FORMS OF BUSINESS
The main forms of business stipulated in Latvia’s Commercial Law are individual merchants, limited liability companies, joint-stock companies and partnerships.
Natural persons are obliged to register as individual merchants with the Commercial Register if the annual turnover from their economic activities exceeds EUR 284 600 or the economic activities performed conform to those of a commercial agent or a broker, or the yearly turnover from performed activities exceeds EUR 28 500 and the natural person provides employment for more than five employees. The whole of individual merchants’ property is liable in terms of meeting their obligations.
Limited Liability Company
Limited liability companies (LLC) are closed business entities whose equity capital consists of the total amount of the par value of the shares, which cannot be traded publicly. Limited liability companies may be established by one or more natural or legal entities. Shareholders may simultaneously be the only member of the Board and the only employee. Permanent presence of shareholders in Latvia is not required, although the board must be reachable at the address of the registered office. The capital of a LLC is divided into shares and the liability of shareholders is limited to their investment in share capital. The minimum share capital of a LLC is EUR 2 800, but a LLC may have less share capital if it has no more than five members (all individuals) and certain conditions stipulated by the Commercial Law are met. Share capital can also be paid in the form of tangible or intangible property. Where the total value of property (tangible or intangible) contributions does not exceed EUR 5 700, and total property contributions are less than 50 % of the equity capital of a company, the valuation of the property may be made by the founders. The administrative institutions of a LLC are the shareholders’ meeting and the board of directors, also the supervisory council (if such has been formed). According to the Commercial Law, only shareholders’ meetings may amend the articles of association, increase or reduce share capital and perform other activities as per the Commercial Law of the Republic of Latvia.
The executive body of a LLC is the board of directors whose main duty is to submit quarterly reports to the council on the activities and financial status of the LLC.
It usually takes about one week to incorporate an LLC and it costs about EUR 170.
Joint-stock Companies (JSC) are business entities whose equity capital consists of the total amount of the par value of shares in the company’s stock. Joint-stock companies can be closed or open with shares in public circulation. Minimum statutory capital for JSCs is EUR 35 000. JSCs performing the activities of banks, insurance companies or currency exchange require a higher amount of statutory capital. JSCs can issue ordinary and preference shares which can grant shareholders rights to receive dividends, rights to receive a liquidation quota and voting rights at shareholders’ meetings.
JSCs are managed by shareholders’ meetings, supervisory councils and boards of directors. Only shareholders’ meetings may make decisions concerning: annual accounts, use of the profit from previous year’s activities, election and recall of council members, auditors, JSC controllers and liquidators and perform other activities as per the Commercial Law.
The supervisory council represents the interests of shareholders between shareholders’ meetings; it appoints the board of directors and supervises its activities. The board of directors is the executive institution of JSCs which supervises and manages their activities. Boards of directors consist of one or more members, but if a JSC is publicly traded, the board of directors must have at least three members.
A partnership is a business entity in which two or more persons (members) have united, on the basis of a partnership agreement to perform commercial activities utilizing a joint company name. The Commercial Law provides for two forms of partnership: general and limited partnerships. Both can be established by two or more persons. The main difference between the two forms is that all persons establishing a general partnership have unlimited liability for the partnership’s debts. On the other hand, limited partnerships are established by limited and unlimited partners, where the liability of limited partners is limited to the amount of capital contributed. Partnerships are established by partnership agreements and there are no requirements for minimum capital. Partnerships’ profit or losses are distributed at the end of the year in proportion to the amount of capital contributed by partners.
Branch and Representative Office
According to the Commercial Law, local and foreign companies may establish branch offices in Latvia. A branch is an organizationally independent part of a company that can carry out economic activities, but is not treated as a legal entity. A branch is subject to the same reporting obligations as registered companies, and the head office of the branch is fully liable for activities carried out by the branch.
Representative offices, similar to branches, are not independent legal entities. Representative offices cannot perform economic activities and their functions are limited to market research, promotion of the parent company and other limited marketing activities.
SETTING UP A COMPANY, REORGANIZATION AND LIQUIDATION
All companies must be registered in the Commercial Register. For companies to achieve legal status, their founders shall prepare and submit to the Register of Enterprises a foundation agreement or decision of foundation (in case of a single founder), articles of association and confirmation of legal address together with receipts that confirm payment of registration duty and payment for the publication of an announcement in the official newspaper Latvijas Vēstnesis.
Registration duty depends on the chosen form of business, for JSCs it is EUR 356, for LLCs it EUR 143, but for branches it is EUR 29. To register partnerships, the parties shall submit an application for registration and pay registration duty (EUR 143) and for the publication of an announcement in the official newspaper (EUR 27). Before applying to the Register of Enterprises, companies must pay subscribed capital for LLCs and at least EUR 35 000 for JSCs, the remaining subscribed capital must be paid within one year of the registration date in the Commercial Register.
The Register of Enterprises undertakes to review applications and register companies within three days or within one working day (if a three times larger fee is paid).
The liquidation of a company may occur voluntarily by decision of its shareholders or in other statutory cases. According to the law, the minimum length of the procedure is about six months. Both the company and any creditor may file a bankruptcy petition.
Additional information at:
Enterprise Register of the Republic of Latvia: www.ur.gov.lv