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Dear clients and cooperation partners,
It is no longer a secret that Latvia is joining the Eurozone on 1 January 2014, when the lat as official Latvian currency will be replaced by the euro. In this newsflash we summarise the most recent topical issues on adjusting company corporate documents for introduction of the euro.
General principles of euro introduction
The Law on the Procedure for Introduction of the Euro came into force on 1 March 2013, setting the main principles for transition to the euro. Moreover, on 9 July 2013 the euro exchange rate to be applied upon joining the Eurozone, ie EUR 1 = LVL 0.702804, was irrevocably fixed. At present, a range of legislative amendments is under way to guide transition to the euro. This includes amendments to the Commercial Law approved by the Saeima (Latvian Parliament) on 19 September 2013.
Therefore now is exactly the right time for company management board to review the register of shareholders to calculate the amount of share capital following the change in denomination from lats to euro and to plan when the right time would be to implement changes in corporate documents.
Expressing share capital in euro for existing SIA and AS
By law, the nominal value of share must be expressed in euro from 2014. Note, though, that the nominal value of share in an existing private limited liability company (sabiedrība ar ierobežotu atbildību (SIA)) or public limited liability company (akciju sabiedrība (AS)) can be changed from lats to euro only from 1 January 2014 when the Commercial Law changes on the nominal value of share come into force.
From 1 January 2014, the nominal value of a SIA share should be expressed in whole euro(the minimum nominal value is EUR 1), while the nominal value of an AS share can be expressed in euro and cents (the minimum nominal value is EUR 0.10). On changing the denomination of share capital from lats to euro, the proportion existing between shareholders should be maintained.
The changes to the Commercial Law also require that denomination of share is always rounded downwards, ie avoiding situations when rounding would have been made upwards mathematically. Thus the transition to euro is not expected to require shareholders to further invest in share capital.
Additionally, any balance of share capital occurring as a result of denominating the nominal value must be expressed in new shares granted to shareholders in proportion to their shareholding in the company.
Shareholders can choose how to handle a balance that cannot be expressed by new shares in the share capital. That is, the shareholders’ meeting can decide:
- to pay the balance to the shareholders in proportion to their holding in the company; or
- to transfer the balance to the company reserves.
The Commercial Law amendments will also decrease the minimum share capital requirement, which for a SIA will now be EUR 2,800 (previously EUR 2,846) and for an AS EUR 35,000 (previously EUR 35,572). This step should be much appreciated because it will slightly decrease establishment costs after 1 January 2014.
Deadline and procedure for corporate changes
Existing SIA and AS have a deadline of 30 months from 1 January 2014 to change company share capital by expressing the nominal value of share in euro. To express the nominal value of a share in euro also requires changes to the articles of association. The company management board must apply to the Company Register by 1 July 2016 to register the changes in the Commercial Register. From 1 July 2014, companies can notify the Company Register of changes to the articles of association only if the amendments simultaneously change the nominal value of the share capital and shares from lats to euro.
To register changes to a company’s articles of association with the Commercial Register, the following documents should be filed with the Company Register:
- application (form 18);
- minutes or an excerpt from the shareholders meeting;
- new wording of the articles of association;
- amendments to the articles of association;
- receipt for payment of state duty and publication in the official gazette Latvijas Vēstnesis;
- in the case of a SIA only, the final section of the shareholders’ register should be filed as confirmation of shares held by the shareholders.
The decision amending the articles of association due to transfer to the euro should be adopted at a shareholders’ meeting by a simple majority of votes. This is a smaller number of votes than the number that would have been required in other cases of amending the articles of association.
Before following this principle and adopting a decision by a simple majority of votes, we advise checking whether planned changes in the articles of association do not go beyond simply denominating the nominal value of (a) shares in the share capital and (b) shares from lats to euro. In addition, we also advise checking the existing requirements set in the articles of association with regard to adopting a decision on amendments to the articles of association. Situations could arise when either the scope of the planned changes to the articles of association or the special provisions of the articles of association might not allow adopting a decision by a simple majority of votes.
If the decision of the shareholders meeting on amendments to the articles of association relates only to denominating the nominal value of the share capital and share from lats to euro, there is no need to observe the requirement to certify signatures on certain documents before a notary public and the company is released from payment of state duty for registration of changes in the Commercial Register and publishing an announcement in the official gazette Latvijas Vēstnesis.
There is, of course, no reason to rush because enough time is given for changing the nominal value of share. Nevertheless delay is not a good idea because in order to amend the articles of association the management board needs to convene a shareholders’ meeting to approve the amendments. Failure to amend the articles of association by the given deadline could formally justify the Company Register filing a court claim to terminate the company’s operations on the basis of non-compliance of corporate documents with legal requirements.
Establishing new SIA and AS by 1 January 2014
Establishing a new company should definitely use the advantages set for the transitional period because, unlike existing companies, new SIA and AS can express their share capital in euro from 9 July 2013; however, the decreased minimum share capital requirement cannot be applied before 1 January 2014, as noted above.
Establishment documents with the share capital in lats can still be filed with the Company Register by 31 December 2013, but as of 1 January 2014 the share capital can be expressed only in euro.
Changes in employment and other agreements
Because salaries will be calculated and paid in euro as of 1 January 2014, we recommend amending employment agreements by expressing the salary in euro even though this is not required by law.
The Labour Law provides a list of information to be indicated in the employment agreement, including remuneration. Changes to employment agreements should take into account that these must be confirmed by both parties. In addition, an employment agreement usually reflects updated information, so employment agreements between an employer and an employee need be amended only after introduction of the euro.
Additionally, introduction of the euro will not affect the continuity of present agreements. References to lats in agreements existing on the day before the euro introduction are considered to be references to the euro equivalent starting from the day of euro introduction in compliance with the set exchange rate and rounding principles in Section 6 of the Law on the Procedure for Introduction of the Euro.
Challenging decisions by shareholders meetings
Under recent amendments to the Civil Procedure Law, as of 1 July 2013 disputes regarding invalidation of a decision taken by a meeting of SIA or AS shareholders are reviewed by the court of Jelgava under litigation procedure. Establishment of this specialised court is expected to significantly speed up the process. This involves review of cases in a written procedure unless the parties request a court hearing.
The Civil Procedure Law lists decisions where invalidation can be claimed in the court of Jelgava. In the context of euro introduction, disputes regarding decisions on changes to share capital and amendments to articles of association fall under the jurisdiction of the court of Jelgava. In claims to invalidate a decision by SIA/AS shareholders’ meeting, the respondent is the company itself.
If you have any questions about implementing the changes, we would be happy to assist. |
