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Financial Participation

There is little legislation on workers’ financial participation in Lithuania.

 

While the legal provisions on employee share ownership are regulated in two laws there are few special provisions on profit-sharing. The activity of cooperatives is regulated by two laws: the Law on Cooperative Societies and the Civil Code.

 

Employee share ownership

 

The first stage of privatization started in 1991 with the Law on the Initial Privatization of State-Owned Property, and ended in 1995. According to this law, employees were granted the opportunity to buy shares (up to a maximum amount) of their companies at a preferential price in the first round of auctions. The remaining shares were sold in a public offering. The percentage of shares which could be sold to employees was 10% in 1991 and was increased afterwards to 30% in 1992 and then to 50% in 1993. Employees could use vouchers, which had been distributed previously (starting with 1991) to all Lithuanian residents over 18.

 

As a response to the urge for real investments in the Lithuanian economy, the Lithuanian Government changed the general direction of the privatization process starting with 1995. The second stage of privatization started, with the new 1995 Law on Privatization of State-owned and Municipal Property. The most notable change was that vouchers could no longer be used to acquire employee shares. The 1997 Law on Privatization, which initiated the third privatization stage and is still in effect, continued the trend, with all preferential rights for employees in the privatization process being abolished. Local and foreign investors, as well as legal entities and physical persons hence obtained equal rights in the privatization.

 

The more recent regulations regarding employee share ownership can be found in the 2003Law on Companies and the 1997 Law on the Privatization of State-Owned and Municipal Property. The Law on Companies stipulates that companies may issue ordinary shares having the status of employee shares, which can be sold only to employees, as long as the statute allows this. Employees have the same rights as normal shareholders. Through the issue of employee shares, companies can increase their capital while retaining control within the restriction period.

 

The Law on the Privatization of State-Owned and Municipal Property does not provide company employees with preferential rights, but it stipulates that an amount of up to 5% of shares owned by the state can be offered to employees at par value in the course of privatization. This does not apply for companies where employees have previously acquired shares in the course of privatization, or when the 5% would lead to a transfer of control from the state.

 

Profit-sharing

 

There are no specific regulations concerning profit-sharing. However, because income tax has to be paid on dividends, profit-sharing is less advantageous when used as an incentive, as it will be doubled taxed (once by the company, as dividends, and a second time by employees, as income).

 

Cooperatives

 

The activity of cooperatives is regulated by two laws: the Law on Cooperative Societies and the Civil Code. According to both, cooperatives are legal entities with limited liability established by five or more physical persons or legal entities, for different purposes. Each member contributes to the capital and share risks and profits according to the turnover of members’ goods or services within the cooperative. The liability of each member for the obligations of the cooperative reflects his/her payment contribution for the member’s share.

Wilke, Maack and Partner (2014) Country reports on Financial Participation in Europe. Prepared for www.worker-participation.eu. Reports first published in 2007 and fully updated in 2014.