any foreign country; 3) conclude agreements, assume obligations and borrow monetary funds; 4) dispose of any short-term enterprise assets and that long-term assets which has been totally deteriorated; 5) upon permission by the founder to mortgage long-term assets; 6) sell or otherwise transfer enterprise assets in the order prescribed by the Law on Privatisation of State Property; 7) determine its production, services rendered and other resource prices, valuations and tariffs in those instances where these are not prescribed by this or the other laws of the Republic of Lithuania or by the founder; 8) settle accounts for goods, completed work and services supplied, in any form agreed upon, if that does not contradict the laws of the Republic of Lithuania; 9) establish the inner structure of the enterprise; 10) upon permission of the founder, establish branches, join in associations and consortiums, solely with the rights of limited partnership, if that does not contradict the Law on Competition of the Republic of Lithuania; 11) hold other civil rights and obligations, not designated by this Law, if they do not contradict the laws of the Republic of Lithuania. Chapter 2 Founding of an Enterprise Article
13. The Legal Basis for Foundation of the Enterprise
14. The legal basis for the foundation of a state enterprise shall be the enterprise establishment act, adopted by the Seimas of the Republic of Lithuania, by the Government of the Republic of Lithuania, or upon its directive - an authorised governmental institution. The legal basis for the establishment of a municipal enterprise is the enterprise establishment act, adopted by the municipal council. The institution, which has adopted the decision (resolution) to establish the enterprise, shall become the founder of the enterprise. The government or the municipal council, in the event one of them is the founder of the enterprise, may authorise by means of the enterprise foundation act, its subordinate, institutions to carry out all or part of the enterprise founder's functions.
15. Establishment of an enterprise shall be subject to regulation by the Enterprise Law of the Republic of Lithuania, this Law and other legal acts. Article
16. Enterprise Articles of Association
17. Articles of Association shall comprise a legal document, on which the enterprise bases its activity.
18. Articles of Association must indicate: 1) the name of the enterprise; 2) the location of the enterprise; 3) economic activity (production output, labour carried out and kinds of services rendered); 4) the term of enterprise activity; 5) founder's rights in determining obligatory labour, prices, tariffs, and the rules for their computation; 6) size of the authorised capital and the order of its exchange; 7) the order of formation of the administration and its sphere of competence; 8) the order of auditor appointment; 9) regulations governing profit distribution; 10) the order of publicising of enterprise announcements for employees; 11) the order of enterprise reorganisation and liquidation. The Articles of Association may also include other regulations, that do not contradict the laws of the Republic of Lithuania. In cases where the economic activity, projected within the Articles of Association of the enterprise, is regulated by other laws of the Republic of Lithuania, these laws must be observed in preparing these Articles of Association.
19. The founder of an enterprise shall confirm the Articles of Association. The signature of the head of the enterprise shall be certified by the seal.
20. Both the enterprise administration and the founder have the right to take the initiative to change and amend the Articles of Association. The founder shall confirm the changed or amended Articles of Association. The changes and amendments of the Articles of Association shall come into effect from the time of registration in accordance with the order prescribed by the Law on the Register of Enterprises of the Republic of Lithuania. Article
21. Registration of an Enterprise The order of registration of an enterprise shall be determined by the Lithuanian Republic Laws on Enterprises, Law on the Register of Enterprises and this Law. Article
22. Affiliate of an Enterprise
23. An affiliate of an enterprise shall be a subdivision of the enterprise located in another area. An affiliate shall not be a legal person and it shall act in the name of an enterprise which shall be considered a legal person. It shall act in accordance with the Articles of Association of the enterprise and the authorisation of its administration chief which must be indicated in the affiliate regulations. The number of affiliates of an enterprise shall be unlimited.
24. An affiliate may have a sub-account. The property of an affiliate shall be calculated in the financial accounting of the enterprise and also in a separate financial accounting of the affiliate.
25. An affiliate shall be registered in accordance with the order prescribed by the Law on the Register of Enterprises. Chapter 3 Administration of An Enterprise Article
26. The Management Staff of an Enterprise
27. The administration shall constitute a vital part of the management staff. A board may be established per decision by the founder. Per decision of the chief of the administration, specialised councils may be set up within the enterprise, permanently or for a certain limited period of time, which have the right to adopt decisions of a recommendatory nature. Article
28. Administration
29. The administration shall manage the enterprise in the order prescribed in the Articles of Association. The chief of the administration shall regulate the work rules.
