Commercial Law amendments in the works

  • 2009-10-22
  • By Kristine Sakarne [Kronbergs & Cukste]
Latvia is with increasing frequency introducing various amendments to its existing laws, with a view to reducing barriers to entrepreneurship and to honor its international commitments. In this connection the government of Latvia has prepared a number of draft amendments to the Commercial Law, an important law governing registration and company management. 

Minimum capital requirement reduction

The Commercial Law provides that the minimum share capital of a company may be deposited within a year of the registration, provided that at least 50 percent of the registered amount is paid up when the company is incorporated.
Currently the minimum payment for a limited liability company is 2,000 lats (2,850 euros), and for a joint stock company is 25,000 lats.

It was decided not to reduce the joint stock company minimal capitalization. The reasoning apparently was that joint stock companies are often formed with a view to attracting further investors, and to provide further 'protection' for creditors and investors, the company should be capitalized in a greater amount than a limited liability company.

With respect to limited liability companies, it is contemplated to reduce the minimum share capital amount to 100 lats. In addition, the envisioned amendments do not eliminate the right to defer payment of 50 percent of the share capital within a year of registration of the company.  If the amendments are passed, the real immediate costs of establishing a limited liability company, aside from legal service costs, would be about 185 lats, comprised of mandatory payment of a minimum of 50 lats in share capital, 124 lats for registration fees and some additional incidental fees for signature samples. The reasoning for the proposed reduction of share capital is to ease the process of establishment of a company.

Information concerning beneficiary

The draft amendments under consideration also include mandatory disclosure of the holder of the beneficial interest in the shares by the shareholder, in cases where the shareholder is holding shares not in its own interest but that of a third party. The planned amendments are intended to apply to shareholders who are physical persons as opposed to legal entities. The policy reasons advanced for exempting legal entities from ultimate beneficiary disclosure requirements are that it is too difficult and cumbersome for legal entities to be required to comply with such requirement.

From a practical perspective it is thought that it would be a particularly onerous requirement against domestic companies having shareholders domiciled outside of Latvia to keep track of the beneficial ownership of shares. In addition, requiring shareholders who are registered legal entities of other jurisdictions to comply with the ultimate beneficiary disclosure requirements is also thought to be unduly onerous.

The draft amendments to the Commercial law were put forth on Oct. 5th, 2009 by the Cabinet of Ministers to undergo the legislative process in the Saeima, together with other related legislative amendments.

Kristine Sakarne
Kronbergs & Cukste, Attorneys at Law
Baltic Legal Solutions
Muitas street 1