Business Form Selection and Taxes

MB vs. Individual Activity: Which One to Choose for a Small Business?

When starting your own business in Lithuania, one of the first and most crucial steps is choosing the right legal form. Most often, starting entrepreneurs hesitate between a Small Partnership (Mažoji bendrija – MB) and Individual Activity under a certificate (Individuali veikla pagal pažymą). Although both forms have their pros, their tax environments and liabilities differ fundamentally.

Individual Activity: Simplicity with Personal Liability

Individual activity is ideal for providing services or conducting small-scale trade where large investments are not required.

• Pros: Extremely simple registration, no starting capital required, and you can apply a simplified tax-deductible expense principle (30% of income deducted automatically without collecting receipts).
• Cons: The individual is personally liable with all their personal assets. Moreover, as income grows, the tax burden (GPM, VSD, PSD) can reach a significant percentage.

Small Partnership (MB): Limited Liability and Flexibility

In recent years, MB has become the most popular legal form in Lithuania for small and medium-sized businesses.

• Pros: Limited civil liability (you do not risk your personal assets). There is no mandatory minimum share capital (1 EUR is enough). Flexible profit withdrawal options (via civil service contracts or funds for personal needs).
• Cons: More complex accounting compared to individual activity, and a mandatory requirement to prepare and submit annual financial statements.

Which one to choose?

If your activity involves minimal risk and you work alone, individual activity offers a quicker start. However, if you plan to hire employees, form partnerships, or want to protect your personal assets, an MB is a much safer and more professional choice.

Want to know which form will save the most taxes for your specific business idea? Contact our team for a professional consultation.