30. The administration shall base its activity on the laws of the Republic of Lithuania, the regulations of the enterprise, the enterprise Articles of Association, the work rules, subdivisions and official regulations, and the decisions of the board (if one has been established) and those of the administration chief. The administration staff must protect enterprise secrets.
31. An enterprise must have an administration chief and a chief finance officer (bookkeeper). The chief of the administration may not simultaneously carry out the duties of a chief finance officer.
32. Administrative activity shall be regulated by the chief (general director, director) of the administration.
33. Work contracts with the chief of the administration, the chief finance officer (bookkeeper) and employees of other offices, to which the founder shall have the right to appoint employees, as stated in the Articles of Association of the enterprise, shall be drawn up by the founder, on behalf of the enterprise, in the order established by the Law on Employment Contracts of the Republic of Lithuania.
34. An individual who is prohibited by law to have the right to occupy such a position, shall not be appointed chief of the administration. The administration chief shall not be appointed chief, management or supervisory board member and inspector of any other type of enterprise. In the event, he is holding such a position at the time of his appointment, he must resign from it within the period of one month.
35. The founder may terminate a work contract with employees selected by him in the order prescribed by the Law on Employment Contracts.
36. The chief of the administration shall draw up collective agreements, shall accept employees into the enterprise and shall draw up employment contracts with them.
37. The chief of the administration, guided by the enterprise Articles of Association and work rules, shall have the right to carry out transactions. Courses of action may be denoted in the enterprise Articles of Association and work rules, whereby other authorised administration staff members, may act independently and carry out enterprise transactions. The chief of the administration shall represent the enterprise in dealing with state government and management institutions, the court , and in relations with other individuals.
38. Transactions carried out by the administration chief and other administration staff members, may be held as no longer in effect according, to the order and circumstances denoted in the Civil Code of the Republic of Lithuania.
39. The chief and the staff of the Administration are obligated to compensate the enterprise for losses suffered through their fault, in the order prescribed by the Laws of the Republic of Lithuania. Article
40. Management
41. Management shall be established per decision of the founder. The size of management staff, its obligations, rights and area of responsibility, and order of salary payment, shall be determined in the enterprise Articles of Association.
42. Management shall be a collective structure with a chairperson supervising its activity. Only the chief of administration may occupy this position. The order of management work activity shall be regulated by the management work rules, which it has adopted.
43. The founder shall confirm and revoke management staff member appointments, based upon a proposal by the administration chief. Members of the management staff shall be appointed to a term not to exceed 4 years. Only an employee of that enterprise or a representative of the founder may become a member of the management staff. Only one representative of the founder may become a member of the management staff. The number of the management staff member's term of office is not limited. Additional requirements for members of the management staff may be included in the Articles of Association.
44. A member of the management staff may tender his resignation prior to the expiry of his term of office, by submitting it in writing to the management no later than 14 calendar days in advance. Article
45. Control of Financial Activity
46. The financial activity of an enterprise shall be controlled through audit. An audit of the annual activity shall be obligatory, while the audit of activity encompassing other periods may be carried out at the initiative of the founder or the administration.
47. The audit may be conducted by an auditor - an actual person, having a certificate of qualification, or an auditing enterprise, which has the right to render auditing services.
48. The founder shall arrange the auditing service contract with the auditors. Their services shall be compensated from the enterprise funds.
49. The auditor shall furnish the chief of the administration and the founder with the completed auditing accounts.
50. The state contract institutions shall be empowered to verify the activities of the enterprise, in a manner prescribed by law.
51. The administration of an enterprise shall be obliged to furnish the auditor and state control institutions with the enterprise documents requested by them. Chapter 4 Enterprise Capital Article
52. Conditions for Use of Capital
53. The capital of a state enterprise shall consist of state capital and borrowed capital, the capital of a municipal enterprise shall consist of municipal enterprise capital and borrowed capital.
54. The state or municipal enterprise capital, which has been appraised in the order prescribed by the Government of the Republic of Lithuania, shall be considered the authorised capital of an enterprise. The amount of authorised capital shall be inscribed in the enterprise Articles of Association.
55. The enterprise shall not have the right to reduce the authorised capital through use of state (municipal) capital for payment of salaries, bonuses or other expenses.
56. The enterprise shall ensure the safekeeping and effective utilisation of the state (municipal) capital entrusted to it. The authorised capital of an enterprise may be reduced only in circumstances provided for by this law.
