Eva Berlaus Office Managing Partner eva.berlaus@sorainen.com
	Zane Paeglīte Associate zane.paeglite@sorainen.com
	Zanda Frišfelde Associate zanda.frisfelde@sorainen.com

As of 1 July 2013, new amendments to the Commercial Law are in force. These mainly concern transactions with shares in a private limited liability company in Latvia (SIA). Additionally, the Commercial Law establishes new formalities when implementing corporate changes in respect of both SIA and public limited liability companies in Latvia (AS). Basically the amendments involve many corporate documents having to be signed in the presence of a notary public as of 1 July 2013. The amendments impose a heavier financial and administrative burden on companies. At the same time, they are expected to provide additional security against the possibility of raiderism, when control over a company is illegally taken over contrary to the interests of the existing shareholders.

When preparing corporate documents we advise a careful check to ensure all requirements have been met in respect of the form and content of documents as stated in the law in order to complete prompt registration at the Commercial Register.

TRANSFER OF SIA SHARES

Upkeep of the shareholders’ register

1. The amendments require more detailed information to be included in a SIA shareholders’ register, thus ensuring chronological reflection of changes in the register. The register must consist of separate folios reflecting the current composition of the company’s shareholders. The folio of the shareholders’ register is signed by the chair of the management board or a member of the management board authorised by the management board, and their signatures are approved by a notary public (ie notarised).
   
   Companies registered before the amendments come into effect (ie before 30 June 2013) must file updated shareholders’ registers with the Latvian Company Register (CR) not later than 30 June 2015.
   
   
2. Under the amendments, when implementing a transfer of SIA shares, the signatures both of the acquirer of the shares and the previous owner of the shares must be notarised.

Protection of potential acquirers of shares

1. The amendments state that information regarding the owner of shares registered in the folio of the shareholders’ register as attached to the registration file of the respective SIA kept by the CR is binding on third parties.
   
   
2. Additionally, the amendments regulate the situation where an existing management board does not cooperate with the new owner of 100% shares in a SIA. In this case the new owner of the shares is entitled to decide on changes in the composition of the management board even if the new owner has not yet been registered in the shareholders’ register as the sole shareholder in the SIA but has acquired the shares in the SIA as a result of inheritance or by effective court judgment.

Protection of pre-emption rights and exercise of redemption rights

1. Henceforward when selling shares in a SIA the seller and the acquirer should notify not only the management board of the SIA but also each shareholder regarding the sale of shares by sending written notice. Attached to the notice should be the concluded purchase agreement or an approved copy.
   
   
2. Unless the articles of association set a shorter term, pre-emption rights can be exercised within one month as of the day when the notice of disposal of shares has been sent to all shareholders. Within the deadline the seller of the shares may not take action with the shares or amend the terms of the purchase agreement.
   
   
3. If pre-emption rights are violated, the existing shareholders have redemption rights. Redemption rights can be used within one month as of the day when the shareholder having redemption rights discovers the violation of pre-emption rights but not later than within one year as of the day when the folio of the shareholders’ register of SIA has been attached to the registration file of the SIA concerned kept by the CR. Redemption rights apply to transactions concluded after 30 June 2013.

NEW FORMALITIES FOR CORPORATE DECISIONS OF SIA/AS

1. Henceforth the minutes of the general meeting of shareholders of a SIA should also be approved by at least one shareholder (as to the correctness of the minutes) in addition to approval by the chair and the secretary of the meeting.
   
   
2. Correctness of the minutes of the general meeting of shareholders of an AS should be approved by at least one shareholder instead of two shareholders as was required until now.
   
   
3. If a copy of or excerpt from the minutes/decision of the general meeting of shareholders of a company is filed with the CR, then the correctness of the copy or excerpt should be approved by the same persons who signed the original document.
   
   
4. Further, the following documents must be notarised: the signatory’s signature on corporate decisions in respect of election and revocation of SIA/AS management board members; election and revocation of AS supervisory board members; amendments to the articles of association (in addition the signatory’s signature on any new edition of articles of association requires notarisation); election and revocation of a liquidator. If the articles of association so require, the following require notarisation: the signatory’s signature on all minutes of AS supervisory board meetings and minutes of general meetings of shareholders of SIA/AS. Additionally, the articles of association may require all applications addressed to the CR to be notarised.
   
   
5. The articles of association may also require that the course of a general meeting of shareholders of SIA/AS should be approved and the minutes of the meeting should be prepared by a notary public. Under the amendments, companies registered before 30 June 2013 may approve such amendments to the articles of association from 1 July 2013 until 30 June 2014 by a simple majority of votes of SIA/AS shareholders present at the meeting.

DISTRIBUTION OF COMPANY PROFIT

Up to now shareholders were entitled to decide on distribution of company profit only once a year. In the future, under the amendments, if a company has retained earnings the shareholders meeting will be entitled to decide on use of the company’s profit more than once a year by distributing so called “interim dividends”.

NEW PAID SERVICE AT THE CR

As of 1 January 2014, any person will be entitled for a fee to receive notice from the CR of each application filed with the CR for corporate changes in a particular company. This service will allow SIA and AS shareholders to follow implementation of corporate changes in the company where they hold shares.

If you have any questions on implementation of the new regulations to the Commercial Law, we will be pleased to assist you.