Limited vs unlimited liability: what it means for your assets

Limited liability means that business debts are owed by the company itself, not by its owner personally: if you set up a small partnership (MB) or a private limited company (UAB), you essentially risk only what you put into the business, while your home, car and savings stay separate from the company's debts. Unlimited liability is the opposite: if you work under individual activity, with a business certificate or through an individual enterprise (IĮ), you answer for business obligations with all of your personal assets. This is arguably the most important practical difference between business forms, because it decides not how much you will earn, but how much you can lose if something goes wrong.

This article explains what limited and unlimited liability really mean for your assets, how the form you choose changes your risk, and where limited liability stops protecting you. All rates, thresholds and amounts here are indicative (2026) and for general understanding only — always check the current figures at the Register of Legal Entities, VMI and "Sodra".

Limited liability is not protection from a bad business — it is only the line up to which a bad business can reach your personal assets.

What limited and unlimited liability mean: the core difference

Business forms differ not only in taxes — what matters most is how they legally tie you to your business. When you set up a legal entity with limited liability (an MB or a UAB), a separate legal subject appears: the company owns its own assets, carries its own debts and holds its own bank account. You are its member or shareholder, but you answer for the company's obligations only up to what you committed to contribute.

When you work under individual activity or a business certificate, there is no separate entity — legally the business is you, so a business debt becomes your personal debt. An individual enterprise (IĮ) is an in-between case: formally it is a legal entity, but its owner answers for the company's obligations subsidiarily, i.e. with all their assets if the company's own assets fall short. So in liability terms an IĮ behaves more like an unlimited form than like a UAB.

Unlimited liability: individual activity, the business certificate and IĮ

Unlimited-liability forms are attractive because they are simple to start and cheap to run — but your personal assets are what "pays" for that. In brief, what is worth knowing (2026):

• Individual activity. Profit is taxed with personal income tax (GPM): up to EUR 20,000 of profit the effective rate is around 5%, from 20,000 to 42,500 EUR it rises gradually from 5% to 20%, and above 42,500 EUR a progressive 20/25% schedule applies. You can deduct allowable costs either using the 30% cost allowance or your actual documented expenses. Note: from July 2026 the "Sodra" contribution base for the self-employed rises to 90% of taxable income (previously 50%), and the compulsory health insurance (PSD) minimum is around 80.48 EUR per month.
• Business certificate. Suited to small, clearly defined activities; the annual income ceiling is 50,000 EUR (above it, the excess is taxed as individual-activity income at the progressive rate). The state social insurance (VSD) contribution is calculated as 8.72% or 11.72% of the minimum-wage base (1,153 EUR per month), while the exact certificate price for your activity and location is set by your municipality — check it with the municipality or VMI.
• Individual enterprise (IĮ). A rarer form with unlimited (subsidiary) owner liability: the convenience is a separate legal entity, but like individual activity it does not shield your personal assets.

For a detailed, numbers-based comparison of individual activity, the business certificate and an MB, see individual activity, business certificate or MB; and for when an MB beats the old individual enterprise, read IĮ or MB.

Limited liability: MB and UAB

An MB and a UAB are legal entities, so their debts are the company's, not your personal debts. The main differences (2026):

• Small partnership (MB). No share capital is required, it is founded by 1 to 10 members, and only by natural persons. Simpler and cheaper to run than a UAB, so it is often chosen by one or a few partners.
• Private limited company (UAB). Share capital is EUR 1,000, of which at least 25% (EUR 250) must be in place before registration, with the rest paid within 12 months. Shareholders can be both natural and legal persons (up to 249), which makes a UAB better suited to growth, bringing in an investor or selling part of the business.

In both cases profit is taxed with corporate income tax (CIT): the standard rate is 17%, for small companies 7%, and for new small companies in their first one to two years a 0% rate may apply (if fewer than 10 employees, income up to EUR 300,000 and the company is not part of a group). When you pay profit out to yourself, dividends are additionally taxed at 15% GPM. How to choose between these two forms is covered in detail in MB or UAB — what to choose in 2026.

What limited liability means in practice — and where it ends

Limited liability does not protect you from everything. In practice it "leaks" exactly when you least expect it:

• Personal guarantee. If, when taking a loan, a lease or a rental agreement, you sign a personal guarantee, the bank or supplier can demand the debt from you personally — regardless of limited liability.
• Director's liability. A director can be liable with their own assets for negligent or dishonest management, for failing to start insolvency proceedings in time, or for damage caused to the company and its creditors.
• Tax and "Sodra" obligations. In certain cases a company's manager can be held liable for unpaid tax obligations.
• Intent and fraud. Limited liability does not shield anyone who acted dishonestly.

In other words, an MB or a UAB protects an honest entrepreneur from ordinary commercial failure, but is not a "shield" against personal commitments or poor management.

How your business form changes your risk

Your choice should be driven not by fashion, but by your risk profile:

• Higher risk → limited liability. If you buy goods on deferred payment, take equipment on lease, employ staff, work in construction or take on large orders, a single failure can generate debts exceeding your savings. Here the "wall" an MB or UAB puts between the business and your personal assets is worth the admin cost.
• Lower risk → unlimited may be enough. If you provide services alone, without large commitments, inventory or credit (for example consulting, design, copywriting), individual activity or a business certificate is often a cheaper, simpler start, and the real risk to your personal assets is small.

Risk also grows with turnover: once you cross the 45,000 EUR threshold over the last 12 months, you must register as a VAT (PVM) payer — which means more obligations, and failing to handle them also turns into debt.

Example: the same business, two liability scenarios

Imagine that Jonas and Marius start the same small trading business.

• Jonas chooses individual activity (unlimited liability). The start is cheap and fast, and bookkeeping is simple.
• Marius sets up a UAB and contributes EUR 1,000 of share capital (at least EUR 250 — even before registration).

A year passes, the market shifts, and the business ends up owing suppliers more than it owns.

• In Jonas's case creditors can direct their claim at his personal assets — savings, a car, and in certain cases jointly owned family property.
• In Marius's case, if he acted honestly and had not signed a personal guarantee, he essentially risks only the EUR 1,000 he contributed — his personal assets stay separate from the company's debts.

The same activity, the same failure scenario — but completely different risk to personal assets. That is exactly why the liability question is worth settling before you sign your first serious contract.

When to choose limited, and when unlimited is enough

There is no universal answer — decide based on your income, risk and growth plans:

• Choose an MB or UAB if you take on financial commitments, employ people, plan to attract investors, or simply want to sleep well knowing your personal assets are separated.
• Start with individual activity or a business certificate if you are just testing an idea, work alone and your risk is small — you can always move to a limited form later.

The overall starting path — from choosing a form to registration and taxes — is laid out in the guide on how to start a business in Lithuania in 2026. Where the line between forms falls, based on profit and costs, depends on your own numbers, so it is best to simply run them.

Check the numbers with calculators and official sources

Before you settle on a form, it is worth assessing not only the risk but also the taxes and the amount you take home. Start with the free set of calculators, and always verify the applicable liability, tax and "Sodra" rules in the official VMI and "Sodra" sources.

Disclaimer: all rates, thresholds and amounts in this article are indicative (2026) and for general understanding only — this is not tax or legal advice. Always check the current figures in the official VMI, "Sodra" and Register of Legal Entities sources, or consult an accountant or a lawyer.

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