57. An enterprise which has hidden funds, from which the authorised capital was to have been taken must increase the authorised capital accordingly and to pay a penalty sum of capital, equivalent to the sum of hidden capital into the budget. The state control institution shall designate the penalty in keeping with the order prescribed by law. The chief of the administration of an enterprise and the chief finance officer (bookkeeper) must personally pay 50 percent of the penalty. The remaining parts of the penalty shall be taken from the profit segment intended for other necessities of the enterprise (bonuses, social and cultural fund) (in accordance with Chapter 18, part 3 of this Law).
58. The enterprise must insure, in the order prescribed by law, the state (municipal) capital held, with an insurance company, or an enterprise registered in the Republic of Lithuania.
59. The enterprise shall be prohibited from investing capital in other enterprises.
60. Enterprise funds shall be accrued and kept in a banking facility registered in Lithuania.
61. Fulfilment of other individual obligations shall not be secured by enterprise property. Article
62. Interest on Use of Capital
63. An enterprise shall use the state or municipal capital in return for interest paid from enterprise profit.
64. The Government of the Republic of Lithuania shall set the standard for a state enterprise for interest on the use of capital, while the municipal council shall set this standard for the municipal enterprise.
65. State enterprises shall pay the interest for the use of capital to the state budget while the municipal enterprises shall pay into the municipal budget. Accounting shall be conducted in the order established by the Government of the Republic of Lithuania. Article
66. Increase of Enterprise Capital
67. State (municipal) capital may be increased at the enterprise: 1) from the profit portion, designated for the increase of authorised capital, in the order prescribed in the Articles of Association of the enterprise; 2) through investments from the (state, municipal) budget; 3) from other state or municipal monetary and non-monetary (property) contributions; 4) from assistance granted from other entities. The enterprise capital may be increased per decision of the founder in cases exemplified in items 3 and 4, while in the case of state enterprises, also per a decision of the Government of the Republic of Lithuania.
68. Having increased the state capital, an enterprise shall be obligated to register the increased, authorised capital of the enterprise. The increased authorised capital of the enterprise shall become effective from the time of its registration. Article
69. Decrease of Enterprise Capital
70. The authorised capital of a state enterprise may be decreased per decision of the Government of the Republic of Lithuania, while that of a municipal enterprise may be decreased per decision of the municipal council. The funds, obtained from a decrease of the capital of a state enterprise, shall be returned to the state budget, while following a decrease at the municipal enterprise capital - it shall be returned to the municipal budget.
71. The decision to decrease an enterprise's authorised capital must be publicly announced three times, at no less than 30-day intervals, or it must be presented in writing to each enterprise creditor.
72. While decreasing the authorised capital, the enterprise shall be obligated to furnish additional guarantees on fulfilment of its obligations to each creditor who so desires.
73. The changes in the Articles of Association of an enterprise, reflecting the decrease in authorised capital, shall be registered in the order prescribed by the Law on Register of Enterprises and not prior to the elapse of six months, after the first, and 30 days after the third public announcement, or after a period of 3 months after all creditors have been informed that, upon their request, they shall be accorded additional guarantees. Authorised capital shall be considered decreased only when changes in the Articles of Association shall be entered in the Enterprise register. Chapter 5 Enterprise Finances and Profit Distribution Article
74. Finances
75. The enterprise shall make use of internal and external sources of financial resources. The internal sources are attributed deductions and profit. External sources are attributed funds from the borrowed capital, state and municipal contributions and also the financial assistance obtained from other sources.
76. The enterprise shall determine the standards of depreciation of the available long-term property (material and non-material) wear and tear (depreciation), by taking into account the actual change in the effectiveness of this property and also the minimum and maximum economic standards set forth by the Government of the Republic of Lithuania. The founder shall confirm these standards. Following early write off assets (that have not been totally depreciated), their remnants are attributed to enterprise losses.
77. The enterprise must form a profit reserve fund. This is formed by applying no less than 5 percent of the annual deductions from profit, remaining after the payment of obligation taxes. The reserve fund is increased every year until it reaches 1/20 of the authorised enterprise capital.
78. Losses and debts resulting from the economic activity of the enterprise shall be covered from: 1) the undistributed profit of the enterprise; 2) the profit reserve fund; 3) subsidies obtained from the state and municipality in cases, when the Government of the Republic of Lithuania or the founder determine obligatory assignments for the enterprise, prices of production and services, valuations and tariffs.
