Latvian Corporate Newsflash - April 2010 SORAINEN
Latvijas Korporatīvo Tiesību Ziņas latviešu valodā Jūs varat izlasīt šeit: In Lithuanian
Latvijas Korporatīvo Tiesību Ziņās Jūs atradīsiet informāciju par izmaiņām korporatīvajās tiesībās.

Eva Berlaus
Office Managing Partner
Zane Paeglīte
Alisa Šurko
Dear clients and cooperation partners,

Along with the arrival of spring, the second Latvian Corporate Newsflash is issued to include amendments to the Commercial Law scheduled to come into effect on 1 May. The amendments focus on promoting the business environment and decreasing bureaucratic obstacles to company management. The legislator, though failing fully to meet expectations on applying decreased minimum share capital to all limited liability companies, has instead introduced the concept of the microcompany. In this Newsflash, we summarise what in our opinion are the most important corporate issues on establishing microcompanies, news on board and council terms of office, option to expedite liquidation, and other issues.


Under the Commercial Law, to establish a limited liability company (SIA),  subscribed  and  paid  up  share  capital  may  not  be  less  than LVL 2,000. As of 1 May 2010, a limited liability company can have smaller share capital (starting from LVL 1) (microcompany); however, separate limitations must be observed. To shed light on the differences between a SIA (limited liability company with minimum share capital of LVL 2,000) and a microcompany (company with share capital of less than LVL 2,000), we compare these two company types.

A microcompany can be established only by a natural person

Unlike the SIA, which can be established by natural persons and legal entities, and partnerships (where numbers are unlimited), a microcompany can be established only by natural persons. Moreover, their number may not exceed five, and only natural persons (up to five) may be shareholders of a microcompany.

This means that shareholders in a microcompany can dispose of their shares only to natural persons, whose number is limited (the total number of shareholders may not exceed five persons as a result of share disposal). If shares in a microcompany are disposed of to a legal entity or several natural persons (so that the total number of shareholders exceeds five persons), the microcompany loses its “special status” and must increase its share capital to LVL 2,000 within three months.

Only a shareholder of a microcompany may become a board member

In the case of a SIA, any person can be a board member. In the case of microcompanies, only a shareholder of that microcompany may become a board member.

Furthermore, while the number of board members of a SIA is unlimited, the number of board members in a microcompany is limited: it may not exceed five persons.

Obligatory reserves to be kept

As mentioned above, upon establishing a microcompany, its subscribed and paid share capital may be less than LVL 2,000 (namely, starting from LVL 1). However, the company must keep reserves each year in the amount of 25% of net profit for the reporting year. The company will be allowed to use the reserves to:

  • increase the share capital;
  • cover losses of the reporting year if not covered by the profit of the previous reporting year;
  • cover losses of the preceding reporting year if not covered by the profit of the reporting year.

Share capital is payable in full

Upon establishing a SIA, its share capital can be paid in cash or in kind. In addition, half the share capital can be paid before filing the SIA registration application, leaving the other half to be paid within one year from entry of the SIA in the commercial register. In the case of a microcompany, the share capital must be paid in full and only in cash before filing the registration application: that is, payment of the share capital in instalments or in kind is not possible.

However, in relation to establishing a microcompany the Commercial Law provides various privileges. For example, while when establishing a SIA, a bank account must be opened in the name of the proposed SIA to receive payment for share capital, whereas in the case of a microcompany opening a bank account and payment of share capital to the bank account is not obligatory. Again, for a microcompany to be registered at the Commercial Register, no statements or other documents issued by the bank confirming payment of share capital is needed for the Register of Enterprises.

When should the share capital be increased?

In the case of a SIA, the share capital can be increased by the shareholders’ decision (as needed). In the case of a microcompany, shareholders must increase the share capital to at least LVL 2,000 if:

  • any shareholder of the microcompany is not a natural person or the number of shareholders exceeds five persons; or
  • any board member is not shareholder of the microcompany or is also a shareholder in another microcompany.

In these cases the share capital must be increased within three months. If the microcompany fails to increase the share capital to at least LVL 2,000 in this period, it can be closed down by court order.

The good news is that upon increasing the share capital, a microcompany is released from state duty, as well as from the fee for announcing the increase.

A microcompany may not be reorganised

Unlike a SIA, a microcompany may not be reorganised. To reorganise a microcompany, the share capital must first be increased to at least LVL 2,000.

A microcompany may not acquire other companies

If a microcompany wishes to acquire a shareholding in another company, then the share capital of the microcompany must be increased to at least LVL 2,000.



Law sets a longer term of office for board and council members

Have you faced a situation at a bank or the State Revenue Service when documents are not accepted just because the term of office of the company’s board has expired?

First, you should check if the term of office of the current board members (or council members, if relevant) of the company has not expired because up to now the board (council) members were elected for three years if the articles of association did not set a shorter period. Hence, unless the articles of association set a different period, as of 1 May 2010 the term of office of board (council) members is:

  • Unlimited for private limited companies unless the articles of association set a definite term of office. If the company’s articles of association do not set a definite term of office for board (council) members and if the board (council) members are elected by 30 April 2010 and their term of office is still valid on 1 May 2010, the presumption will be that the board (council) members are elected for an indefinite term of office. In cases of unlimited term of office, the term of office of board (council) members in most cases will expire by resolution of the general meeting of shareholders on removing the board (council) member from their position.
  • Five years for public limited liability companies unless the articles of association set a shorter term of office.

Execution of consent for taking position of board or council member or position of liquidator

The amendments to the Commercial Law abolish the requirement to file notarised sample signatures of board members and liquidator with the Register of Enterprises.

From now on, notarised consent to take a board member’s position in a company will be requested by the Register of Enterprises when registering a new company or when implementing changes in the company’s board. Alternatively, consent may either be signed by a secure electronic signature or the signature on the consent may be confirmed by an official of the Register of Enterprises.

As with a board member, a liquidator’s appointment will also require a signed consent. Requirements for execution of this consent are the same as for a board member.

Consent to take a council member’s position does not have to be notarised.

Possible term for liquidation of a company has been shortened

The amendments to the Commercial Law fix a shortened term of liquidation for companies that have settled their accounts with creditors. This is now possible as the amendments to the Commercial Law link completion of the liquidation directly to the activities actually performed within the liquidation process and not with the liquidation commencement date as was the case before.

From now on, companies that have settled their accounts with creditors as of liquidation commencement date will be allowed to apply only a one month term to creditors to file their claims. In contrast, companies that have known creditors as of the liquidation commencement date will have to give creditors a three month term for filing claims.

The amendments to the Commercial Law allow distribution of a company’s remaining property not earlier than two months as of the day the liquidation closing balance sheet and the plan for distribution of the company’s remaining property is sent to the shareholders. There will be no requirement to wait six months from the day the notice of termination of company activity is published. The term may also be shortened if all shareholders consent and no loss is caused to creditors.

Theoretically, if a company has no known creditors as of the moment of commencement of liquidation, then the shortest term for completing liquidation might be from three to four months. Previously the term would have been at least six months.

Should you have any questions on these issues or should you require our assistance in preparing any documents, please contact partner Eva Berlaus (; ph +371 67 365 000).

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Kadri Kallas
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Eva Berlaus
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