MB vs UAB in Lithuania 2025: Legal Differences Explained for Foreign Entrepreneurs

Choosing the right legal entity is one of the most important decisions when starting a business in Lithuania. In 2025, MB vs UAB in Lithuania remains a key comparison for foreigners, expats, and investors planning to operate in Vilnius, Kaunas, Klaipėda, or other Lithuanian cities.

The two most popular business forms are MB (Mažoji Bendrija) and UAB (Uždaroji Akcinė Bendrovė). While both are limited liability entities, their legal structure, taxation, management rules, and suitability differ significantly. Understanding these differences early can save time, money, and legal risk.

This guide explains the legal differences between MB and UAB in Lithuania, using clear language and practical examples relevant for 2025.

Legal Background in Lithuania

Lithuania offers a business-friendly legal environment regulated mainly by EU-aligned national laws. The choice between MB and UAB is governed by different legal acts.

Key legislation includes:

Civil Code of the Republic of Lithuania
Law on Companies (for UAB)
Law on Small Partnerships (for MB)
Corporate Income Tax Law
Personal Income Tax Law

Both MB and UAB provide limited liability, meaning owners are generally not personally liable for company debts. However, the legal philosophy behind each structure is different.

MB (Mažoji Bendrija) is designed for:

Small businesses
Individual professionals
Startups with low initial risk
Owner-managed activities

UAB (Uždaroji Akcinė Bendrovė) is designed for:

Growth-oriented companies
Businesses with multiple shareholders
Foreign investment
Companies planning to hire employees or raise capital

Understanding this legal context is essential before registration.

Step-by-Step Legal Process

Although both entities are registered through similar state institutions, the legal steps differ in complexity.

1. Choosing the Legal Form

You must first decide between MB and UAB based on:

Number of founders
Planned turnover
Investment needs
Employment plans

2. Company Name Reservation

Register the business name with the State Enterprise Centre of Registers
The name must be unique and comply with Lithuanian language rules

3. Registered Address in Lithuania

Mandatory for both MB and UAB
Can be in Vilnius, Kaunas, Klaipėda, or another city
Virtual office addresses are allowed with proper consent

4. Founding Documents

MB: Founding Act or Agreement + MB Regulations
UAB: Articles of Association (more detailed and formal)

5. Capital Requirements

MB: No minimum share capital
UAB: Minimum share capital of EUR 1,000

6. Registration with Authorities

Register with the Centre of Registers
Obtain company code
Register with the State Tax Inspectorate (VMI)

7. Bank Account and VAT (if required)

Open a Lithuanian or EU business bank account
VAT registration required if turnover exceeds the threshold or for certain activities

Key Legal Requirements & Documents

The legal obligations differ notably between MB and UAB.

MB Legal Requirements

1–10 members (individuals only)
Members cannot be other companies
No mandatory director (member-managed)
No minimum capital
Profit distribution allowed only after approval
Members are not employees by default

Key documents:

MB regulations
Founding act or agreement
Member resolutions
Accounting records

UAB Legal Requirements

1–250 shareholders (individuals or legal entities)
Mandatory managing director
Minimum EUR 1,000 share capital
Shares can be transferred or sold
Employees hired under labor contracts

Key documents:

Articles of Association
Shareholder register
Director appointment decision
Employment contracts
Annual financial statements

MB vs UAB: Core Legal Differences

Ownership and Management

MB: Managed by members directly or a nominated representative
UAB: Managed by a director appointed by shareholders

Capital and Investment

MB: Not attractive for investors due to no shares
UAB: Preferred by investors and banks

Taxation Differences

MB members pay personal income tax on distributions
UAB pays corporate income tax, then dividends taxed separately

Employment Rules

MB members usually do not have employment contracts
UAB directors and employees must have employment contracts

Credibility and Expansion

MB: Best for small-scale operations
UAB: Better reputation with partners, suppliers, and clients

Common Legal Mistakes to Avoid

Foreign entrepreneurs often make avoidable legal errors when choosing between MB and UAB in Lithuania.

Choosing MB for a Growing Business

MB is not suitable if you:

Plan to attract investors
Expect rapid growth
Need strong corporate credibility

Ignoring Tax Structure

Many founders focus only on registration costs and ignore:

Dividend taxation
Social security contributions
Personal income tax obligations

Improper Employment Structure

Treating MB members as employees incorrectly
Paying salaries without legal basis
Misclassifying income

Weak Founding Documents

Generic or incomplete regulations
Poorly drafted Articles of Association
No exit or dispute clauses

Late Accounting and Reporting

Missing annual filings
Late VAT reporting
Incorrect financial statements

These mistakes can lead to fines, audits, or personal liability risks.

Frequently Asked Questions (FAQ)

Is MB or UAB better for foreigners in Lithuania?

It depends on your business goals. MB is simpler and cheaper for small operations. UAB is better for long-term growth, investment, and credibility.

Can a foreigner be the sole founder of a UAB?

Yes. A UAB can have one foreign shareholder, either an individual or a company.

Does MB require monthly salary payments?

No. MB members usually receive income through profit distribution, not monthly salaries.

Is UAB mandatory for hiring employees?

Not mandatory, but UAB is legally clearer and safer for businesses with employees.

Which is easier to open in Lithuania: MB or UAB?

MB is faster and cheaper to open. UAB requires more documents and capital but offers more flexibility later.

Can I convert MB to UAB later?

Yes. Lithuanian law allows conversion, but it involves legal procedures and costs.

Conclusion

Understanding MB vs UAB in Lithuania in 2025 is essential for foreigners, expats, and investors planning business activities in Vilnius, Kaunas, Klaipėda, or elsewhere in the country.

MB offers simplicity, low costs, and flexibility for small owner-managed businesses. UAB provides stronger legal structure, investment readiness, and long-term growth potential.

The right choice depends on your business size, risk tolerance, and future plans. Taking legal advice early helps ensure compliance with Lithuanian law and avoids costly restructuring later.

A well-chosen legal structure is the foundation of a successful business in Lithuania.