79. Enterprise officials, whose activities or lack thereof have caused the loss of state or municipal property, have violated the order of depreciation or profit distribution or have resulted in the incorrect payment of taxes, are held accountable in the order prescribed by law. Article
80. Distribution of Profit
81. Enterprise profit shall be distributed not later than two months after the close of the economic year.
82. Enterprise profit shall be distributed as follows: 1) in taxes for the budget as prescribed by law; 2) in insurance payments on state and municipal capital held by the enterprise; 3) in deductions payable to the enterprise profit reserve.
83. The remaining share of the profit shall be transferred to augment the authorised capital of the enterprise according to the ratio established by the founder and at least 25 percent - to other enterprise needs (premiums, social and cultural means etc., to finance and compile reserves).
84. The enterprise shall not have the right to use its profit for other purposes, until it has paid taxes as prescribed by law. Bonuses for enterprise workers may be paid out during each quarter, if sufficient profit has been obtained. In the event, creditors have not been reimbursed within the established time limits, worker's bonuses shall not be paid out from the profits. Chapter 6 Reorganisation And Liquidation of an Enterprise Article
85. Enterprise Reorganisation
86. Reorganisation - this shall constitute the rearrangement and liquidation procedures of an enterprise as a legal person. New enterprises, or associations which have been established during the reorganisation process and are continuing activities shall be the successors acquiring all the rights and obligations of the reorganised enterprises.
87. Enterprises may be reorganised as follows: 1) by joining enterprises together; 2) by dividing enterprises; 3) by changing the type of an enterprise; 4) by altering the subordination of an enterprise.
88. It is possible to reorganise enterprises by means of joining, as follows: 1) to join other (one or several) enterprises which are terminating their activity as legal persons, to an enterprise, which is continuing its activity; 2) from enterprises, which are terminating their activities as legal persons, by creating a new enterprise.
89. Enterprises may be reorganised through division: 1) by parcelling out an enterprise, which is terminating its activity, to other enterprises, which are continuing their activity; 2) by creating new enterprises from an enterprise, which is terminating its activity; 3) by separating parts of an enterprise, which is continuing its activity, and joining them to other enterprises, or from which new enterprises are created.
90. When the type of an enterprise is altered, the enterprise may be reorganised into a joint-stock association - by dividing enterprise property into shares and registering the shares with the Securities Commission.
91. An enterprise may be reorganised while changing its subordination: 1) from a state to a municipal enterprise - by transferring property to a municipal enterprise; 2) from a municipal to a state enterprise - by transferring the property to a state enterprise;
92. The right to reorganise an enterprise is held by: 1) Government of the Republic of Lithuania for state enterprises only; 2) the municipal council - for municipal enterprises only; 3) the founder; 4) the enterprise management staff.
93. Subordination of an enterprise may be changed (sixth section of this Paragraph) in the order established by legal acts of the Seimas of the Republic of Lithuania.
94. A draft plan shall be prepared for enterprise reorganisation, excluding the instances noted in part six of this Paragraph. The draft plan for reorganisation shall indicate: 1) the name and location of each enterprise under reorganisation; 2) the initiator of the reorganisation; 3) the nature of reorganisation; 4) the substantiation for reorganisation of every enterprise; 5) an appraisal of the property of each enterprise under reorganisation; 6) the assumption of obligations and time terms; 7) the rights granted to enterprise management and experts for the duration of the reorganisation; 8) the reorganisation periods. Along with a reorganisation draft plan, a draft plan of association articles must be prepared for each enterprise and company that will continue activity, following reorganisation.
95. Founders of the enterprises undergoing reorganisation and those enterprises which are to continue activity following reorganisation, shall confirm the draft plan for reorganisation, employing the means prescribed in parts three and four of this paragraph. The Government of the Republic of Lithuania shall confirm the draft plan for reorganisation of a state enterprise, by employing the means outlined in part five of this paragraph, the municipal council shall act similarly in the case of a municipal enterprise. Institutions which are to confirm the draft plan for reorganisation have the right to appoint experts to examine the draft plan for reorganisation. The experts shall have the right to receive from the enterprises, undergoing reorganisation, any information relevant to this matter.
96. A reorganisation commission is set up to carry out an authorised draft plan for reorganisation. It shall be formed by a mutual decision of the founders of the enterprises being reorganised and the enterprises or companies which are to function following reorganisation, who also appoint the chairman.
