MB vs UAB: Make the Right Choice for Your Lithuanian Business

Introduction

Choosing the right business structure is one of the most critical decisions any entrepreneur makes when starting a business in Lithuania. The two most common legal entity types—MB (Mažoji bendrija) and UAB (Uždaroji akcinė bendrovė)—each offer distinct advantages and disadvantages depending on your business goals, financial situation, and growth aspirations.

In this comprehensive guide, we'll compare MB vs UAB structures, helping you understand the key differences in liability, taxation, administration, and capital requirements. By the end, you'll have the clarity you need to make the best choice for your business.

What is an MB (Mažoji Bendrija)?

An MB, or Private Partnership, is the simplest and most accessible business structure in Lithuania. It requires a minimum of two partners and is designed for small to medium-sized enterprises.

Key Characteristics of MB:

• Minimum Partners: 2 required
• Minimum Capital: €0.01 (symbolic)
• Liability: Unlimited personal liability for all partners
• Management: Simple and flexible management structure
• Registration: Quick and affordable registration process
• Accounting: Simplified accounting and reporting requirements
• Taxation: Progressive income tax on profits

When MB is the Right Choice:

An MB structure works best if you're:

• Starting a small business with limited capital requirements
• Planning to work closely with business partners
• Seeking minimal bureaucratic compliance
• Not concerned about personal liability protection
• Operating a service-based or professional business
• Looking for lower operational costs and simpler administration

What is a UAB (Uždaroji Akcinė Bendrovė)?

A UAB, or Private Limited Liability Company, is a more formal business structure offering greater legal and financial protection. It's ideal for businesses with growth ambitions and multiple stakeholders.

Key Characteristics of UAB:

• Minimum Shareholders: 1 allowed
• Minimum Capital: €2,500 required
• Liability: Limited to invested capital
• Management: Professional management structure with board of directors
• Registration: More formal registration process
• Accounting: Full accounting records and annual reports required
• Taxation: Corporate income tax (15%) on profits; dividend taxation on distributions

When UAB is the Right Choice:

A UAB structure works best if you're:

• Operating a larger business with multiple shareholders
• Seeking personal liability protection
• Planning significant business growth and expansion
• Attracting investors or securing bank financing
• Operating in regulated industries
• Creating a professional business entity for B2B operations
• Planning to reinvest profits into the business

MB vs UAB: Detailed Comparison Table

Ownership & Partners

Aspect	MB	UAB
Minimum Owners Required	2 partners	1 shareholder
Maximum Owners	Unlimited	Unlimited
Ownership Transfer	Restricted, requires consent	Flexible transferability

Capital & Investment

Aspect	MB	UAB
Minimum Capital	€0.01 (symbolic)	€2,500 (mandatory)
Capital Contribution Flexibility	Very flexible	Defined shares
Investment Attraction	Difficult	Easier for investors

Liability Protection

Aspect	MB	UAB
Owner Liability	Unlimited personal liability	Limited liability
Creditor Claims	Personal assets at risk	Protection of personal assets
Personal Risk	High	Low

Management & Administration

Aspect	MB	UAB
Management Structure	Simple, flexible	Formal board structure
Decision-Making	Collective partnership	Shareholder meetings/Board
Administrative Burden	Minimal	Moderate
Compliance Requirements	Simplified	Standard

Taxation & Costs

Aspect	MB	UAB
Income Tax Rate	20% on profits (progressive)	15% corporate tax
Dividend Tax	N/A	15% on distributions
Registration Costs	€30-50	€50-100
Annual Compliance Costs	€100-300	€500-1,500
Accounting	Simplified records	Full audit required

Credibility & Professional Image

Aspect	MB	UAB
Business Perception	Local/small	Professional/established
Bank Financing	Difficult	Easier
Investor Confidence	Lower	Higher
B2B Partnerships	Limited	Strong

Financial Comparison: Real-World Scenarios

Scenario 1: Solo Freelancer (€30,000 Annual Revenue)

MB Structure:

• Registration: €40
• Annual accounting: €200
• Income tax: €6,000 (20% on €30,000)
• Total First Year Cost: €6,240

UAB Structure:

• Registration: €75
• Capital deposit: €2,500
• Annual accounting: €800
• Corporate tax: €4,500 (15% on €30,000)
• Total First Year Cost: €7,875 (+ €2,500 capital tied up)

Winner for this scenario: MB offers cost savings and simplicity

Scenario 2: Growing Tech Startup (€150,000 Annual Revenue)

MB Structure:

• Annual accounting: €400
• Income tax: €30,000 (20% of profits)
• No investor protection
• Total Annual Cost: €30,400

UAB Structure:

• Annual accounting: €1,200
• Corporate tax: €22,500 (15% on profits)
• Dividend distribution flexibility
• Investor-ready structure
• Total Annual Cost: €23,700

Winner for this scenario: UAB provides tax efficiency and growth potential

Key Advantages & Disadvantages

MB Advantages:

✓ Minimal startup costs - Only €0.01 required ✓ Simple registration - Quick setup in days ✓ Flexible management - Easy decision-making process ✓ Lower ongoing costs - Minimal compliance requirements ✓ Tax transparency - Straightforward income tax structure ✓ Ideal for partnerships - Natural structure for collaborations

MB Disadvantages:

✗ Unlimited liability - Personal assets at risk ✗ Limited investor appeal - Difficult to attract funding ✗ Harder to finance - Banks prefer limited companies ✗ Ownership restrictions - Requires partner consent for transfers ✗ No separable legal entity - Personal liability exposure ✗ Scaling challenges - Structure limits growth potential