97. Reorganisation of an enterprise shall be announced publicly three times at no less than a two-month interval, or each creditor may be given a written notice.
98. Following reorganisation, active enterprises or companies must be registered in the pertinent order established by the Law on Enterprises and the Law on the Register of Enterprises. Article
99. Liquidation of an Enterprise
100. The basis for liquidation of an enterprise must be: 1) expiry of the time limit of enterprise activity as stated in the Articles of Association; 2) a court decision or a decision taken at a creditor's meeting, to liquidate a bankrupt enterprise. In this instance the enterprise shall be liquidated in the order prescribed by the Law on Enterprise Bankruptcy of the Republic of Lithuania; 3) a court decision to liquidate an enterprise due to violations of the law as outlined in the laws of the Republic of Lithuania; 4) a decree by the Government of the Republic of Lithuania (for state enterprises) or a decision by the municipal council (for municipal enterprises) (if no charges of bankruptcy are filed against the enterprise).
101. The institution which has made the decision to liquidate the enterprise appoints a liquidator (an administrator of the enterprise being liquidated). The management staff of the enterprise loses its authority to govern the enterprise, from the day the liquidator is appointed and its functions are carried out by the liquidator.
102. Following the order prescribed in the Law on Register of Enterprises, the liquidator, shall inform the register official who had registered the enterprise, about the change of the enterprise status and shall provide some data concerning the liquidator. Once an enterprise shall have acquired the status of an enterprise under liquidation, the word "under liquidation" shall be included preceding its name.
103. An enterprise under liquidation may enter only into such transactions which are connected to its liquidation process and also those others that are provided for in the liquidation decision.
104. The liquidation of an enterprise shall be publicly announced three times at intervals of no less than two-months, or each creditor shall be informed in writing. Following the elapse of an interval of no less than two months from the third public announcement about the liquidation of the enterprise, or notification of all the creditors and having concluded accounting with creditors and workers the assets of an enterprise property that remains is transferred to the founder. Article
105. Authority of the Liquidator
106. The liquidator shall enjoy the rights and duties of the enterprise chief. He shall represent the enterprise under liquidation in dealings with government and administrative institutions, in court and in relations with legal and actual persons.
107. The enterprise liquidator: 1) shall make up the financial accountability (liquidation balance) of the enterprise, from the onset of the liquidation period; 2) shall finish fulfilling the obligation according to the previously drawn up transactions and concludes new transactions according to his own competence; 3) shall complete transactions with the creditors and debtors of the enterprise; 4) shall transfer the remaining assets of an enterprise to the founder; 5) shall draw up a statement on liquidation of the enterprise; 6) shall terminate the registration of the liquidated enterprise in the order prescribed by the Law on Register of Enterprises.
108. In the event the liquidation of an enterprise extends over a period of several years, the liquidator shall, following the conclusion of each economic year draw up an annual financial accountability statement and liquidation account, over a three- month period. The founder shall confirm these documents.
109. The liquidator shall be responsible also to third parties for losses, which are incurred through his fault. Chapter 7 Final Provisions Article
111. State enterprises which are among those enterprises authorised, by the Seimas of the Republic of Lithuania, which are not intended to be either privatised or to be made into companies prior to 2000, must adjust their Articles of Association in accordance with this Law and to register them within a six-month period from the date this Law comes into effect, in the order prescribed by the Law on Register of Enterprises. Articles of Association of these enterprises shall be valid, until their re- registration, so far as they do not contradict this Law (Amended 27 April 1995).
112. Functions of the founder of enterprises which fall under the regulation of the municipal governments, as established by this Law, shall be performed by the appropriate municipal council, until such time as the enterprises shall be transferred to the property of municipal governments.
113. The state enterprises and state joint-stock companies are prohibited from paying out salaries and bonuses, and from designating these funds for other running expenses and the creation or increase of stock capital, until such time as they shall be re-registered, in accordance with the Law on State and Municipal Enterprises of the Republic of Lithuania or the Company Law of the Republic of Lithuania.
114. To hold as non-valid the Law on State Enterprises of the Republic of Lithuania and the Decree of the Supreme Council of the Republic of Lithuania "On the Order of Effectiveness of the Law on State Enterprises of the Republic of Lithuania". I promulgate this Law adopted by the Seimas of the Republic of Lithuania. Algirdas Brazauskas President of the Republic Vilnius 21 December 1994 No.I-722