UAB Advantages:

✓ Limited liability - Personal assets protected ✓ Professional image - Attracts investors and partners ✓ Financing access - Banks more willing to lend ✓ Flexible ownership - Easy share transfers ✓ Tax planning - Better reinvestment flexibility ✓ Growth ready - Ideal for expansion and scaling

UAB Disadvantages:

✗ Minimum capital requirement - €2,500 startup cost ✗ Higher compliance - More administrative burden ✗ Increased costs - Higher annual accounting and audit fees ✗ Double taxation - Corporate + dividend taxation ✗ Formal structure - Less flexibility in decision-making ✗ Greater responsibility - Board member liability in some cases

Tax Implications: MB vs UAB

MB Taxation Structure:

MBs are taxed as transparent entities, meaning profits flow directly to partners' personal tax returns.

• Income Tax: 20% on net business profits
• Social Security: Partners pay self-employment contributions
• VAT: Standard 21% VAT applies to sales
• Deductions: Personal expenses cannot be deducted

UAB Taxation Structure:

UABs are separate tax entities with their own tax obligations.

• Corporate Tax: 15% on net profits (not paid if profits retained)
• Dividend Tax: 15% on distributed profits
• Social Insurance: Shareholder-employees pay standard contributions
• VAT: Standard 21% VAT applies to sales
• Tax Planning: Profit retention can defer taxation

Conversion: From MB to UAB

If your business grows and you decide to convert from MB to UAB, the process is straightforward:

Conversion Steps:

1. Shareholder/Partner Agreement: All owners must agree to convert
2. Capital Assessment: Determine initial capital contribution
3. Legal Documentation: Prepare conversion documents
4. Registration: File with State Enterprise Centre (€50-100 fee)
5. Tax Authority Notification: Update VAT and income tax records
6. New Bank Account: Establish separate business banking

Timeline**: 2-4 weeks for complete conversion

Costs**: €300-700 in legal and registration fees

Decision Matrix: Which Structure Should You Choose?

Choose MB If:

• Your annual revenue is under €50,000
• You're starting a simple service business
• You have 2-3 business partners
• You want minimal compliance burden
• You're bootstrapping with limited capital
• You don't plan external financing

Choose UAB If:

• Your revenue projections exceed €50,000
• You anticipate rapid growth
• You have multiple investors
• You need liability protection
• You plan to seek bank loans
• You want a professional business entity

Common Mistakes to Avoid

Mistake 1: Choosing MB for Liability Protection

Reality: MB offers zero personal liability protection. If you need this, choose UAB.

Mistake 2: Ignoring Capital Requirements

Reality: UAB requires €2,500 minimum capital upfront—budget for this.

Mistake 3: Overcomplicating an MB

Reality: Adding complexity to MB defeats its purpose. If you need formality, choose UAB.

Mistake 4: Underestimating Growth

Reality: Converting from MB to UAB later costs time and money. Plan ahead.

Mistake 5: Not Planning for Taxation

Reality: Different tax implications significantly affect profitability. Consider long-term tax strategy.

Step-by-Step Setup Guide

Setting Up an MB:

1. Choose Name: Check availability at State Enterprise Centre
2. Prepare Documents: Draft partnership agreement
3. Register: Submit to State Enterprise Centre
4. Get Tax ID: Register with Revenue Service
5. Open Bank Account: Get business banking
6. Timeline: Complete within 3-5 days
7. Cost: €30-50 total

Setting Up a UAB:

1. Choose Name: Check availability at State Enterprise Centre
2. Prepare Articles: Draft company articles and bylaws
3. Deposit Capital: Transfer €2,500 minimum to designated account
4. Register: File with State Enterprise Centre
5. Get Tax ID: Register with Revenue Service
6. Open Bank Account: Establish business account
7. Timeline: Complete within 7-10 days
8. Cost: €50-100 registration + capital deposit

Conclusion: The Right Structure for Your Vision

Both MB and UAB structures have legitimate places in Lithuania's business ecosystem. The choice between them ultimately depends on your:

• Business size and complexity
• Growth aspirations and timeline
• Financial situation and capital availability
• Risk tolerance and liability concerns
• Investor and financing needs
• Long-term strategic goals

MBs excel for simple, partnership-based businesses prioritizing flexibility and minimal costs. UABs are the professional choice for ambitious entrepreneurs seeking growth, protection, and credibility.

The critical insight: Choose based on your intended trajectory, not your current situation. If you plan to grow significantly, starting with a UAB from day one saves time, money, and legal complications later.

Whichever structure you choose, the most important factor is taking action and starting your entrepreneurial journey. Both paths lead to success—the key is choosing the path that aligns with your vision.

---

Ready to Start Your Lithuanian Business?

Don't navigate business structure decisions alone. Our experienced legal team at LexNova has helped hundreds of entrepreneurs choose the perfect business structure for their goals and guided them through flawless registration.

Schedule Your Free Consultation Today and let us help you make the right choice. We'll analyze your situation, discuss your growth plans, and ensure your business is set up for success from day one.

What You'll Get:

✓ Personalized business structure recommendation ✓ Complete cost analysis for your specific situation ✓ Guided registration assistance ✓ Tax planning strategies ✓ Professional business setup support

Don't let business structure confusion hold you back. Contact LexNova Legal today and start building your success story.